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CBSE Revised Syllabus for 2021 Examination


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Exam Handbook
Accountancy-XII
Edition
Effective for CBSE Examination 2021
Accountancy-XII

2021
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< 8 Sample Question Papers for Practice (with Solutions at the end)
Subhash Dey

Subhash Dey

Shree Radhey Publications


1
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 1

Chapter
Financial Statements
of Not-for-Profit
Organizations

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


 Not-for-profit organizations: concept. After going through this Unit, the students will be able to:
 Receipts and Payments Account: features and preparation.  state the meaning of a Not-for-profit organisation and


Income and Expenditure Account: features, its distinction from a profit making entity.
preparation of income aand expenditure account and  state the meaning of receipts and payments account,
balance sheet from the given receipts and payments and understanding its features.
account with additional information.  develop the understanding and skill of preparing receipts
Scope and payments account.
(i) Adjustments in a question should not exceed 3 or 4 in  state the meaning of income and expenditure account
number and restricted to subscriptions, consumption of and understand its features.
consumables and sale of assets/ old material.  develop the understanding and skill of preparing income
(ii) Entrance/admission fees and general donations are to be and expenditure account and balance sheet of a not-for-
treated as revenue receipts. profit organisation with the help of given receipts and
(iii) Trading Account of incidental activities is not to be prepared. payments account and additional information.

Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination

 Not-for-Profit Organisations are the organisations that are used for the welfare of the society and are set up as charitable

institutions which function without any profit motive. Examples: Clubs, Charitable institutions, Schools, etc.
 Characteristics of not-for-profit organisations
– The main sources of income of such organisations are: (i) subscriptions from members, (ii) donations (general) (iii)
legacies (general) (iv) Government grants (v) income from investments (vi) Cash subsidy (i.e. financial assistance
from government) etc.
– Not-for-profit organisations do not maintain any capital account. Instead they maintain capital fund/general fund
that goes on accumulating as the funds raised by such organisations through various sources are credited to this
fund. (Capital Fund, therefore, is also called ‘Accumulated Fund’.)
– The final accounts of a ‘not-for-profit organisation’ consist of: (i) Receipt and Payment Account (ii) Income and
Expenditure Account, and (iii) Balance Sheet
– Not-for-profit organisations usually keep a cash book in which all receipts and payments are duly recorded. In
addition, they are required to maintain a stock register to keep complete record of all fixed assets and the consumables.
– In order to check the accuracy of the ledger accounts, not-for-profit organisations also prepare a trial balance
which facilitates the preparation of accurate Receipt and Payment Account as well as the Income and Expenditure
Account and the Balance Sheet.
 Receipt and Payment Account — Salient Features
– It gives summarised picture of various receipts and payments, irrespective of whether they pertain to the current
year, previous year or next year.
– It includes all receipts and payments whether they are of capital nature or of revenue nature.
2 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

– Receipt and Payment Account does not show any non-cash item like depreciation, outstanding expenses, accrued
income, etc. This is because Receipt and Payment Account is prepared on “Cash Basis” of Accounting.
 Income and Expenditure Account — Salient Features
– Income and Expenditure Account is the summary of income and expenditure for the accounting year. Thus, it is
a nominal account. It is just like a profit and loss account prepared on accrual basis of accounting in case of the
business organisations.
– It includes only revenue items (i.e. revenue receipts and revenue expenditure)related to the current period only.
– It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e.
excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.
– The following items not appearing in the Receipt and Payment Account need to be recorded in Income and
Expenditure Account: (a) Depreciation of fixed assets (b) Provision for doubtful debts
 Distinction between Income and Expenditure Account and Receipt and Payment Account
Basis Income and Expenditure Receipt and Payment Account
Nature It is like as profit and loss account, hence it is a It is the summary of the cash book, hence a real
nominal account. account.
Nature of It records income and expenditure of revenue It records receipts and payments of cash and bank
Items nature only. of revenue as well as capital nature items.
Period Items in income and expenditure relate only to Receipts and payments items may relate to
the current period. preceding and succeeding periods also.
Debit and Debit side of this account records expenses and losses. Debit side of this account records the receipts.
Credit side Credit side of this account records income and gains. Credit side of this account records the payments.
Depreciation It includes depreciation as an expenditure since It does not include depreciation as depreciation
income and expenditure account is a nominal is a non-cash expense while Receipt and Payment
account. Account is prepared on cash basis of accounting.
Opening There is no opening balance. Balance at the Balance in the beginning represents cash in hand /
and Closing end represents surplus (excess of income over cash at bank or bank overdraft at the beginning.
Balance expenditure) or deficit (excess of expenditure over Balance at the end represents cash in hand at the
income). end and bank balance (or bank overdraft).
 Treatment of some peculiar items in the financial statements of a not-for-profit organisation
Item Meaning Treatment
1. Donations It is a sort of gift • Specific donation: e.g. construction of new computer laboratory or creation
in cash or property of a book bank is to be capitalised and shown on the liabilities side of the
received from some Balance Sheet.
person or organisation. • General donation: General donations are treated as revenue receipts, shown
on the income side of Income and Expenditure Account.
If nothing is specified, donations are to be treated as revenue receipts (i.e. income)
2. Legacies It is the amount • Specific Legacy: Legacy, use of which is specified, is specific legacy and is
received as per the will shown in the balance sheet as liability.
of a deceased person • General Legacy: If the use is not specified, it is considered as revenue nature
who may or may not (i.e. income) and credited to income and expenditure account.
specify the use of the
amount.
3. Life It is the membership fee It is treated as capital receipt and added directly in the capital/general fund.
Membership paid in lump sum to
Fees become a life member.
4. Entrance It is paid only once by • If nothing is specified, entrance fee/admission fee is treated as revenue receipt
Fees/admission the member at the (i.e. income) and credited to income and expenditure account.
fee time of becoming a • If it is specified that the whole or a part of the entrance fee is to be capitalised,
member. then it is added directly to the capital/general fund on the liability side of
balance sheet.
5. Endowment It is a fund arising It is a capital receipt and shown on the Liabilities side of the Balance Sheet as
Fund from a bequest or gift. an item of a specific purpose fund.
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 3

 Treatment of some more items in the financial statements of a not-for-profit organisation


1. Sale of old asset: It is treated as capital receipt and shown in the Balance Sheet as deduction from the asset. But
any gain or loss on the sale of asset is taken to the Income and Expenditure Account of the year.
2. Sale of Periodicals: It is an item of recurring nature and shown on the income side of the Income and
Expenditure Account.
3. Sale of Sports Materials: (used materials like old balls, bats, nets, etc): It is shown as an income in Income and
Expenditure Account.
4. Payments of Honorarium: e.g. Payment to an artist for giving performance at the club, secretary’s Honorarium.
It is shown on the expenditure side of the Income and Expenditure Account.
5. Government Grant: Schools, colleges, public hospitals, etc. depend upon government grant for their activities. It
is treated as revenue receipt and shown as an income in the Income and Expenditure Account. However, grants
such as building grant are treated as capital receipt and transferred to the building fund account.
6. Consumables (e.g. Stationery, Medicines, Sports Materials): Expenses incurred on stationery, medicines, sports
materials, etc. (consumable items) are charged to Income and Expenditure Account. But stock of stationery is shown
in the balance sheet.
Details Amount (`)
Payment made to creditors/suppliers of consumables during the current year xxx
  Add: Opening advance paid to creditors/suppliers xxx
  Less: Closing advance paid to creditors/suppliers (xxx)
  Less: Opening creditors/suppliers (xxx)
  Add: Closing creditors/suppliers (Amount to be paid yet) xxx
Credit purchases of consumables xxx
Add: Cash purchases of consumables xxx
Total purchases of consumables during the year xxx
  Less: Book value/Cost of consumables sold or destroyed (xxx)
  Add: Opening stock of consumables xxx
  Less: Closing stock of consumables (xxx)
Amount consumed during the year to be debited/charged to Income and Expenditure A/c xxxx
7. Special Funds (e.g. match fund, sports fund, building fund, etc.): The special funds are shown in balance sheet.
Such funds are invested in securities and the income earned on such investments is added to the respective fund,
not credited to Income and Expenditure Account. Similarly, the expenses incurred on such specific purposes are
also deducted from the special fund.
If, after adjustment of income and expenses the balance in specific or special fund is negative, it is transferred to the debit
side of the Income and Expenditure Account.
Balance Sheet (an extract)
Liabilities Amt. (`) Assets Amt. (`)
Special Fund (say, match fund) x% Match Fund Investment xxx
Opening balance xxx Accrued interest on match fund xxx
Add: Income (interest) from match fund xxx investment
investment received
Add: Accrued income (interest) on match xxx
fund investment
Add: Donation for match fund xxx
Add: Sale of match tickets xxx
Less: Match Expenses (xxx) xxxx
8. Membership Subscriptions: Subscription is a membership fee paid by the member on annual basis. This
is the main source of income of not-for-profit organisations. It is shown as income in the Income and
Expenditure Account.
4 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Dr. Subscription Account Cr.


Particulars Amt. (`) Particulars Amt. (`)
To Balance b/d (outstanding at the xxx By Balance b/d (opening advance subscription) xxx
beginning) xxx By Cash/Receipt and Payment A/c (total subscription received xxx
To Income and Expenditure A/c xxx as per receipt and payment A/c) xxx
(Subscription income of the current By Income and Expenditure A/c (subscriptions irrecoverable)
year) By Balance c/d (outstanding at the end)
To Balance c/d (closing advance
subscription)
xxxx xxxx
9. Treatment of Expenses (e.g. Salary, Rent, etc.)
Particulars Amt. (`)
Expenses paid during the year (as per Receipts and Payment A/c) xxx
Less: Opening outstanding expenses (xxx)
Add: Closing outstanding expenses xxx
Add: Opening prepaid/advance expenses xxx
Less: Closing prepaid/advance expenses (xxx)
Expenses to be shown in Income and Expenditure A/c xxxx

RECEIPT AND PAYMENT ACCOUNT


for the year ending ......
Receipts Amt. (`) Payments Amt. (`)
To Balance b/d Shown in Shown in
   Cash in Hand opening xxx opening
By Balance b/d (Bank overdraft)* xxx
   Cash at Bank* balance sheet xxx balance
sheet
To Subscriptions from members xxx By Wages and Salaries xxx
To Legacies (general) xxx By Rent xxx
To General Donations Revenue xxx By Rates and Taxes (e.g. xxx
To Entrance fees/Admission fees receipts xxx Municipal Taxes)
To Sale of old newspapers/ (shown on xxx By Electricity and Water charges xxx
periodicals/waste papers income side By Miscellaneous Expenses xxx
To Sale of old sports materials of By Insurance Premium
xxx xxx
Income and
To Interest on fixed deposits with xxx By Sports Materials xxx
Expenditure
banks/Interest on Bank Deposits By Printing and Stationery xxx
Account) Revenue
To Interest/Dividend on general xxx By Postage and courier charges payments/ xxx
investments By Advertisement expenditures xxx
To Locker Rent/Rent received xxx By Sundry expenses (shown on xxx
To Sale of scraps xxx By Telephone charges expenditure xxx
To Proceeds from charity show xxx By Entertainment expenses side of xxx
To Miscellaneous receipts xxx By Audit fees Income and
xxx
To Grants-in-aid Expenditure
xxx By Honorarium xxx
Account)
Directly By Repairs and Renewals xxx
To Life membership fees xxx By Upkeep of ground xxx
added in the
Capital Fund By Charity xxx
To Legacies (specific) Shown on xxx By Conveyance charges xxx
To Specific Donations e.g. the liabilities xxx By Newspapers xxx
Donation for Gym side of closing By Subscription for Periodicals/ xxx
balance sheet Magazines e.g. Health Journals
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 5

Deducted By x% Fixed Deposits with Banks xxx


To Sale of Investments from asset xxx By Purchases of Assets e.g. xxx
To Sale of Fixed Assets in closing xxx Machinery, Furniture, Fax
balance sheet machines, Computers, etc.
Added to By Purchase of Investments e.g. 9% Shown on xxx
To Receipts on account of specific the specific xxx Debentures in XYZ Ltd. the assets
funds fund on the By Balance c/d side of the
xxx
To Interest/Dividend on specific liabilities side xxx Cash in hand closing
funds investments of closing   Cash at Bank* balance
balance sheet sheet
Shown on
the liabilities
To Balance c/d (Bank Overdraft)* xxx
side of closing
balance sheet
xxxxx xxxxx

INCOME AND EXPENDITURE ACCOUNT


Expenditure Amt. (`) Income Amt. (`)
To Charities By Interest on General Fund Investment xxx
To Tournament Expenses xxx By Fees or Profit from Entertainment xxx
  (if there is no tournament fund) By Subscription xxx
To Salaries and Wages xxx By Entrance Fees/Admission Fees xxx
To Consumables xxx By Interest/Income from Investment xxx
To Rent, Rates and Taxes xxx   (e.g. Interest on Govt. Bonds/Defence Bonds, xxx
To Postage, Stamps, Courier charges xxx   Interest on Fixed Deposits with banks)
To Telephone/Electricity charges xxx By Miscellaneous Receipts xxx
To Advertising By Locker Rent xxx
To Sundry (or miscellaneous) expenses xxx By Hall Rent/Hire of ground for marriage xxx
To Entertainment expenses xxx By General Donation xxx
To Upkeep of field and pavilion, Grass seeds,etc. xxx By Sale of old sports material, old newspapers, xxx
To Depreciation on fixed assets xxx    old magazines, old periodicals, waste-paper scraps
To Fixed assets destroyed By Profit on sale of assets/old assets xxx
To Loss on sale of fixed assets xxx By Govt. grants in aid (of recurring nature) xxx
To Loss on sale of investment    (e.g. cash subsidy from government)
To Insurance Premium xxx By Sale of food stuff (Refreshment Revenue) xxx
To General expenses (e.g. help to needy students) xxx    Less: Purchase of food stuff
To Miscellaneous expenses    (Refreshment Expenses)
To Charity Show expenses xxx By Profit on Sports xxx
   Less: Charity Show Receipts By Receipts from Charity Show xxx
  (If charity show expenses exceed receipts) Less: Charity show Expenses
To Conveyance/Travelling expenses xxx   (If charity show receipts exceed expenses)
To Honorarium xxx By Deficit* (Excess of expenditure over income) xxx
  (e.g. payment to an artist, lecturer’s fees)
To Subscription paid for periodicals, xxx
  magazines, newspapers
To Audit Fees/Tuition fees/Meeting expenses xxx
To Office expenses xxx
To Repairs and Renewals xxx
To Expenses on Nukar Drama xxx
To Interest paid on Loan xxx
To Surplus* (Excess of income over expenditure) xxx
xxxxx xxxxx
6 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

BALANCE SHEET
Liabilities Amount (`) Assets Amount (`)
• Capital fund/General Fund • Cash in hand and /or Cash at Bank xxx
Opening Balance xxx • Fixed Deposits with Banks xxx
Add: Surplus (or Less: Deficit) xxx • Interest Accrued on Investments xxx
Add: Life Membership Fees xxx • Interest Accrued on Bank Deposits xxx
Add: Entrance Fees (Caplitalised portion) xxx xxx • Accrued Income (e.g. o/s locker rent) xxx
• Legacies (specific) • Playground xxx
  • Prepaid Expenses xxx
• Special Fund (e.g. match fund) xxx • General Fund Investment xxx
• Specific Donations (e.g. for Billiards Table, xxx • Special Fund Investment xxx
Building, etc.) • Interest Accrued on Special Fund Investment xxx
• Endowment Fund xxx • Stock of Consumables (like Stationery) xxx
• Loan xxx • Advance Paid to Creditors/Suppliers of xxx
• Income Received in Advance (e.g. Locker rent xxx   Consumables (like Stationery)
advance)
• Outstanding Expenses xxx • Subscription Outstanding (Accrued) xxx
• Creditors for Consumables xxx • Fixed Assets (e.g. Building, Sports Equipment,
(e.g. Creditors for Stationery) Machinery, Furniture, Books, Billiards Table,
TV set, etc.)
• Subscription Received in Advance xxx Opening Balance xxx
• Bank Overdraft Add: Purchase during the year xxx
Less: Book Value of
Sales during the year (xxx)
Less: Depreciation (xxx) xxx
• Investments (e.g. x% Bonds or Govt. Papers,
x% Defence Bonds, etc.)
Opening Balance xxx
Add: Purchases during the year xxx
Less: Sale during the year (xxx) xxx
xxxxx xxxxx

Treatment of Some Important Adjustments


Adjustment 1:
Dr. Receipts and Payment A/c for the year ending 31 March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
By Furniture (1.1.2020) 20,000
Additional Information: On 1.4.2019 Furniture was `50,000. Depreciate Furniture @10% p.a.
Treatment: Depreciation on opening balance of furniture `50,000 will be calculated for full year and depreciation on
furniture purchased on 1.1.2020 `20,000 will be calculated for 3 months i.e.,
(50,000 × 10%) + (20,000 × 10% × 3/12) = 5,000 + 500 = `5,500.
Dr.    Income and Expenditure A/c for the year ending 31 March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Depreciation on Furniture 5,500
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 7

Balance Sheet as on 31 March, 2020


Liabilities Amount (`) Assets Amount (`)
Furniture 50,000
Add: Purchases 20,000
Less: Depreciation (5,500) 64,500

Adjustment 2:

Dr.    Receipts and Payment A/c for the year ending 31 March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Interest on Investment 3,000 By 10% Govt. Bonds (1.10.2019) 80,000

Treatment:
Interest on investment (Govt. Bonds) for 6 months = 80,000 × 10/100 × 6/12 = `4,000
Interest received (appearing in Receipts and Payments Account) is `3,000. Therefore, interest accrued = 4,000 – 3,000 = `1,000.

Dr.    Income and Expenditure A/c for the year ending 31 March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
By Interest on Investment 3,000
Add: Accrued Interest 1,000 4,000

Balance Sheet as on 31 March, 2020


Liabilities Amount (`) Assets Amount (`)
10% Govt. Bonds 80,000
Accrued Interest on Investment 1,000

Adjustment 3:
Dr. Receipts and Payment A/c for the year ending 31 March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
By Telephone Charges 7,500
By Rates and Taxes 2,000

Additional Information:
(i) A quarter’s charge for Telephone `1,500 is outstanding. There is no change in quarterly charge.
(ii) On 31.3.2020, Rates and Taxes were paid up to 30.6.2020; annual charge being `2,000.
Treatment:
(i) Quarterly charge for telephone = `1,500. Therefore, annual telephone charges = 1,500 × 4 = `6,000.
Payment made for telephone expenses during the year 2019-20 (appearing in Receipts and Payment Account) is
`7,500.
Thus, telephone expenses paid is for 15 months.
Still a quarter’s charge for Telephone `1,500 is outstanding.
It means the payment during the year `7,500 includes 6 months telephone charges `3,000 outstanding at the
beginning of the year.
(ii) Annual rates and taxes = `2,000. Rates paid up to 30.6.2020 means that 3 months prepaid rates and taxes `500
(i.e. 2,000/12 × 3) is at the beginning as well as at the end of the year 2019-20.
Balance Sheet as on 1 April, 2019
Liabilities Amount (`) Assets Amount (`)
Telephone charges outstanding 3,000 Prepaid Rates and Tax (2000 × 3/12) 500
8 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Dr.    Income and Expenditure A/c for the year ending 31 March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Telephone Charges
Paid 7,500
Less: Opening outstanding (3,000)
Add: Closing outstanding 1,500 6,000
To Rates and Taxes
Paid 2,000
Add: Opening prepaid 500
Less: Closing prepaid (500) 2,000

Balance Sheet as on 31 March, 2020


Liabilities Amount (`) Assets Amount (`)
Telephone charges outstanding 1,500 Prepaid Rates and Tax 500

Adjustment 4:
Dr. Receipts and Payment A/c for the year ending 31 March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Legacies 24,000
To Donations 32,000
To Entrance Fees 10,000

Additional Information: 50% Legacies, Donations and Entrance Fees are to be treated as income. Capital fund balance on
1.4.2019 was `50,000.
Treatment: 50% legacies, 50% entrance fees and 50% donations are to be shown on the income side of Income and
Expenditure Account and the remaining 50% amounts are to be capitalised i.e. shown on the liabilities side of the
Balance Sheet.
Dr.    Income and Expenditure A/c for the year ending 31 March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
By Legacies (General) 12,000
By Donations (General) 16,000
By Entrance Fees (Income) 5,000

Balance Sheet as on 31 March, 2020


Liabilities Amount (`) Assets Amount (`)
Capital Fund
Opening Balance 50,000
Add: Entrance Fees (Capitalised portion) 5,000 55,000
Donations (specific) 16,000
Legacies (specific) 12,000

Adjustment 5:
Dr. Receipts and Payment A/c for the year ending 31 March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Interest on Investment @5% p.a. for full year 5,000 Interest on loan 1,200

Additional Information: On 31 March 2019, the organisation took a loan of `20,000 @ 10% p.a.
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 9

Treatment:
(i) Interest on investment `5,000 is for full year. It means Investment in the beginning were `1,00,000 (i.e. 5,000/5 × 100).
Investment `1,00,000 will be shown on the assets side of opening and closing Balance Sheets both.
(ii) Interest on Loan for full year = 10% of `20,000 = `2,000. Out of this `1,200 has been paid (appearing on the
payment side of Receipt and Payment Account). Therefore, outstanding interest on loan = 2,000 – 1,200 = `800.
Dr.    Income and Expenditure A/c for the year ending 31 March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Interest on Loan 1,200 By Interest on Investment 5,000
Add: O/s interest 800 2,000
Balance Sheet as on 1 April, 2019
Liabilities Amount (`) Assets Amount (`)
Loan @10% p.a. 20,000 Investments 1,00,000
Balance Sheet as on 31 March, 2020
Liabilities Amount (`) Assets Amount (`)
Loan @10% p.a. 20,000 Investments 1,00,000
Outstanding Interest on Loan 800

Adjustment 6:
Dr. Receipts and Payment A/c for the year ending 31 March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Sale of Furniture (Book value `6,000) 4,000 By Books 6,000
Additional Information:
(i) Books on 1.4.2019 and 31.3.2020 were `13,500 and `16,500 respectively.
(ii) Furniture on 1.4.2019 and 31.3.2020 were `16,000 and `8,000 respectively.
Treatment:
(i) Books on 1.4.2019 = `13,500. Purchase of books during the year 2019-20 = `6,000 (appearing on the payment side of
Income and Expenditure Account). Thus, balance of books on 31.3.2020 should be `19,500 (i.e. `13,500 +` 6,000). But
the balance of books on 31.3.2020 is `16,500. It means books have been depreciated by `3,000 (i.e. `19,500 – `16,500).
(ii) Book value of furniture on 1.4.2019 = `16,000.Book value of furniture sold during the year = `6,000. Thus, book
value of furniture on 31.3.2020 should be `10,000 (i.e. `16,000 – `6,000). But the book value of furniture on
31.3.2020 is `8,000. It means furniture has been depreciated by `2,000 (`10,000 – `8,000).
Book value of furniture sold = `6,000. But sale proceeds is `4,000. Thus, loss on sale of furniture = 6,000 – 4,000 = `2,000.
Dr.    Income and Expenditure A/c for the year ending 31 March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Depreciation on Books 5,000
(13,500 + 6,000 – 16,500) 3,000
To Depreciation on Furniture
(16,000 – 6,000 – 8,000) 2,000
To Loss on Sale of Furniture
(6,000 – 4,000) 2,000
Balance Sheet as on 1 April, 2019
Liabilities Amount (`) Assets Amount (`)
Books 13,500
Furniture 16,000
Balance Sheet as on 31 March, 2020
Liabilities Amount (`) Assets Amount (`)
Books 16,500
Furniture 8,000
10 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Adjustment 7:
Dr. Receipts and Payment A/c for the year ending 31 December, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Subscriptions
2019 5,000
2020 83,000
2021 3,000 91,000
Additional Information: Subscription for 2020 still owing `7,000 and Subscription received in 2020 included `4,000 from
a life member. Opening Capital Fund `1,00,000.
Treatment: Subscriptions received in 2020 `83,000 includes `4,000 from a life member. Life membership fee is to be
capitalised. It is directly added in the capital fund in the Balance Sheet.
Dr.    Income and Expenditure A/c for the year ending 31 December, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
By Subscriptions
Received for 2020 83,000
Add: Outstanding for 2020 7,000
Less: Life membership fees (4,000) 86,000
Balance Sheet as on 1 January, 2020
Liabilities Amount (`) Assets Amount (`)
Subscription Outstanding 5,000
Balance Sheet as on 31 December, 2020
Liabilities Amount (`) Assets Amount (`)
Subscription Received in Advance 3,000 Subscription Outstanding 7,000
Capital Fund
Opening Balance ?
Add: Life membership fees 4,000
Adjustment 8:
Dr. Receipts and Payment A/c for the year ending 31 December, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Subscriptions for Tournament 60,000 By Tournament Expenses 40,000
To Donations 6,00,000
Additional Information: Donations and Surplus on account of tournament are to be kept in reserves for a permanent pavilion.
Treatment: Balance Sheet as on 31 December, 2020
Liabilities Amount (`) Assets Amount (`)
Pavilion Fund
Donations 6,00,000
Add: Surplus from tournament
(60,000 – 40,000) 20,000 6,20,000

OBJECTIVE TYPE QUESTIONS, MCQs

1. The account which shows classified summary of transactions of a Cash Book’ in a Not-for-Profit Organisation is called:
(a) Income and Expenditure A/c (b) Receipts and Payments A/c
(c) Profit and Loss A/c (d) Subscriptions A/c
2. Name an item that is never shown on the payment side of Receipts and Payment Account, but is shown on the
debit side of the Income and Expenditure Account.
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 11

3. Which of the following is not a revenue receipt?


(a) Donations for Tournament (b) Government Grants
(c) Subscriptions (d) Entrance Fees
4. Distinguish between Income and Expenditure Account and Receipts and Payment Account on the basis of Nature of items.
5. Distinguish between Income and Expenditure Account and Receipts and Payments Account on the basis of ‘period’?
6. Distinguish between Income and Expenditure Account and Receipts and Payments Account on the basis of ‘closing balance’?
7. Which of the following is not a capital receipt?
(a) Endowment Fund (b) Government Grants
(c) Life Membership Fees (d) Donations for Building
8. Which of the following is a capital receipt?
(a) Subscriptions (b) Sale of used sports material
(c) Endowment fund (d) Entrance fees
9. Which of the following statements is not true for Receipts and Payments Account?
(a) It is a summary of the Cash Book.
(b) It records receipts and payments of revenue nature only.
(c) The receipts and payments may relate to current, preceding, or succeeding accounting periods.
(d) Depreciation is not shown in it.
10. Which of the following is a revenue receipt for a not-for-profit organisation?
(a) Endowment fund (b) Government Grants
(c) Life Membership fees (d) Legacies (specific)
11. Which of the following statements is not true for Income and Expenditure Account?
(a) It records items of revenue nature only. (b) Items recorded in it relate only to the current period.
(c) Depreciation is not recorded in this account. (d) It does not have an opening balance.
12. Which of the following statements is true for Receipts and Payments Account?
(a) It is prepared on accrual basis.
(b) It records receipts and payments of revenue nature only.
(c) Depreciation is debited to this account.
(d) Receipts and payments may relate to current, preceding or succeeding periods.
13. Which of the following is not a revenue receipt?
(a) Subscriptions (b) Endowment Fund
(c) Sale of Used sports Material (d) Entrance Fees
14. Income and Expenditure Account records:
(a) Receipts and Payment of Revenue and Capital nature both.
(b) Income and Expenditure of Revenue nature only.
(c) Expenditure of Capital nature only.
(d) Receipts of Revenue nature only.
15. Which of the following is not a capital receipt?
(a) Donations for tournament (b) Donations for building fund
(c) Life membership fee (d) Entrance fees
16. Jaipur Club has a prize fund of `6,00,000. It incurs expenses on prizes amounting to `5,20,000. The expenses should be:
(a) debited to income and expenditure account.
(b) presented on the asset side of the balance sheet.
(c) debited to income and expenditure account and presented on the asset side of the balance sheet.
(d) deducted from the liability side of the balance sheet.
12 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

17. On 1st April 2019, Maitreyi Club had a Prize Fund of `8,00,000. It incurred expenses on prizes amounting to
`8,70,000 during the year. The balance of Prize Fund in the Balance Sheet as at 31st March, 2020 will be:
(a) `70,000 (b) `8,00,000 (c) `70,000 (d) Zero
18. On 1stApril, 2019, Queens Club had a prize Fund had a prize Fund of `4,00,000. During the year it incurred
expenses on prizes amounting to `4,30,000. The balance of prize Fund in the Balance Sheet as on 31stMarch,
2020 will be:
(a) `30,000 (b) `4,00,000 (c) `30,000 (d) Zero
19. Unique Club had a prize Fund of `9,10,000 on 1st April, 2019. It incurred expenses on prizes amounting to
`9,10,000 during the year. The balance of Prize fund in the balance sheet as on 31st March, 2020 will be:
(a) `10,000 (b) `10,000 (c) `9,00,000 (d) Zero
20. The following information has been extracted from the financial statements of a not-for profit organization for the
year ended 31st March, 2020.
Particulars Amount (`)
Opening balance of Match Fund 5,00,000
Sale of Match tickets 3,75,000
Donation for Match Fund received during the year 1,24,000
Match expenses 10,00,000
Which of the following statements is correct for the presentation of the above items in the financial statements of
the not-for-profit-organization?
(a) Negative Balance of Match Fund `1,000 will be shown on the liabilities side of the Balance sheet as ‘at
31st March, 2020.
(b) Opening Balance of Match Fund 5,00,000 will be shown on the liabilities side of Balance Sheet as at 1-4-2019.
(c) Negative balance of match fund, ` 1,000 will be shown on the expenditure side of the Income and Expenditure
Account for the year ended 31-3-2020.
(d) Both (b) and (c)
21. From the given extracts obtained from the Receipts and Payments Account of Cheema Club for the year ended 31st
March, 2020 and additional information, Calculate the amount of subscription in arrears as on 31st March, 2020.
Subscriptions Received (`)
2018-19 10,000
2019-20 1,20,000
2020-21 7,000
Additional Information:
The Club had 130 members paying an annual subscription of `1,000 each. Subscription in arrears at the beginning
of the year were `16,000. 10 members paid subscription for 2019-20 in 2018-19.
22. Sports Star Charitable club has income of `16,000 and ‘deficit’ debited to capital fund of `4,300 for the year 2019-
20, then expenditure for the year 2019-20 is: (CBSE Sample Question Paper 2020-21)
(a) `11,700 (b) `4,300 (c) `20,300 (d) None of these
23. Not-for-profit organisations are managed by _________ who are fully accountable to their members and the society
for the utilization of the funds raised for meeting the objectives of the organisation. They submit the financial
statements to the statutory authority called __________.
24. In addition to Receipt and Payment Account, Income and Expenditure Account and Balance Sheet, Not-for-Profit
Organisations are required to maintain a _____________ to keep complete record of all fixed assets and the
consumables.
25. Not-for-Profit Organisations do not maintain any capital account. Instead they maintain __________ that goes on
accumulating due to surpluses generated, life membership fee, legacies, etc. received from year to year.
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 13

26. Which of the following is never shown on the ‘Payments’ side of Receipts and Payments Account, but is shown as
an Expense while which preparing ‘Income and Expenditure Account’?
(a) Depreciation on fixed assets (b) Outstanding Expenses
(c) Loss on sale of fixed assets (d) All of these
27. How are specific donations treated while preparing final accounts of a ‘Not-for-Profit Organisation’?
(a) Shown on the debit side of Receipt and Payment Account
(b) Capitalized, i.e. shown on the liabilities side of the Balance Sheet
(c) Both (a) and (b)
(d) Treated as revenue receipts and taken to the credit of Income and Expenditure Account
28. Following information is related to young Football Club for the year ended 31st March, 2019.
Particulars Amount (`)
Opening Stock of Sports Material 21,000
Closing Stock of Sports Material 24,000
Opening Creditors of Sports Material 23,500
Closing Creditors of Sports Material 27,000
During the year, purchases of sports material were `1,13,500.
What amount of ‘Sports Material’ is to be debited to Income and Expenditure Account?
(a) `1,07,000 (b) `1,20,000 (c) `1,14,000 (d) `1,10,500
29. From the following information, calculate the amount of subscriptions received by Happy Sports Club during the
year ended 31st March 2019.
Particulars 31st March, 2018 (`) 31st March, 2019 (`)
Advance Subscription 3,000 4,500
Outstanding Subscription 4,500 6,000
The Club has 2,000 members each paying an annual subscription of `500. (Choose the correct alternative)1 mark
(a) `10,64,500 (b) `10,00,000 (c) `10,03,000 (d) `10,18,000
30. Following items are related to Aisko Club for the year ended 31 March, 2019.
Particulars Debit Amount (`) Credit Amount (`)
Tournament Fund – 1,50,000
Tournament Fund Investments 1,50,000 –
Income from Tournament Fund Investments – 18,000
Tournament Expenses 12,000 –
Prizes Paid 5,000 –
Additional Information: Interest Accrued on Tournament Fund Investments `6,000.
How much balance of Tournament Fund will be shown in the Balance Sheet of Aisko Club as on 31 March, 2019?
(a) `1,56,000 (b) `1,62,000 (c) `1,51,000 (d) `1,57,000
31. From the following information, calculate what amount of subscription to be credited in the Income and
Expenditure Account of Bharat Sports Club for the year ending 31 March, 2020.
Particulars For the year ended 31.3.2019 For the year ended 31.3.2020
Advance Subscription 8,000 9,500
Outstanding Subscription 7,000 12,500
During year, the club received `1,20,000 as subscription which included `5,000 for the year ending 31st March, 2018.
(a) `1,37,000 (b) `1,24,000 (c) `1,35,000 (d) `1,19,000
32. Which of the following is included in the major sources of income of not-for-profit organisations?
(a) Donations (general) (b) Legacies (general)
(c) Income from investments (d) All of these
14 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

33. Which of the following is directly added to the capital fund on the liabilities side of the Balance Sheet?
(a) Life membership fees (b) Legacies
(c) Entrance Fees (d) All of these
34. Which of the following is never shown on the ‘Payment side’ of Receipts and Payments Account but is shown as an
expense while preparing Income and Expenditure Account?
(a) Depreciation on fixed assets (b) Outstanding expenses
(c) Loss on sale of fixed assets (d) All of these
35. The funds raised by not-for-profit organisations through various sources are credited to __________ .
36. Receipts and Payments account gives summarised picture of various receipts and payments recorded in the
__________, irrespective of whether they pertain to the Current/Previous/next year or whether they are of
__________ nature.
37. Income and Expenditure Account is just like a __________ prepared on __________ basis of accounting in case of
the business organisations.
38. How will you treat the following items given in Receipt and Payment Account while preparing Income and
Expenditure Account and Balance Sheet of a not-for-profit organisation?
Receipts from Charity show `7,000
Expenses on Charity show `10,000
39. How will you treat the following items given in Receipts and Payment Account while preparing Income and
Expenditure Account and Balance Sheet of a not-for-profit organisation?
Refreshment revenue (Sale of Food Stuff ) `10,000
Refreshment expenses (Purchase of Food Stuff ) `4,000
40. Receipts and Payments Account of a club on 31.3.2020 shows a receipt of `5,250. There were 416 life members
on 31.3.2019 the subscription payable by each member, to be a life time member is `125. How many total life
members are there on 31.3.2020? How much amount of total life membership fees has been added to the capital
fund on 31.3.2020?

Checklist to Objective Type Questions


1.
(b) Receipts and Payments Account 2 6. (d) 27. (c) 28. (d) 29. (b) 30. (b)
2.
Loss on sale of fixed assets/ Depreciation (any one) 31. (a) 32. (d) 33. (a) 34. (d)
3.
(a) Donations for Tournament.
35. Capital fund/general fund
4.
Income and Expenditure Account records items of
revenue nature while Receipts and Payments Account 36. Cash book, revenue/capital
records items of both capital and revenue nature. 37. Profit and Loss Account , Accrual
5. Income and Expenditure items relate only to the current 38. Income and Expenditure Account (an extract)
period while Receipts and Payments items may relate to
preceding and succeeding periods also. Expenditure (`) Income (`)
6. Closing balance of Income and Expenditure Account Expenses on
represents surplus/deficit while the closing balance of Charity show 10,000
Receipts and Payments Account is cash in hand at the Less: Receipts
end, bank balance or bank overdraft. from Charity show (7,000) 3,000
7. (b) 8. (c) 9. (b) 10. (b) 11. (c) 39. Income and Expenditure Account (an extract)
12. (d) 13. (b) 14. (b) 15. (d) 16. (d)
Expenditure (`) Income (`)
17. (d) 18. (d) 19. (d) 20. (d) 21. `6,000
Refreshment
22. (c) `20,300 revenue 10,000
23. Trustees, Registrar of Societies Less: Refreshment
24. Stock Register expenses (4,000) 6,000
25. capital fund/general fund 40. 458; `57,250
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 15

SA
Short Answer Type Questions (3/4 Marks)

CONSUMABLES (e.g. Stationery, Medicines, Sports Materials)


Q.1 From the following information of a not for profit organisation, show the ‘sports material’ items in the Income
& Expenditure Account for the year ending 31.3.2020 and the Balance Sheets as on 31.3.2019 and 31.3.2020:
Details 31-3-2019 (`) 31-3-2020 (`)
Stock of sports material 2,200 5,800
Creditors for sports material 7,800 9,200
Advance to Suppliers for sports material 15,000 25,000
Additional Information: Payment to suppliers for the sports material during the year was `1,20,000, there
were no cash purchases made. (4)
Ans. Dr. Income and Expenditure Account for the year ended 31st march, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Sports material 1,07,800
Balance Sheet as on 31st March 2019
Liabilities Amount (`) Assets Amount (`)
Creditors for sports material 7,800 Stock of sports material 2,200
Advance to suppliers 15,000
Balance Sheet as on 31st March 2020
Liabilities Amount (`) Assets Amount (`)
Creditors for sports material 9,200 Stock of sports material 5,800
Advance to suppliers 25,000
Working Notes:
Details Amount (`)
Payment made for sports material as per Receipts and Payments account 1,20,000
Add: Opening advance paid to suppliers 15,000
Less: Closing advance paid to suppliers (25,000)
Less: Creditors/Suppliers in the beginning (7,800)
Add: Creditors/Suppliers at the end 9,200
Sports material purchased for the year 2019-20 1,11,400
Add: Stock in the beginning 2,200
Less: Stock at the end (5,800)
Sports material consumed during 2019-20 to be taken to the Expenditure side of the Income 1,07,800
and Expenditure account
Q.2 Calculate the amount of stationery to be posted to Income and Expenditure Account of Indian Culture Society
for the year ending 31st March, 2020 from the following information:
Particulars 1.4.2019 (`) 31.3.2020 (`)
Stock of stationery 21,000 18,000
Creditors for stationery 11,000 23,000
Stationery purchased during the year ended 31st March, 2020 was `75,000. Also, present the relevant items in
the Balance Sheet of the society as at 31st March, 2020. (4)
Ans. (a) Calculation of amount of stationery to be posted to Income and Expenditure Account:
Details Amount (`)
Opening stock of stationery 21,000
Add: Purchases made 75,000
Less: Closing stock (18000)
Amount to be debited to Income and Expenditure A/c 78,000
16 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey


(b) Balance sheet as on 31st March 2020
Liabilities Amount (`) Assets Amount (`)
Creditors for stationery 23,000 Stock of Stationery 18,000
Q.3 Calculate the amount of sports material to be transferred to Income and Expenditure account of Raman Bhalla
Sports Club, Ludhiana, for the year ended 31st March, 2020. (3)
Particulars Amount (`)
Sports Material sold during the year (Book Value `50,000) 56,000
Amount paid to creditors for sports material 91,000
Cash purchase of sports material 40,000
Sports material as on 31.3.19 50,000
Sports Material as on 31.3.20 10% more than opening stock
Creditors for sports material as on 31.3.19 37,000
Creditors for sports material as on 31.3.20 8,000 more than opening creditors
Ans. Calculation of amount of sports material to be transferred to Income and Expenditure Account:
Particulars Amount (`)
Payment to creditors of sports material 91,000
Add: Closing creditors of sports material 45,000
Less: Opening creditors of sports material (37,000)
Add: Cash purchases of sports material 40,000
Total purchases 1,39,000
Less: Sports material sold during the year (Book Value) (50,000)
Add: Opening stock of sports material 50,000
Less: Closing stock of sports material (55,000)
Amount to be shown in Income and Expenditure Account 84,000
Q.4 From the following information, calculate the amount to be charged to Income and Expenditure Account for
‘Sports material consumed’ for the year 2019-20. (CBSE SQP 2020-21) (3)
Particulars Amount (`)
Stock of Sports material (01-04-2019) 60,000
Amount paid to creditors (during 2019-20) 3,00,000
Creditors for Sports Materials (01-04-2019) 1,00,000
Creditors for Sports Materials (31-03-2020) 80,000
Sports Material sold During the year (Book Value `35,000) 15,000
Cash Purchases of Sports Material (during the Year 2019-20) 1,30,000
There was zero stock at the end of financial year 2019-20.
Ans. Credit Purchases of Sports Material = Payment made to creditors + Closing Creditors – Opening Creditors
= `3,00,000 + `80,000 – `1,00,000 = `2,80,000
Amount to be charged to Income and Expenditure Account for Sports Material consumed for the year 2019-20
= Opening Stock of Sports Material + Purchases (Cash + Credit) – Book Value of Sports Material Sold
= `60,000 + (`2,80,000 + `1,30,000) – `35,000 = `4,35,000
SPECIAL FUNDS (e.g. Match Fund, Sports Fund, Building Fund, etc.)
Q.5 How the following items for the year ended 31st March, 2020 will be presented in the financial statements of Aisko Club:
Particulars Debit Amount (`) Credit Amount (`)
Tournament Fund – 1,50,000
Tournament Fund Investments 1,50,000 –
Income from Tournament Fund Investments – 18,000
Tournament Expenses 12,000 –
Additional Information: Interest Accrued on Tournament Fund Investments `6,000
(3)
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 17

Ans. Balance Sheet of Aisko Club as on 31st March 2020


Liabilities Amount (`) Assets Amount (`)
Tournament Fund 1,50,000 Tournament Fund Investments 1,50,000
Add: Income from Tournament Accrued Interest on Tournament 6,000
Fund Investments 18,000 Fund Investments
Add: Accrued Interest on
Tournament Fund Investments 6,000
Less: Tournament expenses (12,000) 1,62,000
Q.6 Show the following information in financial statements of a club as on 31 March, 2020: (3)
Details Amount (`)
Match Fund 1,00,000
10% Match Fund Investment (1-10-2019) 1,00,000
Donation for Match Fund 20,000
Sale of Match Tickets 50,000
Match Expenses 1,50,000
Prizes awarded 35,000
Ans. Balance Sheet as on 31 March, 2020
Liabilities Amount (`) Assets Amount (`)
Match Fund 10% Match Fund Investment 1,00,000
Opening Balance 1,00,000 Accrued Interest on Match Fund 5,000
Add: Accrued Interest on Investment
Match Fund Investment 5,000
Add: Donation for Match Fund 20,000
Add: Sale of Match Tickets 50,000
Less: Match Expenses (1,50,000) 25,000

Dr. Income and Expenditure A/c Cr.


Expenditure Amount (`) Income Amount(`)
To Prizes awarded* 35,000

Note: Since there is no Prize Fund, Prizes awarded will not be subtracted from Match Fund but will be shown in Income
and Expenditure A/c. However, if there was Prize Fund, then prizes awarded would be subtracted from Prize Fund.
Q.7 How will the following information of Royal Sports Club be presented in the Income and Expenditure Account
for the year ended 31st March, 2020 and its Balance Sheet as on that date ? (3)
Particulars Amount (`)
Tournament Fund as on 1st April, 2019 5,00,000
Tournament expenses incurred during the year 8,00,000
Donations for Tournament Fund received during the year 1,20,000
Sale of Tournament tickets during the year 1,50,000
Ans. Dr. Income and Expenditure A/c for the year ended March 31, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Tournament expenses 30,000
Balance Sheet of Royal Sports Cub Club as on 31st March 2020
Liabilities Amount (`) Assets Amount (`)
Tournament Fund 5,00,000
Add: Sale of Tournament tickets 1,50,000
Add: Donations for tournament 1,20,000
Less: Tournament expenses (7,70,000) –
18 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.8 Present the following items in the Balance Sheet of Queen’s Club as at 31st March, 2020:
Details Amount (`)
Capital fund (1st April, 2019) 10,80,000
Building fund (1st April, 2019) 4,80,000
Donation received for Building 6,00,000
10% Building fund Investment (1st April, 2019) 4,80,000
Interest received on Building Fund Investments 48,000
Additional Information: Expenditure on construction of building `3,60,000. Construction work is in progress and

has not yet been completed. (3)
Ans. Balance Sheet of Queen’s Club as on 31st March 2019 (An extract)
Liabilities Amount (`) Assets Amount (`)
Building Fund 4,80,000 10% Building Fund Investments 4,80,000
Add: Donations 6,00,000 Building 3,60,000
Add: Interest on Building Fund
Investments 48,000
Less: Expenditure on construction
tr. to Capital fund (3,60,000) 7,68,000
Capital Fund 10,80,000
Add: Tr. from Building Fund 3,60,000 14,40,000

Note: Building Fund is credited for a specific purpose, i.e. construction building. Expenditure as construction building
is deducted from Building Fund and added to Capital Fund.
MEMBERSHIP SUBSCRIPTIONS
Q.9 From the following information, calculate the amount of subscriptions outstanding for the year 2019-20. (3)
A club has 250 members each paying an annual subscription of `1,000.
The Receipts & Payments account for the year showed a sum of `2,65,000 received as subscriptions.
The following additional information is provided: 
Particulars Amount (`)
Subscriptions Outstanding on 31st March, 2019 40,000
Subscriptions Received in advance on 31st March, 2020 30,000
Subscriptions Received in advance on 31st March, 2019 12,000
Ans. Subscription A/c
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 40,000 By Balance b/d (Advance subscriptions in 12,000
(outstanding subscriptions in the beginning) the beginning)
To Income & Expenditure A/c 2,50,000 By Cash/Bank A/c or Receipts and 2,65000
(250 × `1,000) Payments A/c
To Balance c/d 30,000 By Balance c/d (outstanding subscriptions
(Advance Subscriptions at the end) at the end)
For 2018-19 Nil
For 2019-20 43,000 43,000
3,20,000 3,20,000
Q.10 From the following information calculate the amount of subscriptions to be credited to the Income and
Expenditure Account for the year 2019-20.
Particulars Amount (`)
Subscriptions received during the year 80,000
Subscriptions outstanding on 31st March, 2019 26,000
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 19

Subscriptions outstanding for the year ending 31st March, 2020 6,000
Subscriptions received in Advance on 31-3-2019 15,000
Subscriptions received in Advance on 31-3-2020 10,000
Additional information: Subscriptions of `12,000 are still in arrears for the year 2018-19.
(3)
Ans. Subscription A/c
Particulars Amount (`) Particulars Amount (`)
To Balance b/d (outstanding subscriptions in 26,000 By Balance b/d (Advance subscriptions in 15,000
the beginning) the beginning)
To Income & Expenditure A/c (Bal. Fig.) 77,000 By Cash/Bank A/c 80,000
To Balance c/d (Advance Subscriptions at the 10,000 By Balance c/d (outstanding subscriptions
end) at the end)
For 2018-19 12,000
For 2019-20 6,000 18,000
1,13,000 1,13,000
Q.11 Janta Kalyan Club has 1,250 members each paying an annual subscription of `150. During the year ended 31st
March, 2020 the club did not receive subscription from 45 members and received subscriptions in advance from
46 members for the year ending 31st March, 2021. On 31st March, 2019 the outstanding subscriptions were
`15,000 and subscriptions received in advance were `3,000. Calculate the amount of subscription that will be
debited to the ‘Receipts and Payments Account’ for the year ended 31st March, 2020. (3)
Ans. Subscription A/c
Particulars Amount (`) Particulars Amount (`)
To Balance b/d (outstanding in the beginning) 15,000 By Balance b/d (advance in the beginning) 3,000
To Income & Expenditure A/c (1,250 × `150) 1,87,500 By Cash/Receipt and Payment A/c 1,99,650
(Bal. figure)
To Balance c/d (Advance at the end) 6,900 By Balance c/d (outstanding at the end) 6,750
(46 × `150) (45 × `150)
2,09,400 2,09,400
Q.12 From the following information, calculate the amount of subscription to be credited in the Income and
Expenditure Account of Bharat Sports Club for the year ending 31.3.2020.
Particulars For the year ended 31.3.2019 (`) For the year ended 31.3.2020 (`)
Advance Subscription 8,000 9,500
Outstanding Subscription 7,000 12,500
During the year, the club received `1,20,000 as subscription which included `5,000 for the year ending
31st March, 2019. (3)
Ans. Subscription A/c
Particulars Amount (`) Particulars Amount (`)
To Outstanding Subscription (beginning) 7,000 By Advance Subscription (beginning) 9,500
To Income & Expenditure A/c (Bal. Fig.) 1,37,000 By Cash/Bank A/c 1,20,000
By Outstanding Subscription (end)
For 2018-19 2,000
For 2019-20 12,500 14,500
1,44,000 1,44,000

Q.13 Calculate the amount of Subscription to be credited to Income and Expenditure account for the year 2019-20.
(CBSE SQP 2020-21) (3)
20 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Particulars Amount (`)


Amount received during the year ( including ` 20,000 for 2018-19 , `30,000 for 2020-21 and `10,000 7,80,000
for 2021-22)
Subscription received in advance as on 01-04-2019 (including `15,000 for 2020-21) 35,000
Subscription in arrears as on 01-04-2019 40,000
Subscription in arrears as on 31-03-2020 50,000
Out of subscription in arrears on 01-04-2019, `15,000 are no longer recoverable.
Ans. Dr. Subscription A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d (Arrears in Beginning) 40,000 By Balance b/d (Advance in beginning) 35,000
To Income and Expenditure A/c 7,85,000 By Receipts and Payments A/c 7,80,000
To Balance c/d – Advance at end 55,000 By Income and Expenditure A/c 15,000
(`30,000 + `10,000 + `15,000) (Subscriptions not recoverable)
By Balance c/d (Arrears at End) 50,000
8,80,000 8,80,000

EXPENSES (e.g. salary, rent etc.)


Q.14 From the following extract of Receipts and Payments Account of Sonic club and the given additional information,
show the Salaries items in the Income and Expenditure Account for the year ending 31st Dec. 2020 and the
Balance Sheet as on 31st December, 2020.
An Extract of Receipts and Payments Account for the year ending 31st December, 2020
Receipts Amount (`) Payments Amount (`)
By Salaries: 2019 20,000
2020 2,80,000
2021 18,000
Additional Information: Salaries outstanding on 31.12.2019 `25,000; Salaries outstanding on 31.12.2020
`45,000 and Salaries paid in advance on 31.12.2019 `10,000 (3)
Ans. Dr. Income And Expenditure Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Salaries (Notes) 3,30,000
Balance Sheet as on 31.12.2020
Assets Amount (`) Liabilities Amount (`)
Salaries Outstanding 45,000 Salaries Prepaid 18,000

Working Notes: Salary expense to be debited to Income and Expenditure A/c = Salaries paid during the year (as per
Receipts and Payments A/c – Opening outstanding salaries + Closing outstanding salaries + Opening salaries prepaid
– Closing salaries prepaid = `3,18,000 – `25,000 + `45,000 + `10,000 – `18,000 = `3,30,000

INCOME AND EXPENDITURE ACCOUNT


Q.15 From the following receipts and payments account of Vista Club, prepare an Income and Expenditure Account
for the year ended 31st March, 2020.
Receipts and Payments Account of Vista Club for the year ended 31st March, 2020
Receipts Amount (`) Payments Amount (`)
To Balance b/d 5,000 By Salaries 31,000
To Subscription: By Electricity Expenses 14,500
2018-19 11,600 By Machinery (1.7.2019) 40,000
2019-20 73,000 By 8% Investments 30,000
2020-21 8,000 92,600 By Balance c/d 5,100
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 21

To Sale of old furniture (Book value `2,000) 800


To Legacy (general) 22,000
To Interest on Investment 200
1,20,600 1,20,600
Additional Information:
(i) The club had 50 members each paying an annual subscription of `1,500. Subscription in arrears on 31st
March, 2019 were `15,000.
(ii) On 31st March, 2020, Outstanding salaries were `4,000.
(iii) 8% Investments were made on 31st December, 2019.
(iv) The club owned machinery of `1,00,000 on 1st April, 2019. Depreciate machinery @ 6% p.a. (4)
Ans. Dr. Income & Expenditure A/c of Vista Club for the year ended 31st March 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Loss on Sale of Old Furniture 1,200 By Subscriptions 73,000
To Salaries 31,000 + O/s for 2020 2,000 75,000
+ O/s for 2019-20 4,000 35,000 By Legacy (general) 22,000
To Electricity Expenses 14,500 By Interest on Investment 200
To Depreciation on Machine (6,000 + 1,800) 7,800 + Accrued Interest 400 600
To Excess of Income over Expenditure – Surplus 39,100
97,600 97,600
Q.16 From the following Receipts and Payments Account of Samara Club, prepare an Income and Expenditure
Account for the year ended 31st March, 2020.
Receipts and Payments Account of Samara Club for the year ended 31st March, 2020
Receipts Amount (`) Payments Amount (`)
To Balance b/d 9,000 By Rent 29,000
To Subscription: By Investments 20,000
2018-19 10,000 By Honorarium 4,000
2019-20 52,000 By Machinery (Purchased on 1.12.2019) 40,000
2020-21 4,000 66,000 By Balance c/d 14,600
To Sale of old furniture (Book value of `3,000) 3,600
To Government Grants 25,000
To Interest on Investments 4,000
1,07,600 1,07,600
(i) The club had 60 members, each paying an annual subscription of `1,000. Subscription of `5,000 were still
in arrears for the year 2018-19.
(ii) On 31st March, 2020 prepaid rent was `4,000.
(iii) Interest was accrued on investments amounting to `1,000.
(iv) The Club had machinery amounting to `80,000 on 1st April, 2019. Depreciate machinery @ 10% p.a. (4)
Ans. Dr. Income & Expenditure A/c of Samara Club for the year ended 31st March 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Rent 29,000 By Subscriptions 52,000
– Prepaid Rent at the end 4,000 25,000 + O/s for 2020 8,000 60,000
To Honorarium 4,000 By Interest on Investment 4,000
To Depreciation on Machinery (`8,000 + `1,333) 9,333 + Accrued Interest 1,000 5,000
To Excess of Income over Expenditure – Surplus 52,267 By Government Grants 25,000
By Profit on Sale of old Furniture 600
90,600 90,600
22 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.17 From the following Receipts and Payments Account of Vandana Music Club for the year ended 31st March ,
2020 and additional information, Prepare Income and Expenditure Account for the year ended 31-03-2020.
Receipts and payments Account of Vandana Music Club for the year ended 31-03-2020
Receipts Amount (`) Payments Amount (`)
To Balance b/d By Honorarium 1,42,000
Cash 20,000 By Musical Instruments 70,000
Bank 30,000 50,000 By Electricity Bill 40,000
To Subscription: By Balance c/d
2018-19 13,000 Cash 22,000
2019-20 4,00,000 Bank 1,91,000
2020-21 47,000 4,60,000 Fixed deposit 2,30,000 4,43,000
To Locker Rent 30,000 (@ 7% p.a on 31-3-2019)
To Sale of Old Furniture (book value `12,000) 16,000
To Building Fund Donations 38,000
To Life Membership Fees 91,000
To Entrance Fees 10,000
6,95,000 6,95,000
Additional Information: The Club had 450 members each paying an annual subscription of `1,000. Musical Instruments

were purchased on 1-10-2018. Depreciation @ 20% p.a. was to be charged on Musical Instruments. (4)
Ans. Dr. Income and Expenditure A/c Vandana Music Club for the year ended March 31, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Depreciation on Musical Instruments 7,000 By Subscriptions 4,00,000
To Honorarium 1,42,000 Add: subscriptions outstanding 50,000 4,50,000
To Electricity bill 40,000 By Locker rent 30,000
To Excess of income over expenditure (surplus) 3,05,000 By Gain on sale of furniture 4,000
By Entrance Fees 10,000
4,94,000 4,94,000

LA
Long Answer Type Questions (6/8 Marks)

RECEIPTS AND PAYMENTS ACCOUNT


Q.1 From the following particulars of Silver Charitable Society, prepare Receipts and Payments Account for the year
ending 31st March, 2020: (CBSE 2020 Compt.) (6)
Particulars Amount (`)
Opening Balance:
Cash in Hand 40,000
Cash at Bank 2,10,000
Subscriptions Received (including `15,000 for the year 2018-19) 3,05,000
Donations for Building 5,00,000
Postage and Stationery 25,000
Insurance Premium (including `4,000 paid in advance) 28,000
Purchase of Investments 31,000
Life Membership Fees 30,000
Salaries Paid (including `5,000 for the year 2020-21) 35,000
Tournament Expenses 15,000
Locker Rent 34,000
Closing Balance:
Cash in Hand 8,000
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 23

Ans. Dr. Receipts and Payments A/c Silver Charitable Society for the year ended March 31, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Balance b/d By Postage and Stationery 25,000
Cash in Hand 40,000 By Insurance premium 28,000
Cash at Bank 2,10,000 2,50,000 (Including prepaid premium `4,000)
To Subscriptions 3,05,000 By Investments 31,000
(including `15,000 for 2018-19) By Salaries paid 35,000
To Donations for building 5,00,000 (including `5,000 for 2020-21)
To Life membership fees 30,000 By Tournament expenses 15,000
To Locker Rent 34,000 By Balance c/d
Cash in Hand 8,000
Cash at Bank 9,77,000 9,85,000
11,19,000 11,19,000
Q.2 From the following particulars of Platinum Sports Club, prepare Receipts and Payments Account for the year
ending 31st March, 2020: (CBSE 2020 Compt.) (6)
Particulars Amount (`)
Opening Balance: Cash in Hand 70,000
Cash at Bank 2,00,000
Subscriptions Received (including `85,000 for the year 2020-21) 5,00,000
Rent Paid (including `20,000 for the year 2018-19) 60,000
Expenses Paid for Maintenance of Tennis Court 30,000
Furniture Purchased for Cash 50,000
Entrance Fees Received 72,000
Municipal Taxes Paid 21,000
Audit Fees Paid (including `2,000 for the year 2020-21) 12,000
Sale of Old Sports Materials 5,000
Closing Balance: Cash in Hand 11,000
Ans. Dr. Receipts and Payments A/c Platinum Sports Club for the year ending 31st March, 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Balance b/d By Rent paid 60,000
Cash in Hand 70,000 (Including `20,000 for 2018-19)
Cash at Bank 2,00,000 2,70,000 By Expenses paid for 30,000
To Subscriptions 5,00,000 Maintenance of Tennis Court
(including `85,000 for 2020-21) By Furniture 50,000
To Entrance Fees 72,000 By Municipal Taxes 21,000
To Sale of Old Sports Materials 5,000 By Audit Fees paid 12,000
(including `2,000 for 2020-21)
By Balance c/d
Cash in Hand 11,000
Cash at Bank 6,63,000 6,74,000
8,47,000 8,47,000

INCOME AND EXPENDITURE ACCOUNT


Q.3 Following is the Receipt and Payment Account of Women’s Welfare Club for the year ended December 31, 2020:
Receipts Amount (`) Payments Amount (`)
To Balance b/d 7,250 By Salary 12,500
To Subscriptions 81,750 By Stationery 1,700
To Donations 3,000 By Electricity charges 9,550
To Grant from Government 15,000 By Insurance 7,500
To Sale of newspapers 300 By Equipments 30,000
To Proceeds of charity show 16,500 By Petty expenses 500
To Interest on investments @ 10% for full year 7,000 By Expenses on charity show 12,900
24 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

To Sundry incomes 400 By Newspapers 1,000


By Lectures fee 16,500
By Honorarium to Secretary 12,000
By Balance c/d 27,050
1,31,200 1,31,200

Additional Information:
Particulars 01.01.2020 (`) 31.12.2020 (`)
Outstanding salaries 1,200 1,800
Insurance prepaid 700 300
Subscription outstanding 3,750 2,500
Subscription received in advance 1,750 1,000
Electricity charges outstanding — 1,250
Stock of stationery 2,250 700
Equipments 25,600 50,200
Building 1,20,000 1,14,000
Prepare Income and Expenditure Account for the year ended December 31, 2020. (6)
Ans. Dr. Income and Expenditure A/c Women Welfare Club for the year ending Dec. 31, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Salary 12,500 By Subscriptions 81,750
Less: O/s (opening) (1,200) Add: Opening Advance 1,750
Add: O/s (closing) 1,800 13,100 Add: Closing O/s 2,500
To Insurance 7,500 Less: opening O/s (3,750)
Add: opening prepaid 700 Less: Closing Advance (1,000) 81250
Less: closing prepaid (300) 7,900 By Donations 3,000
To Electricity Charges 9,550 By Govt. Grant 15,000
Add: Closing O/s 1,250 10,800 By Sale of Newspapers 300
To Stationery consumed 1,700 By Proceeds of Charity Show 16,500
Add: opening O/s 2,250 Less: Charity how expenses 12,900 3,600
Less: closing O/s (700) 3,250 By Interest on Investment 7,000
To Depreciation By Sundry Incomes 400
Equipment (25,600 + 30,000 – 50,200) 5,400
Building (1,20,000 – 1,14,000) 6,000
To Petty expenses 500
To Newspapers 1,000
To Lecturer’s fees 16,500
To Honorarium to Secretary 12,000
To Surplus (Excess of Income over Expenditure) 34,100
1,10,550 1,10,550
Q.4 Prepare Income and Expenditure Account for the year ended March 31, 2020 from the following information.
Receipt and Payment Account for the year ending March 31, 2020
Receipts Amount (`) Payments Amount (`)
To Balance b/d 41,000 By Salaries and Wages: 2018-19 4,800
To Subscriptions: 2019-20 83,200 88,000
 2018-19 7,200 By Sundry expenses 37,000
 2019-20 3,37,600 By Freehold land 60,000
 2020-21 12,000 3,56,800 By Stationery 16,000
To Entrance fees 16,000 By Rates 24,000
To Locker rent 58,000 By Refreshment expenses 37,500
To Revenue from refreshment 48,000 By Telephone charges 4,000
To Income from investments 56,000 By Investments 2,50,000
By Audit fee 6,000
By Balance c/d 53,300
5,75,800 5,75,800
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 25

Additional information:
(i) There are 1800 members each paying an annual subscription of ` 200, ` 8,000 were in arrears for 2018-19
as on April 1, 2019.
(ii) On March 31, 2020 the rates were prepaid to June 2020; the charge paid every year being `24,000.
There was an outstanding telephone bill for `1,400 on March 31, 2020. Outstanding sundry expenses
as on March 31, 2019 `2,800.
(iii) Stock of stationery as on March 31, 2019 was `2000; on March 31, 2020, it was `3,600.
(iv) On March 31, 2019 Building stood at ` 4,00,000 and it was subject to depreciation @ 2.5% p. a.
Investment on March 31, 2019 stood at `8,00,000. On March 31, 2020, income accrued on investments
purchased during the year amounted to  `  1,500. (6)
Ans. Dr. Income and Expenditure Account for the year ending on March 31, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Salaries and Wages 83,200 By Subscriptions (1800 × `200) 3,60,000
To Sundry Expenses 37,000 By Entrance fees 16,000
Less: Outstanding on 31.3.2019 (2,800) 34,200 By Locker rent 58,000
To Stationery (consumed) By Income from refreshment:
Opening stock 2,000 Revenue from refreshment 48,000
Add: Purchases 16,000 Less: Refreshment expenses (37,500) 10,500
Less: Closing stock (3,600) 14,400 By Income from investments 56,000
To Rates (Annual charges) 24,000 Add: Accrued income 1,500 57,500
To Telephone charges 4,000
Add: Outstanding 1,400 5,400
To Audit fee 6,000
To Depreciation on building 10,000
To Surplus (Bal. Fig.) 3,24,800
5,02,000 5,02,000
Q.5 Following is the Receipt and Payment Account of Friendship Club in respect of the Year on 31.3.2020.
Receipt and Payment Account for the year ending March 31, 2020
Receipts Amount (`) Assets Amount (`)
To Opening cash in hand 10,000 By Salaries 20,000
To Subscription: By Stationery 4,500
 2018-19 15,000 By Rates and Taxes 1,500
 2019-20 20,000 By Telephone charges 7,500
 2020-21 5,000 40,000 By 8% Govt. Securities at par 25,000
To Profit from sports 17,800 By Sundry expenses 500
To Interest on 8% Govt. Securities 5,000 By Courier service charges 300
By Closing cash in hand 13,500
72,800 72,800
Additional Information:
(i) There are 500 members, each paying an annual subscription of ` 50, ` 17,500 being in arrears for 2018-
19 at the beginning of 2019-20. During 2018‑19, subscriptions were paid in advance by 40 members
for 2019-20.
(ii) On March 31, 2020, the rates and taxes were prepaid to the following January 31, the annual charge being
` 1,500. A quarter’s charge for telephone is outstanding, the amount outstanding being `1,500. There is
no change in quarterly charge.
(iii) Stock of stationery on March 31, 2019, was ` 1,500 and on March 31, 2020, ` 2,000. Sundry expenses
accruing at 31.3.2019 were ` 250 and at March 31, 2020 ` 300.
(iv) On March 31, 2019 Building stood in the books at ` 2,00,000 and it is required to write off depreciation
26 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

@ 10% p.a. Value of 8% Government Securities on March 31, 2019 was ` 75,000 which were purchased
at that date at Par. Additional Government Securities worth ` 25,000 are purchased on March 31, 2020.
Prepare Income and Expenditure Account for the year ended on 31.3.2020. (6)
Ans. Income and Expenditure Account for the year ending on March 31, 2020
Expenditure Amount (`) Income Amount (`)
To Salaries 20,000 By Profit on Sports 17,800
To Stationery 4,500 By Interest on 8% Govt. Securities 5,000
  Add: Opening stock 1,500   Add: Accrued Interest 1,000 6,000
  Less: Closing stock (2,000) 4,000 By Subscription 25,000
To Rates and Taxes 1,500 By Deficit 3,550
To Telephone Charges (Excess of Expenditure over to Income)
Paid 7,500
Less: Opening outstanding (3,000)
Add: Closing outstanding 1,500 6,000
To Sundry expenses (paid) 500
  Add: Closing outstanding 300
  Less: Opening outstanding (250) 550
To Depreciation on building 20,000
To Courier charges 300

52,350 52,350

INCOME AND EXPENDITURE ACCOUNT AND BALANCE SHEET


Q.6 Following is the Receipt and Payment Account of an Entertainment Club for the period April 1, 2019 to
March 31, 2020. (8)
Receipts Amt. (`) Payments Amt. (`)
To Balance b/d By Salaries 24,000
Cash 27,500 By Entertainment expenses 81,000
Bank 60,000 87,500 By Telephone bill 35,000
To Member’s subscriptions: By Subscription for periodicals 14,500
2018-2019 12,500 By Printing and stationery 13,000
2019-2020 1,00,000 By Sports expenses 50,000
2020-2021 10,000 1,22,500 By Secretary’s honorarium 30,000
To Sale of furniture (B.V. `8,000) 10,000 By 8% Investments (31.3.2020) 1,00,000
To Legacy (general) 1,00,000 By Balance c/d:
To Sale of old periodicals and newspapers 3,200 Cash 21,500
To Hire of ground used for marriage 48,750 Bank 45,000 66,500
To Donation for sports fund 25,000
To Locker Rent 17,050
4,14,000 4,14,000
Additional Information:
(i) The club had 225 members, each paying an annual subscription of `500. Subscription outstanding as on 31
March 2019 `15,000.
(ii) On 1st April 2019: Furniture `1,00,000; Building `6,50,000; Sports fund `15,000. Depreciation
Furniture and Building @ 12.5% and 5% respectively assuming that it is on reducing balance for the
year ending 31 March 2020.
(iii) Opening Stock of Printing and stationery `2,000 and closing stock of printing and stationery is `3,000 for
the year 2019-20.
(iv) Telephone bill outstanding for the year 2019-20 is `2,000. Locker Rent `3,050 outstanding for the year
Chapter-1 Accounting for Not-for-Profit Organizations EXAM HANDBOOK Accountancy XII (2021 Edition) 27

2018-19 and ` 1,500 for 2019-20. Salary outstanding for the year 2019-20 ` 4,000.
Prepare Income and Expenditure account and Balance Sheet as on that date.
Ans. Income and Expenditure Account for the year ending on March 31, 2020
Expenditure Amt. (`) Income Amt. (`)
To Salary 24,000 By Subscriptions (225 × `500) 1,12,500
  Add: Outstanding 4,000 28,000 By Sale of old periodicals and newspaper 3,200
To Entertainment expenses 81,000 By Profit on sale of furniture 2,000
To Telephone Bill 35,000 By Hire of ground for marriage 48,750
  Add: Outstanding 2,000 37,000 By Locker rent 17,050
To Subscription for periodicals 14,500   Less: Opening o/s (3,050)
To Printing and Stationery 13,000   Add: Closing o/s 1,500 15,500
  Add: Opening Stock 2,000 By Legacies (general) 1,00,000
  Less: Closing stock (3,000) 12,000
To Secretary’s honorarium 30,000
To Sports Expenses 10,000
To Depreciation:
 Furniture 11,500
 Building 32,500 44,000
To Surplus (Excess of Income over Expenditure) 25,450
2,81,950 2,81,950
Balance Sheet of Entertainment Club as on March 31, 2020
Liabilities Amt. (`) Assets Amt. (`)
Subscriptions received in advanced 10,000 Cash in hand 21,500
Outstanding Telephone Bill 2,000 Cash at bank 45,000
Salary Outstanding 4,000 Outstanding subscriptions
Capital/General Fund 8,42,550 For 2018-19 2,500
  Add: Surplus 25,450 8,68,000 For 2019-20 12,500 15,000
Sports Fund: Outstanding locker Rent 1,500
Opening balance 15,000 Printing and Stationery 3,000
Add: Donations 25,000 Furniture 1,00,000
Less: Sports expenses (40,000) –   Less: Sales (8,000)
  Less: Depreciation (11,500) 80,500
Building 6,50,000
  Less: Depreciation (32,500) 6,17,500
8% Investment 1,00,000
8,84,000 8,84,000
Working Notes: Calculation of Capital/General Fund:

Balance Sheet of Entertainment Club as on March 31, 2019
Liabilities Amt. (`) Assets Amt. (`)
Sports fund 15,000 Cash in hand 27,500
Capital/General Fund (Balancing figure) 8,42,550 Cash at bank 60,000
Outstanding subscription 15,000
Outstanding locker Rent 3,050
Printing & Stationery 2,000
Furniture 1,00,000
Buildings 6,50,000
8,57,550 8,57,550
28 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.7 Receipt and Payment Account of Shankar Sports club is given below, for the year ended March 31, 2020 (8)
Receipts Amt. (`) Payments Amt. (`)
To Opening Cash in hand 2,600 By Rent 18,000
To Entrance fees 3,200 By Wages 7,000
To Donation for building 23,000 By Billiard table 14,000
To Locker rent 1,200 By Furniture 10,000
To Life membership fee 7,000 By Interest on Loan 2,000
To Profit from entertainment 3,000 By Postage stamps 1,000
To Subscription 40,000 By Salary 24,000
By Closing Cash in hand 4,000
80,000 80,000
Prepare Income and Expenditure Account and Balance Sheet with help of following Information: (i) Subscription
outstanding on March 31, 2019 is `1,200 and `2,300 on March 31, 2020. (ii) Opening stock of postage stamps
is `300 and closing stock is `200 (iii) Rent `1,500 related to 2018-19 and `1,500 is still unpaid. (iv) On April 1,
2019 the club owned furniture `15, 000, Furniture valued at `22,500 on March 31, 2020. On March 31, 2019,
the club took a loan of `20,000 @ 10% p.a.
Ans. Dr. Shankar Sports Club Income and Expenditure A/c for the year ending March 31, 2020 Cr.
Expenditure Amt. (`) Income Amt. (`)
To Postage Stamps consumed: By Subscriptions: 40,000
Cash Purchases 1,000 Less: Opening o/s (1,200)
Add: Opening Stock 300 Add: Closing o/s 2,300 41,100
Less: Closing Stock (200) 1,100 By Entrance Fees 3,200
To Rent 18,000 By Locker Rent 1,200
To Depreciation on Furniture 2,500 By Profit from Entertainment 3,000
(15,000 + 10,000 – 22,500) By Deficit (Excess of Expenditure over Income) 6,100
To Interest on loan 2,000
To Wages 7,000
To Salary 24,000
54,600 54,600
Dr. Balance Sheet as on 31 March 2020 Cr.
Liabilities Amt. (`) Assets Amt. (`)
Rent o/s 1,500 Cash in Hand 4,000
Loan @ 10% p.a. 20,000 Subscriptions outstanding 2,300
Donations for Building 23,000 Stock of Postage Stamps 200
Furniture 15,000
Add: Purchase 10,000
Less: Depreciation (25,000) 22,500
Billiard Table 14,000
Capital Fund Deficit (Notes (ii)) 1,500
44,500 44,500

Working Notes:

Dr. Balance Sheet as on 31 March 2019 Cr.
Liabilities Amt. (`) Assets Amt. (`)
Loan @ 10% p.a. 20,000 Cash in Hand 2,600
Rent o/s 1,500 Subscriptions outstanding 1,200
Stock of Postage Stamps 300
Furniture 15,000
Opening Capital Fund Deficit (Bal. Fig.) 2,400
21,500 21,500
Particulars Amount (`)
Opening Capital Fund Deficit (2,400)
Add: Life Membership Fees 7,000
Less: Excess of Expenditure over Income (Deficit) (6,100)
Closing Capital Fund Deficit (1,500)
2
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 29

Chapter
Accounting for
Partnership Firms

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


 Partnership: features, Partnership Deed. After going through this Unit, the students will be able to:
 Provisions of the Indian Partnership Act 1932 in the  state the meaning of partnership, partnership firm and

absence of partnership deed. partnership deed.


 describe the characteristic features of partnership and
 Fixed v/s fluctuating capital accounts. Preparation of
the contents of partnership deed.
Profit and Loss Appropriation account- division of
 discuss the significance of provision of Partnership Act
profit among partners, guarantee of profits.
in the absence of partnership deed.
 Past adjustments (relating to interest on capital,
 differentiate between fixed and fluctuating capital, outline
interest on drawing, salary and profit sharing ratio).
the process and develop the understanding and skill of
Note: Interest on partner’s loan is to be treated as a charge preparation of Profit and Loss Appropriation A/c.
against profits.  develop the understanding and skill of preparation profit and
loss appropriation account involving guarantee of profits.
 develop the understanding and skill of making past
adjustments.

Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book

New Accounting Treatment


1. If there is Net Loss as per Profit and Loss Account, no interest on capital, salary, remuneration is to be allowed to partners.
2. The following are treated as expenses for the business, i.e. charge against profits. These are debited to Profit and Loss
Account, not Profit and Loss Appropriation Account:
• Interest on Partner's Loan • Manager's Commission • Payment of Rent to a Partner

Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination

 Meaning of Partnership: Section 4 of the Indian Partnership Act 1932 defines partnership as the ‘relation between
persons who have agreed to share the profits of a business carried on by all or any of them acting for all’. Persons who
have entered into partnership with one another are individually called ‘partners’ and collectively called ‘firm’.
 Features/Characteristics of Partnership
1. Two or More Persons: Minimum number of partners in a firm can be two. By virtue of Section 464 of the
Companies Act 2013, the Central Government is empowered to prescribe maximum number of partners in a firm
but the number of partners can not be more than 100. The Central government has prescribed the maximum
number of partners in a firm to be 50 under Rule 10 of the Companies (Miscellaneous) Rules, 2014. Thus, a
partnership firm cannot have more than 50 partners.
2. Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits
and losses. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order
to avoid disputes, it is preferred that the partners have a written agreement. The document which contains terms of
30 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

the agreement is called ‘Partnership Deed’, which contains the details – Amount of capital to be contributed by each
partner; Profit and loss sharing ratio; Rate of interest on capital, loan, drawings, etc; Salaries, commission, etc. The
Partnership deed should be properly drafted and prepared as per the provisions of the ‘Stamp Act’ and preferably
registered with the Registrar of Firms. The clauses of partnership deed can be altered with the consent of all the partners.
3. Business: The agreement should be to carry on some business. Mere co-ownership of a property does not amount to partnership. For
example, if Piyush and Yash jointly purchase a plot of land, they become the joint owners of the property and not the partners.
But if they are in the business of purchase and sale of land for the purpose of making profit, they will be called partners.
4. Sharing of Profit: The agreement between partners must be to share profits and losses of a business. If some persons
join hands for the purpose of some charitable activity, it will not be termed as partnership.
5. Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for
all. This statement has two important implications. First, every partner is entitled to participate in the conduct of the
affairs of its business. Second, that there exists a relationship of mutual agency between all the partners. Each partner
carrying on the business is the principal as well as the agent for all the other partners. He can bind other partners by
his acts and also is bound by the acts of other partners with regard to business of the firm.
6. Liability of Partnership: Liability of a partner for acts of the firm is unlimited – Jointly and Individually. His private
assets can also be used for paying off the firm’s debts.
 Provisions of the Indian Partnership Act, 1932
1. Profit Sharing Ratio: If the partnership deed is silent about the profit sharing ratio, profits and losses of the firm are
to be shared equally by partners, irrespective of their capital contribution in the firm.
2. Interest on Capital: No interest on capital is payable if the partnership deed is silent on the issue. Interest on capital is
generally provided for in two situations: (i) when the partners contribute unequal amounts of capitals but share profits
equally, and (ii) where the capital contribution is same but profit sharing is unequal.
3. Interest on Drawings: No interest is to be charged on the drawings made by the partners, if there is no mention in the Deed.
• When varying amounts are withdrawn at different intervals: Interest is calculated using the product method and
interest for 1 month at the specified rate is worked out, on the total of the products.
• When fixed amount is withdrawn every month throughout the year: (i) If the amount is withdrawn on the first day
of every month, interest on total amount of drawings will be calculated for 6½ months. (ii) If at the end of every
month, 5½ months. (iii) If at the middle of the month, 6 months.
• When fixed amount is withdrawn quarterly throughout the year: (i) If the amount is withdrawn at the beginning
of each quarter, the interest is calculated on total drawings, for a period of 7½ months. (ii) If at the end of each
quarter, it will be calculated for a period of 4½ months.
• When fixed amount is withdrawn half yearly: (i) If the amount is withdrawn at the beginning of each half year,
interest is calculated on total drawings, for a period of 9 months. (ii) If at the end of each half year, 3 months.
• When dates of withdrawal are not specified: Period would be taken as 6 months.
4. Interest on Loans and Advances by Partner to the firm: Interest is given @ 6% per annum.
5. Remuneration for Firm’s Work: No partner is entitled to get salary or remuneration unless there is a provision in Partnership Deed.
 If a partner derives any profit for himself by using firm’s property or the firm’s name or he carries on similar business, he
shall account for the profit and pay it to the firm.
 Maintenance of Capital Accounts of Partners: There are two methods by which the capital accounts of partners can
be maintained. These are: (i) fixed capital method, and (ii) fluctuating capital method.
Basis Fixed Capital Account Fluctuating Capital Account
1. Number of Two accounts are maintained for each partner – Each partner has one account, i.e. capital account.
accounts ‘capital account’ and ‘current account’.
2. Adjustments Adjustments of share of profit and loss, interest on All adjustments are made in current accounts. So,
capital, drawings, interest on drawings, salary or balance in capital account fluctuates from time to
commission etc. are made in current accounts. time.
3. Fixed balance Capital account balance remains fixed unless there is Balance of capital account fluctuates from year to
addition to capital or withdrawal of capital. year.
4. Credit balance Capital accounts always show a credit balance. Partners’ Capital account may also show a debit balance.
current account however, may show a debit also.
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 31

Fixed Capital Method


Dr. Partner’s Capital Account Cr.
Date Particulars Amt. (`) Date Particulars Amt. (`)
To Bank A/c (withdrawal of capital) xxx By Balance b/d (opening balance) xxx
To Balance c/d (closing balance) xxx By Bank A/c (additional capital) xxx
xxx xxx
Dr. Partner’s Current Account Cr.
Date Particulars Amt. (`) Date Particulars Amt. (`)
To Balance b/d (Dr. opening balance) xxx By Balance b/d (Cr. opening balance) xxx
To Bank A/c (Drawings) xxx By Interest on capital xxx
To Interest on drawings xxx By Salary xxx
To P & L Appropriation A/c (Share of loss) xxx By Commission xxx
To Balance c/d (Cr. closing balance) xxx By P & L Appropriation A/c (share of profit) xxx
By Balance c/d (Dr. closing balance) xxx
xxx xxx
Fluctuating Capital Method
Dr. Partner’s Capital Account Cr.
Date Particulars Amt. (`) Date Particulars Amt. (`)
To Balance b/d (Dr. opening balance) xxx By Balance b/d (Cr. opening balance) xxx
To Bank A/c (withdrawal of capital) xxx By Bank (fresh capital introduced) xxx
To Bank A/c (Drawings) xxx By Interest on capital xxx
To Interest on drawings xxx By Salary/Commission xxx
To Profit and Loss A/c (for share of loss) xxx By Profit and Loss Appropriation A/c (for xxx
To Balance c/d share of profit)
xxx xxx
 Distribution of Profit among Partners – Profit and Loss Appropriation Account: It is an extension of Profit and
Loss Account of the firm. It shows how the profits are distributed among the partners. All adjustments – partner’s salary
or commission, interest on capital, interest on drawings, etc. are made through this account.
Dr. Profit and Loss Appropriation A/c Cr.
Particulars Amt. (`) Particulars Amt. (`)
1. To Profit and Loss A/c (Net Loss) xxx 1. By Profit and Loss A/c (Net Profit) xxx
3. To Interest on Capital (individually) xxx 2. By Interest on Drawings (individually) xxx
4. To Partner’s Salary (individually) xxx 7. By Loss transferred to Partners’ Capital/ xxx
5. To Partner’s Commission (individually) xxx Current A/c (individually in their profit
6. To Transfer to General Reserve xxx sharing ratio)
7. To Profits transferred to Partners’ Capital/ xxx
Current A/c (individually in their profit
sharing ratio)
xxxx xxxx
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
1. Transfer of the balance of Profit and Loss Account to Profit and Loss
Appropriation Account
(a) If Profit and Loss Account shows a credit balance (net profit):
Profit and Loss A/c Dr.
To Profit and Loss Appropriation A/c
(b) If Profit and Loss Account shows a debit balance (net loss):
Profit and Loss Appropriation A/c Dr.
To Profit and Loss A/c
32 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

2. Interest on Drawings
(a) For charging interest on drawings to partners’ capital/current A/cs:
Partners’ Capital/Current A/cs (individually) Dr.
To Interest on Drawings A/c
(b) For transferring interest on drawings to Profit and Loss Appropriation A/c:
Interest on Drawings A/c Dr.
To Profit and Loss Appropriation A/c
3. Interest on Capital
(a) For crediting interest on capital to partners’ capital/current A/cs:
Interest on Capital A/c Dr.
To Partner’s Capital/Current A/cs (individually)
(b) For transferring interest on capital to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Interest on Capital A/c
4. Partner’s Salary
(a) For crediting salary to partner’s capital/current A/cs:
Partner’s Salary A/c Dr.
To Partners’ Capital/Current A/cs (individually)
(b) For transferring salary to Profit and Loss Appropriation Account:
Profit and Loss Appropriation A/c Dr.
To Partner’s Salary A/c
5. Partner’s Commission
(a) For crediting commission to partners’ capital/current A/cs:
Partner’s Commission A/c Dr.
To Partners’ Capital/Current A/cs (individually)
(b) For transferring commission to Profit and Loss Appropriation A/c:
Profit and Loss Appropriation A/c Dr.
To Partner’s Commission A/c
6. Transfer a proportion of net profit to General Reserve A/c
Profit and Loss Appropriation A/c Dr.
To General Reserve A/c
7. Share of Profit or Loss after appropriations
(a) For distribution of share of profit after appropriations in profit sharing ratio:
Profit and Loss Appropriation A/c Dr.
To Partners’ Capital/Current A/cs (individually)
(b) For distribution of share of loss after appropriations in profit sharing ratio:
Partners’ Capital/Current A/cs (individually) Dr.
To Profit and Loss Appropriation A/c

OBJECTIVE TYPE QUESTIONS, MCQs

1. ________ capital accounts always show a credit balance.


2. Give the average period, in months, for charging interest on drawings of a fixed amount, withdrawn at the end of
each quarter.
3. Give the average period, in months, for charging interest on drawings of a fixed amount withdrawn at the beginning
of each quarter.
4. Give the average period, in months, for charging interest on drawings of a fixed amount withdrawn at the beginning
of each half-year.
5. Which of the following items is not dealt through Profit and Loss Appropriation Account? (CBSE SQP 2020-21)
(a) Interest on Partner’s Loan (b) Partner’s Salary
(c) Interest on Partner’s Capital (d) Partner’s Commission
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 33

6. E, F and G are partners sharing profits in the ratio of 3:3:2. As per the partnership agreement, G is to get a
minimum amount of `80,000 as his share of profits every year and any deficiency on this account is to be personally
borne by E. The net profit for the year ended 31st March, 2020 amounted to `3,12 ,000. Calculate the amount of
deficiency to be borne by E? (CBSE SQP 2020-21)
(a) `1,000 (b) `4,000 (c) `8,000 (d) `2,000
7. Pick the odd one out: (CBSE SQP 2020-21)
(a) Rent to partner (b) Manager’s Commission
(c) Interest on Partner’s Loan (d) Interest on Partner’s capital
8. In case the partners’ capitals are Fixed, in which account will withdrawal of capital be recorded?
9. Why does the Fixed Capital Account of partners show credit balance even when the firm suffers losses year after year?
10. Give the meaning of ‘Liability of Partnership’ as a feature of partnership.
11. Vidit and Seema were partners in a firm sharing profits and losses in the ratio of 3 : 2. Their capitals were `1,20,000
and `2,40,000, respectively. They were entitled to interest on capital @ 10% p.a. The firm earned a profit of
`18,000 during the year. The interest on Vidit’s capital will be:
(a) `12,000 (b) `10,000 (c) `7,200 (d) `6,000
12. The business of a partnership firm may be carried on by all the partners or any one of them acting for all. One of
the important implications of this statement is that every partner is entitled to participate in the conduct of the
affairs of its business. State the second important implication of this statement.
13. Asha and Deepti were partners in a firm sharing profits and losses in the ratio of 3 : 1. Their fixed capitals were
`3,00,000 and `2,00,000 respectively. They were entitled to interest on capital @10% p.a. The firm earned a profit
of `20,000 during the year. The amount of interest on capital credited to Deepti will be:
(a) `12,000 (b) `8,000 (c) `20,000 (d) `5,000
14. Manu and Kanu were partners in a firm, sharing profits and losses in the ratio of 2 : 3. Their fixed capitals were
`10,00,000 and `5,00,000, respectively. They were entitled to an interest on capital @10% p.a. The firm earned a
profit of `60,000 during the year. The amount of interest on capital credited to Kanu will be:
(a) `20,000 (b) `40,000 (c) `36, 000 (d) `24,000
15. Mohit, Shobhit and Rohit are partners sharing profits and losses in the ratio 2:1:1. Rohit is guaranteed a profit of ` 14,000.
The firm incurred a profit of ` 20,000 during the year. Calculate the amount of deficiency borne by Mohit and Shobhit.
16. Mohit and Rohit were partners in a firm with capital of ` 80,000 and `40,000 respectively. The firm earned a
profit of ` 30,000 during the year Mohit’s share in the profit will be:
(a) `2,000 (b) `10,000 (c) `15,000 (d) `18,000
17. X, Y and Z are partners in a firm sharing profits and losses in the ratio of 6:4:1.X guaranteed a profit of `15,000 to
Z. The net profit for the year ending 31 March, 2020 was `99,000. X’s share in the profit of the firm will be:
(a) `30,000 (b) `15,000 (c) `48,000 (d) `45,000
18. Akshat, Bilal and Charu are partners dealing in the sale of sports equipment. Akshat, without the knowledge of
Bilal and Charu, is also running the business of supplying sports equipment to a few sports clubs in which his son
is a member. He is earning good profits from this business but did not inform Bilal and Charu about this. Was
Akshat correct in doing so?
19. By virtue of Section 464 of the Companies Act, 2013 the Central Government is empowered to prescribe maximum
number of partners in a firm but the number of partners cannot be more than __________ .
(a) 50 (b) 100 (c) 20 (d) 10
20. The partnership deed should be properly drafted and prepared as per the provisions of the __________ and
preferably registered with the __________ .
21. Can a partner be exempted from sharing the losses in a firm? If yes, under what circumstances?
22. Ritesh and Hitesh are childhood friends. Ritesh is a consultant whereas Hitesh is an architect. They contributed
equal amounts and purchased a building for `2 crores. After a year, they sold it for `3 crores and shared the profits
equally. Are they doing the business in partnership ? Give reason in support of your answer.
34 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

23. A partnership firm has 50 members. All the partners have agreed to admit Ram and Mohan as new partners. Can
Ram and Mohan be admitted? Give reason in support of your answer.
24. A, B and C decided that interest on capitals will be provided to each partner @ 5% p.a. But after one year C wants
that no interest on capital is to be provided to any partner. State how `C’ can do this?
25. Ram and Mohan are partners in a firm without any partnership deed. Their capitals are: Ram `8,00,000 and
Mohan `6,00,000. Ram is an active partner and looks after the business. Ram wants that profit should be shared in
proportion of capitals. State with reason whether his claim is valid or not.
26. A partnership deed provides for the payment of interest on capital but there was a loss instead of profits during the
year 2019-20 .At what rate will the interest on capital be allowed?
(a) 9% p.a. (b) 6% p.a.
(c) The rate specified in the partnership deed (d) No interest on capital will be allowed
27. Kanha, Neeraj and Asha were partners in a firm. They admitted Raghav their Landlord as a partner in the firm.
Raghav brings sufficient amount of capital and goodwill premium for his share in the profits. Raghav had given a
loan of `1,00,000 @ 10% p.a. interest to the partnership firm before he became the partner. Now the accountant
of the firm is emphasizing that the interest on loan should be paid @ 6% p.a. Is he right in doing so ? Give reason
in support of your answer.
28. X and Y are equal partners. They had advanced a loan of `40,000, contributed equally to the firm on 1st August,
2019. The partnership deed is silent regarding the payment of interest on loan. What amount of interest on loan is
payable to X, if the firm closes its books of account on 31st March every year?
(a) Nil (b) `2,400 (c) `1,600 (d) `800
29. You and your friends Amit and Vinod are partners in a firm sharing profits and losses equally. State, who is correct
in the following case? Give reasons also.
Amit has provided a capital of `50,000 whereas Vinod provided `10,000 only as capital. Vinod, however, has
provided `20,000 as loan to the firm. There is no partnership agreement. Vinod claims interest of `1,200, whereas
you and Amit do not want to give any interest.
30. Interest on money advanced by a partner to the firm beyond the amount of his capital for the purpose of business
is paid @ 6% p.a. True/False? Give reason.
31. Partner’s capital account will not show a debit balance in spite of losses year after year when _______ because ______.
32. Partner’s capital account always shows a credit balance. True/False? Give reasons.
33. A and B are partners having fixed capitals of `2,00,000 and `1,00,000 respectively. At the end of the year 2019-20,
their current accounts showed balances: A `1,00,000 (Cr.) B `5,000 (Dr.). Where will B’s current account balance
be shown in the books of A and B?
(a) On the liabilities side of the Balance Sheet.
(b) On the assets side of the Balance Sheet.
(c) On the debit side of Profit and Loss Appropriation A/c.
(d) On the credit side of Profit and Loss Appropriation A/c.
34. A and B are partners sharing profits in the ratio of 3 : 2 with capitals of `50,000 and `30,000 respectively. Interest
on capital is payable @ 6% p.a. B is to be allowed a salary of `1,250 semi-annually. During the year 2019-20, the
profits prior to the calculation of interest on capital but after charging B’s salary amounted to `12,500. 10% of the
Net Profit is to be transferred to the General Reserve.
What Journal entry will be passed for transfer of profit to General Reserve?
35. Abha and Bharat were partners. They shared profits and losses equally. On April 1st, 2019 their capital accounts
showed balances of `3,00,000 and `2,00,000 respectively. Calculate the share of divisible profit of the partners if
the partnership deed provided for interest on capital @10% p.a. and the firm earned a profit of `50,000 for the
year ended 31st March, 2020.
(a) Abha `30,000; Bharat `20,000 (b) Abha `25,000; Bharat `25,000
(c) Abha ‘Nil’; Bharat ‘Nil’ (d) None of the above
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 35

36. A and B are partners. The net divisible profit as per Profit and Loss Appropriation A/c is `2,50,000. The total
interest on partner’s drawing is `4,000. A’s salary is `4,000 per quarter and B’s salary is `40,000 per annum. The
net profit/loss earned during this year was:
(a) `3,02,000 (b) `1,98,000 (c) `3,06,000 (d) `2,50,000
37. A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. During the year the firm incurred a loss
of `84,000. The amount of loss transferred to the capital accounts of A, B and C will be:
(a) Loss debited to the capital accounts of A, B and C equally.
(b) Nil
(c) Loss debited to the capital accounts of A, B and C will be `42,000, `28,000 and `14,000 respectively.
(d) None of the above
38. Reena and Raman are partners with capitals of `3,00,000 and `1,00,000 respectively. The profit (as per Profit and
Loss Account) for the year ended March 31, 2020 was `1,20,000. Interest on capital is to be allowed at 6% p.a.
Raman was entitled to a salary of `30,000 p.a. The drawings of partners were `30,000 and 20,000. The interest
on drawings to be charged to Reena was Rs. 1,000 and to Raman, `500. Their share of profit after necessary
appropriations are:
(a) Reena `50,625; Raman `16,875 (b) Reena `33,750; Raman `33,750
(c) Reena `33,000; Raman `33,000 (d) Reena `48,750; Raman `48,750
39. Aakriti and Bindu entered into partnership for making garments on April 01, 2019 without any partnership
agreement. They introduced Capitals of `5,00,000 and `3,00,000 respectively. On October 01, 2019, Aakriti
advanced `20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the
year ended March 31 2020 showed profit of `43,000 before charging interest on Aakriti’s loan. Their share of profit
for the year 2019-20 are:
(a) `21,200 each (b) `21,500 each
(c) `26,875 and `16,125 respectively (d) `26,500 and `15,900 respectively
40. X and Y are partners sharing profits and losses in the ratio of 3 : 2 having fixed capitals of `1,50,000 and `2,00,000
respectively. The partnership deed provides for interest on capital @ 8% p.a. The Net Profit of the firm during
2019-20 was `21,000. In what ratio the appropriation of profit will be made?
(a) 3 : 2 (b) 1 : 1 (c) 3 : 4 (d) 4 : 3
41. A and B are partners in a firm sharing profit in the ratio of 3 : 2. Their Balance Sheet as on 31 March 2020 is given below:
Liabilities Amount (`) Assets Amount (`)
A’s Capital 30,000 Drawings:
B’s Capital 10,000 40,000 A 4,000
B 2,000 6,000
Other Assets 34,000
40,000 40,000
Net Profit during the year `5,000 was divided without providing for interest on capital @ 10% p.a.
What will be the amount of Interest on A’s Capital ?
(a) `3,000 (b) Nil (c) `3,100 (d) `2,700
42. Under which of the following situation interest on partners’ capitals shall not be provided?
(a) If the firm has incurred net loss during the year.
(b) If partners’ capitals are equal and their profit sharing ratio is also equal.
(c) Both (a) and (b)
(d) If the net profit is less than the total amount payable to partners as interest on capitals.
43. Anna and Bobby were partners sharing profits and losses in the ratio of 5 : 3. On 1st April, 2019 their capital
accounts showed balances of `3,00,000 and `2,00,000 respectively. The partnership deed provided for interest on
capital @10% p.a. and the firm earned a profit of `45,000 for the year ended 31st March, 2020. The interest on
partners’ capitals will be:
36 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

(a) `30,000 and `20,000 respectively (b) `27,000 and `18,000 respectively
(c) `22,500 and `22,500 respectively (d) None of the above
44. Following is the extract of the Balance Sheet of, Neelkanth and Mahadev as on March 31, 2020, who share profits
and losses in the ratio of 3:2:
Balance Sheet as at March 31, 2020
Liabilities Amount (`) Assets Amount (`)
Neelkanth’s Capital 10,00,000 Sundry Assets 30,00,000
Mahadev’s Capital 10,00,000
Neelkanth’s Current Account 1,00,000
Mahadev’s Current Account 1,00,000
Profit and Loss Appropriation (March 2020) 8,00,000
30,00,000 30,00,000

During the year Mahadev’s drawings were `30,000. Profits during 2019-20 is `10,00,000. Profits were distributed
without providing interest on partners’ capitals.
The interest on capitals @ 5% p.a for the year ending March 31, 2020 will be:
(a) `20,000 and `31,500 respectively (b) `50,000 each
(c) `25,000 each (d) `27,000 and `18,000 respectively
45. A and B are partners in a firm having capitals `5,00,000 and `10,00,000 respectively. The partnership deed provides
for charging interest on drawings @ 5% p.a. A withdrew `40,000 for his personal use during the year 2019-20. B
withdrew `2,00,000 from his capital 1.1.2020. The amount of interests that will be charged on partners’ drawings are:
(a) A `1,000; B `5,000 (b) A `2,000; B `10,000
(c) A `1,000; B Nil (d) A `2,000; B Nil
46. Ram and Shyam are partners sharing profits/losses equally. Ram withdrew `1,000 p.m. regularly on the first day of
every month during the year 2019-20 for personal expenses. If interest on drawings is charged @ 5% p.a. What will
be the interest on the drawings of Ram?
(a) `50 (b) `27 (c) `600 (d) `325
47. Verma and Kaul are partners in a firm. The partnership agreement provides that interest on drawings should be
charged @ 6% p.a. Kaul withdrew `3,000 per quarter, starting from April 01, 2019. What will be the interest on
Kaul’s drawings during the year 2019-20?
(a) `180 (b) `90 (c) `270 (d) `450
48. Himanshu withdrew `2,500 at the end of each month. The Partnership deed provides for charging the interest on
drawings @ 12% p.a. What will be the interest on Himanshu’s drawings for the year ending 31st December, 2017?
(a) `300 (b) `137.50 (c) `1,650 (d) `1,800
49. Dev withdrew `10,000 on 15th day of every month. Interest on drawings was to be charged @ 12% per annum.
Interest on Dev’s drawings will be:
(a) `14,400 (b) `7,200 (c) `1,200 (d) None of these
50. One of the partners in a partnership firm has withdrawn `9,000 at the end of each quarter, throughout the year.
The interest on drawings at the rate of 6% per annum will be:
(a) `540 (b) `2,160 (c) `810 (d) None of these
51. M and N are partners having capitals of `50,000 and `1,00,000 respectively. On 1 April 2020, P was admitted
with a capital of `2,00,000. At the end of the year 2020, the firm earned a profit of `30,000. How should the
profits be distributed among partners, if there is no partnership deed?
(a) Equally (b) In the ratio of 1:2:4
(c) In the ratio of 1:2:3 (d) None of the above
52. Which of the following transactions is always recorded in the partner’s capital account irrespective of whether the
partners capitals are fixed or fluctuating?
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 37

(a) Interest on partner’s loan (b) Additional capital introduced by a partner


(c) Permanent withdrawal of capital by a partner (d) Both (b) and (c)
53. A partner withdrew `50,000 at the beginning of each half year during 2019-20. What interest will be charged on
his drawings @ 5% p.a.?
(a) `2,500 (b) `1,250 (c) `3,750 (d) `1,875
54. Bharam is a partner in a firm. He withdraws `3,000 at the starting of each month for 12 months. The books of the
firm closes on March 31 every year. The interest on drawings @ 10% p.a. will be:
(a) `300 (b) `1,950 (c) `3,600 (d) `1,650
55. Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement,
interest on drawings is to be charged @ 10% p. a. Their drawings during 2020 were `24,000 and `16,000,
respectively. What will be the interest on partners’ drawings based on the assumption that the amounts were
withdrawn evenly, throughout the year?
(a) Interest on Amit’s Drawings, `1,200 and Interest on Bhola’s drawings `800
(b) Interest on Amit’s Drawings, `2,400 and Interest on Bhola’s drawings `1,600
(c) Interest on Amit’s Drawings, `14,400 and Interest on Bhola’s drawings `9,600
(d) None of the above
56. Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’s share in profit has
been guaranteed by Amit and Sumit to be a minimum sum of `8,000. Profits for the year ended March 31, 2020
was `36,000. The share of profits of the partners will be:
(a) Amit `18,000; Sumit, `12,000; Samiksha, `6,000 
(b) Amit `16,800; Sumit, `11,200; Samiksha, `8,000
(c) Amit `17,000; Sumit, `11,000; Samiksha, `8,000
(d) None of the above
57. Persons who have entered into partnership with one another are individually called ________ and collectively
called __________ .
58. The central government has prescribed the maximum number of partners in a firm to be ______ under the act _____.
59. Interest on Partner’s Loan is debited to __________ and credited to __________ .
60. The partnership deed should be properly drafted and prepared as per the provisions of the __________ and
preferably registered with the __________ .
61. Alka, Barkha and Charu are partners in a firm having no partnership agreement. Alka, Barkha and Charu
contributed `2,00,000, `3,00,000 and `1,00,000 respectively. Alka and Barkha desire that the profits should be
divided in the ratio of capital contribution. Charu does not agree to this. How will you settle the dispute?
62. A and B are equal partners with fixed capitals `1,00,000 and `80,000 respectively. Interest on capital is paid @ 6%
p.a. During the year ended on 31st Dec., 2020, the firm incurred a loss of `20,000. A claims interest on capital,
whereas B does not agree. Settle their dispute.
63. Shyam had advanced a loan to the firm. He claims interest @ 10% per annum. State whether the claim is valid if
the partnership agreement is silent on the above matter. Give reason in support of your answer.
64. Sanjana and Vanshika are partners in a firm. Sanjana wants interest on capital to be credited @ 6% per annum.
State whether the claim is valid if the partnership agreement is silent on the above matter. Give reason in support of
your answer.
65. The Partnership Deed is silent on payment of salary to partners. Amita, a partner, claimed that since she managed
the business, she should get a monthly salary of `10,000. Is she entitled for the salary?
66. Fill in the blanks for the transaction ‘Interest on drawings’ `4,000.
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
............................ Dr. 4,000
To ..................... 4,000
(Being Interest on drawings charged)
38 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Checklist to Objective Type Questions, MCQs


1. Fixed 2. 4.5 months 3. 7.5 months 30. False: Interest on partner’s loan is paid at the rate specified
4. 9 months 5. (a) 6. (d) in the partnership deed. It is paid @ 6% p.a. if there is no
express agreement between the parters regarding the rate of
7. (d) 8. Partners’ capital accounts
interest on partner’s loan.
9. Because the losses are adjusted through Partners’ current accounts.
31. Partners’ capitals are fixed; because partner’s capital remains fixed
10. The liability of partnership is unlimited – jointly and severally. unless there is addition or withdrawal of capital. Under this
11. (d) ` 6,000 method, the ‘share of loss’ is debited to the partner’s current account.
12. Second implication of this statement is that there exists a 32. False: Under fluctuating capital method, partner’s capital
relation of mutual agency among the partners. account may sometimes show a debit balance. It is only under
13. (b) `8,000 14. (a) `20,000 fixed capital method that the partner’s capital account will
15. Mohit `6,000 and Shobhit `3,000. always show a credit balance.
33. (b) On the assets side of the Balance Sheet.
16. (c) `15,000 17. (c) `48,000
34. Debit Profit and Loss Appropriation A/c by `1,500 and credit
18. No, Akshat was not correct in doing so. Reason: If a partner
General Reserve A/c by `1,500.
carries on any business of the same nature as and competing
with that of the firm, he shall account for and pay to the 35. (c) Abha ‘Nil’; Bharat ‘Nil’
firm, all profit made by him in that business. 36. (a) 37. (c) 38. (b) 39. (a) 40. (c)
19. (b) 100 20. Stamp Act, Registrar of firms. 41. (d) 42. (c) 43. (b) 44. (b) 45. (c)
21. Yes, if partnership deed so provides. For example, in case of 46. (d) 47. (d) 48. (c) 49. (b) 50. (c)
guarantee of minimum profit to a partner. 51. (a) 52. (d) 53. (c) 54. (b) 55. (a)
22. No, they are not doing business in partnership because they 56. (b) Amit `16,800; Sumit, `11,200; Samiksha, `8,000
are not involved in doing sale and purchase of land/plot on 57. (i) partners (ii) firm
a regular basis/Mere co-ownership of a property does not 58. (i) 50 (ii) The Indian Companies Act, 2013
amount to partnership. 59. Profit and Loss A/c, Partner’s Loan A/c
23. No, Ram and Mohan can’t be admitted as partners.Reason: As 60. Stamp Act, Registrar of firms.
per the Companies Miscellaneous Rules, 2014 the Maximum 61. Charu is correct because profits should be distributed equally
number of partners in a partnership firm can be 50. since there is no agreement.
24. Yes, C can do so by altering the provisions of partnership 62. B is correct. Interest on capital will not be paid since the firm
deed, i.e., redrafting the deed, provided all the partners incurred losses during the year 2020. Interest on capital is
unanimously agree for it. paid out of profits only.
63. Shyam is entitled to get interest @ 6% p.a. on the loan
25. His claim is not valid because in the absence of a partnership
advanced by him; not @ 10% p.a.
deed, profits and losses should be shared equally.
64. Sanjana’s claim of interest on capital @ 6% p.a. is not valid
26. (d) No interest on capital will be allowed. since no interest on capital is payable if the partnership deed
27. No, he is not correct. Reason: He will get interest @10% p.a. is silent on the issue.
because of the agreement between Raghav and the firm. 65. No, Amita is not entitled for the salary since no partner is
28. (d) `800 entitled to get salary or other remuneration for taking part
29. Vinod is correct. Since there is no partnership agreement, interest in the conduct of the business of the firm unless there is a
on Vinod’s loan @ 6% p.a. = 20,000 × 6/100 = `1,200. provision for the same in the partnership deed.
66. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Partner’s Capital / Current A/c Dr. 4,000
To Interest on Drawings A/c 4,000
(Being Interest on drawings charged)

SA
Short Answer Type Questions (3/4 Marks)

INTEREST ON CAPITALS
Q.1 Harsh and Keshav are partners sharing profits and losses in the ratio of 3:1. Their capitals at the end of the
financial year 2019-20 were `1,50,000 and `75,000. During the year 2019-20, Harsh’s drawings were `20,000 and
the drawings of Keshav were `5,000, which had been duly debited to partner’s capital accounts. Profit before charging
interest on capital for the year was `16,000. The same had also been distributed in their profit sharing ratio. Keshav
had brought additional capital of `16,000 on October 1, 2019. Interest on capital is allowed @ 12% p.a. (4)
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 39

Ans. Calculation of Opening Capitals:


Particulars Harsh (`) Keshav (`)
Capital at the end 1,50,000 75,000
Add: Drawings during the year 20,000 5,000
Less: Share of profit already distributed (12,000) (4,000)
Less: Additional capital – (16,000)
Capital in the beginning 1,58,000 60,000
Interest on Harsh’s Capital = 12% of 1,58,000 = `18,960
 12 6   12 6 
Interest on Keshav’s Capital =  60, 000 × × + 76, 000 × × = 3,600 + 4,560 = `8,160
 100 12   100 12 

Total interest payable to the partners = 18,960 + 8,160 = `27,120.


But profit for the year is `16,000, which is less than total interest payable.
Therefore, the payment of interest on capital will be restricted to the amount of profits.
In that case, the profit will be effectively distributed in the ratio of interest on capital of each partner i.e. 18,960 : 8,160.
18, 960
Interest on Harsh’s Capital = ×16, 000 = `11,186
27,120
8,160
Interest on Keshav’s Capital = ×16, 000 = `4,814
27,120
Q.2 A & B are partners in the ratio of 3:2. The firm maintains fluctuating capital accounts and the balance of the
same as on 31-03-2020 amounted to `1,60,000 and `1,40,000 for A and B respectively. Their drawings during the
year were `30,000 each.
As per partnership deed interest on capital @10% p.a. on opening capitals had been provided to them. Calculate open-
ing capitals of partners given that their profits were `90,000. Show your workings clearly. (CBSE SQP 2020-21) (4)
Ans. Calculation of Opening Capital
Particulars A B
Closing Capital 1,60,000 1,40,000
Add: Drawings 30,000 30,000
Less: Profits* (37,800) (25,200)
Less: Interest on Capital 1,52,200 1,44,800
Opening Capital 13,836 13,164
(1,52,200 × 10/110) (1,44,800 × 10/110)
1,38,364 1,31,636
Working Notes:
Details Amount (`)
Total Closing Capital (of A and B) 1,60,000 + 1,40,000 `3,00,000
Add: Total Drawings (of A and B) `60,000
Less: Profits (including interest on Capital) (`90,000)
Total Capital in the beginning of the year 2,70,000
Interest on Capital = 10% of 2,70,000 `27,000
*Divisible profits = 90,000 – 27,000 (to be distributed in 3 : 2, i.e. A `37,800; B `13,164) `63,000

DIVISION OF PROFITS – Profit & Loss Appropriation Account, Guarantee of Minimum Profit
Q.3 Raju and Jai commenced business in partnership on April 1, 2019. No partnership agreement was made whether
oral or written. They contributed `4,00,000 and `1,00,000 respectively as capitals. In addtion, Raju advanced
`2,00,000 as loan to the firm on October 1, 2019. Raju met with an accident on July 1, 2019 and could not attend
40 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

the business up to september 30, 2019. The profit for the year ended March 31, 2020 amounted to `50,000 before
charging interest on Raju’s loan. Disputes have arisen between them on sharing the profits of the firm. Raju Claims:
(i) He should be given interest at 10% p.a. on capital and so also on loan. (ii) Profit should be distributed in the
proportion of capitals. Jai Claims: (i) Net profit should be shared equally. (ii) He should be allowed remuneration of
`1,000 p.m. during the period of Raju’s illness. (iii) Interest on capital and loan should be given @ 6% p.a.
State the correct position on each issue as per the provisions of the Partnership Act, 1932. (4)
Ans.
Settlement of disputes as per the provisions of the Partnership Act, 1932:
(i) No interest is payable on Partners’ capitals in the absence of partnership agreement.
(ii) Interest on Raju’s loan is payable @6% p.a., i.e., 2,00,000 × 6% × 6/12 = `6,000
(iii) Jai’s claim for remuneration @ `1,000 p.m. is not valid since no remuneration is payable when there is no
partnership agreement.
(iv) Profits should be distributed equally among the partners irrespective of their capital contributions.
Net profit after charging interest on Raju’s loan = 50,000 – 6,000 = `44,000, which will be distributed equally
between Raju and Jai, i.e. `22,000 each.
Q.4 Yadu, Madhu and Vidu are partners sharing profits and losses in the ratio of 2:2:1. Their fixed capitals on April
01, 2019 were; Yadu `5,00,000, Madhu `4,00,000 and Vidhu `3,50,000. As per the partnership deed, partners are entitled
to interest on capital @ 5% p.a., and Yadu has to be paid a salary of `2,000 per month while Vidu would be receiving
a commission of `18,000. Net loss of the firm as per profit and loss account for the year ending March 31, 2020 amounted
to `75,000. Prepare profit and loss appropriation account for the year ending March 31, 2020. (NCERT 2020-21) (3)
Ans. Since the firm suffers net loss during the year, therefore no interest on capital, salary and commission will be allowed
to partners.
Dr. Profit and Loss Appropriation Account for the year ending March 31, 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To Profit and Loss A/c (Net Loss) 75,000 By Loss transferred to:
Yadu’s Current A/c 30,000
Madhu’s Current A/c 30,000
Vidu’s Current A/c 15,000 75,000
75,000 75,000
Q.5 A and B are partners sharing profits in the ratio of 3:2, with capitals of `50,000 and `30,000 respectively. Interest
on capital is agreed @ 6% p.a. B is to be allowed a quarterly salary of `625. Manager is to be allowed commission
`5,000. A has also given a Loan on 1 October 2019 of `1,00,000 to the firm without any agreement. During the year
2019-20, the profits earned is `22,250. (NCERT 2020-21) (4)
Ans.
Dr. Profit and Loss Appropriation Account for the year ending March 31, 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To B’s Capital A/c: Salary (`625 × 4) 2,500 By Profit and Loss A/c – Net Profit b/d (Notes) 14,250
To Interest on capital: A’s Capital A/c 3,000
B’s Capital A/c 1,800 4,800
To Profit transferred to: A’s Capital A/c 4,170
B’s Capital A/c 2,780 6,950
14,250 14,250
Working notes: Interest on A’s Loan = `1,00,000 × 6/100 × 6/12 = `3,000
Manager’s Commission and Interest on Partner’s Loan are charged to Profit and Loss Account.
Dr. Profit and Loss Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Manager’s Commission 5,000 By Profit (given) 22,250
To Interest on A’s Loan 3,000
To Net Profit c/d 14,250
22,250 22,250
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 41

Q.6 P and Q were partners in a firm sharing profits in 3 : 1 ratio. Their respective fixed capitals were `10,00,000
and `6,00,000. The partnership deed provided interest on capital @ 12 % p.a. even if it will result into a loss to the
firm. The net profit of the firm for the year ended 31st March, 2020 was `1,50,000.
Pass necessary journal entries in the books of the firm allowing interest on capital and division of profit/loss among
the partners. (3)
Ans. Books of P and Q
Journal
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
31 Mar. Profit & Loss A/c Dr. 1,50,000
2020 To Profit & Loss Appropriation A/c 1,50,000
(Net profit transferred to Profit & Loss Appropriation A/c)
Interest on Capital A/c Dr. 1,92,000
To P’s Current A/c 1,20,000
To Q’s Current A/c 72,000
(Interest on Capital Credited to Partners’ Capital A/c)
P & L Appropriation A/c Dr. 1,92,000
To Interest on Capital A/c 1,92,000
(Interest on Capital debited to Profit & Loss Appropriation A/c)
P’s Current A/c Dr. 31,500
Q’s Current A/c Dr. 10,500
To Profit & Loss Appropriation A/c 42,000
(Loss on Appropriation transferred)

PAST ADJUSTMENTS
Q.7 The firm of Harry, Porter and Larry, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for
same years. Larry wants that he should get equal share in the profits with Harry and Porter and he further wishes
that the change in the profit sharing ratio should come into effect retrospectively were for the last three year. Harry
and Porter have agreement on this account. The profits for the last three years were: 2017-18 `22,000; 2018-19
`24,000 and 2019-20 `29,000.
Show adjustment of profits by means of a single adjustment journal entry. Show your workings clearly. (3)
Ans. Books of Harry, Porter and Larry
Adjustment Entry
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
31 Mar. Harry’s Capital A/c Dr. 5,000
2020 Porter’s Capital A/c Dr. 5,000
To Larry’s Capital A/c 10,000
(Adjustment redistribution of profits of last 3 years)
Working Notes: Total profit of the last three years = `22,000 + `24,000 + `29,000 = `75,000
Adjustment Table
Particulars Harry (`) Porter (`) Larry (`) Total (`)
Total profits of last 3 years distributed in 2 : 2 : 1, Dr. 30,000 30,000 15,000 75,000
now debited
Share of Profit credited equally Cr. 25,000 25,000 25,000 75,000
Adjustment/Net Effect Dr. 5,000 Dr. 5,000 Cr. 10,000 –

Q.8 Rameez and Zaheer are equal partners. Their capitals as on April 01, 2019 were `50,000 and `1,00,000
respectively. After the accounts for the financial year ending March 31, 2020 have been prepared, it is discovered
that interest at the rate of 6 % per annum, as provided in the partnership deed has not been credited to the partners’
capital accounts before distribution of profit. Pass the adjustment entries to rectify the error. (NCERT 2020-21) (3)
42 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Ans. Adjustment Entries


Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
31 Mar. Profit and Loss Adjustment A/c Dr. 9,000
2020 To Rameez’s capital A/c 3,000
To Zaheer’s capital A/c 6,000
(For omission of interest on capital)
Rameez’s capital A/c Dr. 4,500
Zaheer’s capital A/c Dr. 4,500
To Profit and Loss Adjustment A/c 9,000
(Being loss on adjustment in profit sharing ratio 1 : 1)

Q.9 Rohit, Raman and Raina are partners in a firm. Their capital accounts on 1st April, 2019, stood at `2,00,000,
`1,20,000 and `1,60,000 respectively. Each partner withdrew `15,000 during the financial year 2019-20.
As per the provisions of their partnership deed: (a) Interest on capital was to be allowed @ 5% per annum. (b) Interest
on drawings was to be charged @ 4% per annum. (c) Profits and losses were to be shared in the ratio 5:4:1.
The net profit of `72,000 for the year ended 31st March 2020, was divided equally amongst the partners without
providing for the terms of the deed. You are required to pass a single adjustment entry to rectify the error (Show
workings clearly). (CBSE SQP 2020-21) (4)
Ans. Journal
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
31 Mar. Raina’s Capital A/c Dr. 11,410
2020 To Rohit’s capital A/c 10,150
To Raman’s Capital A/c 1,260
(Being adjustment entry passed)

Working Notes: Adjustment Table


Particulars Rohit (`) Raman (`) Raina (`) Firm (`)
1. Interest on Capital Cr. 10,000 6,000 8,000 (24,000)
2. Interest on Drawings Dr. (300) (300) (300) 900
3. Profit Wrongly Distributed in equal ratio Dr. (24,000) (24,000) (24,000) 72,000
Total Dr. (14,300) (18,300) (16,300) 48,900
Distribution of profit in the ratio of 5:4:1 Cr. 24,450 19,560 4890 (48,900)
Net Effect/Adjustment 10,150 Cr. 1,260 Cr. (11,410) Dr. –

Q.10 Sanjay, Sudhir and Shakti are partners in a firm sharing profits in the ratio of 3:1:1. Their fixed capital balances
are `4,00,000, `1,60,000 and `1,20,000 respectively. Net profit for the year ended 31st March, 2020 distributed
amongst the partners was `1,00,000, without taking into account the following adjustments:
(a) Interest on capitals @ 2.5% p.a.
(b) Salary to Sanjay `18,000 p.a. and commission to Shakti `12,000.
(c) Sanjay was allowed a commission of 6% of divisible profit after charging such commission.
Pass a rectifying journal entry in the books of the firm. Show workings clearly. (4)
Ans. Books of Sanjay, Sudhir and Shakti
Adjustment Entry
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
31 Mar. Sudhir’s Current A/c Dr. 6,000
2020 To Sanjay’s Current A/c 1,000
To Shakti’s Current A/c 5,000
(Interest on capital, salary and commission to partners missed in distributing
profits, now adjusted)
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 43

Working Notes: Adjustment Table


Particulars Sanjay (`) Sudhir (`) Shakti (`) Total (`)
Profit already distributed Dr. 60,000 20,000 20,000 1,00,000
Interest on Capitals Cr. 10,000 4,000 3,000 17,000
Salary Cr. 18,000 – – 18,000
Commission Cr. 3,000* – 12,000 15,000
Share of Profit Cr. 30,000 10,000 10,000 50,000
Total Cr. 61,000 14,000 25,000 1,00,000
Adjustment/Net Effect Cr. 1,000 Dr. 6,000 Cr. 5,000 –
*Sanjay’s Commission = `53,000 × 6/106 = `3,000
LA
Long Answer Type Questions (6 Marks)

DIVISION OF PROFITS – Profit & Loss Appropriation Account, Guarantee of Minimum Profit
Q.1 Sukesh and Vanita were partners in a firm. Their partnership agreement provides that:
(i) Profits would be shared by Sukesh and Vanita in the ratio of 3:2.
(ii) 5% p.a. interest is to be allowed on capital.
(iii) Vanita should be paid a monthly salary of `600.
The following balances are extracted from the books of the firm, on March 31, 2019.
Particulars Sukesh (`) Vanita (`)
Capital Accounts 40,000 40,000
Current Accounts 7,200 (Cr.) 2,800 (Dr.)
Drawings 10,850 8,150
Net profit for the year, before charging interest on capital and after charging partner’s salary was `9,500.
Prepare the Profit and Loss Appropriation Account for the year ending 31 March 2020 and the Partner’s Current
Accounts. (6)
Ans. Books of Sukesh and Vanita
Dr. Profit and Loss Appropriation Account for the year ending 31 March 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To Salary- Vanita’s Current A/c (600 × 12) 7,200 By Net profit (before Vanita’s Salary) 16,700
To Interest on Capital (9,500 + 7,200)
Sukesh’s Current A/c 2,000
Vanita’s Current A/c 2,000 4,000
To Share of Profit transferred to:
Sukesh’s Current A/c 3,300
Vanita’s Current A/c 2,200 5,500
16,700 16,700

Dr. Partners’ Current Accounts Cr.


Date Particulars Sukesh (`) Vanita (`) Date Particulars Sukesh (`) Vanita (`)
31.3.20 To Balance b/d 2,800 1.4.19 By Balance b/d 7,200
To Bank A/c (Drawings) 10,850 8,150 31.3.20 By Salary A/c 7,200
To Balance c/d 1,650 450 By Interest on capital 2,000 2,000
By Profit and Loss 3,300 2,200
Appropriation A/c
  (for share of profit)
12,500 11,400 12,500 11,400
44 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.2 Sonu and Rajat started a partnership firm on April 1, 2019. They contributed `8,00,000 and `6,00,000
respectively as their capitals and decided to share profits and losses in the ratio of 3 : 2.
The partnership deed provided that Sonu was to be paid a salary of `20,000 per month and Rajat a commission of
5% on turnover. It also provided that interest on capital be allowed @ 8% p.a. Sonu withdrew `20,000 on 1st
December, 2019 and Rajat withdrew `5,000 at the end of each month. Interest on drawings was charged @ 6% p.a.
The net profit as per Profit and Loss Account for the year ended 31st March, 2020 was `4,89,950. The turnover of
the firm for the year ended 31st March, 2020 amounted to `20,00,000.
Pass necessary journal entries for the above transactions in the book of Sonu and Rajat. (6)
Ans. Books of Sonu and Rajat
Journal
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
1.4.2019 Cash/Bank A/c Dr. 14,00,000
To Sonu’s Capital A/c 8,00,000
To Rajat’s Capital A/c 6,00,000
(Being capital contributed by partners)
31.3.20 Profit and Loss A/c Dr. 4,89,950
To Profit and Loss Appropriation A/c 4,89,950
(Being profit transferred from Profit and Loss A/c to Profit and Loss
Appropriation A/c)
Partner’s Salary A/c Dr. 2,40,000
To Sonu’s Capital A/c 2,40,000
(Being salary credited to Sonu’s Capital A/c)
Profit and Loss Appropriation A/c Dr. 2,40,000
To Partner’s Salary A/c 2,40,000
(Being salary transferred to Profit and Loss Appropriation A/c)
Partner’s Commission A/c Dr. 1,00,000
To Rajat’s Capital A/c 1,00,000
(Being commission credited to Rajat’s Capital A/c)
Profit and Loss Appropriation A/c Dr. 1,00,000
To Partner’s Commission A/c 1,00,000
(Being salary transferred to Profit and Loss Appropriation A/c)
Interest on Capital A/c Dr. 1,12,000
To Sonu’s Capital A/c 64,000
To Rajat’s Capital A/c 48,000
(Being interest on capital credited to Partners’ Capital A/c)
Profit and Loss Appropriation A/c Dr. 1,12,000
To Interest on Capital A/c 1,12,000
(Being Interest on Capital transferred to Profit and Loss Appropriation A/c)
Sonu’s Capital A/c Dr. 400
Rajat’s Capital A/c Dr. 1,650
To Interest on Drawings A/c 2,050
(Being Interest on drawings charged)
Interest on Drawings A/c Dr. 2,050
To Profit and Loss Appropriation A/c 2,050
(Being Interest on drawings transferred to Profit and Loss Appropriation A/c)
Profit and Loss Appropriation A/c Dr. 40,000
To Sonu’s Capital A/c 24,000
To Rajat’s Capital A/c 16,000
(Being Profit credited to Partners’ Capital accounts)
Q.3 L, M and N are partners in a firm sharing profits & losses in the ratio of 2 : 3 : 5. On April 1, 2019 their fixed
capitals were `2,00,000, `3,00,000 and `4,00,000 respectively. Their partnership deed provided for the following:
(i) Interest on capital @ 9% per annum. (ii) Interest on drawings @ 12% per annum. (iii) Interest on partners’ loan
@ 12% per annum.
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 45

On July 1, 2019, L brought `1,00,000 as additional capital and N withdrew `1,00,000 from his capital. During the
year L, M and N withdrew `12,000, `18,000 and `24,000 respectively for their personal use. On January 1, 2020
the firm obtained a loan of `1,50,000 from M. The net profit earned by the firm for the year ended March 31, 2020
was `1,01,500 before paying rent for his personal building to be used as godown for firm to N payable at `1,000 p.m.
Prepare Profit & Loss Appropriation Account and Partners’ Fixed Capital Accounts. Show your workings clearly.(6)
Ans. Dr. Profit & Loss Appropriation Account for the year ended 31st March 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: By Profit & Loss Account- Net Profit b/d 85,000
L’s Current Account 24,750 By Interest on Partners’ Drawings
(2,00,000 × 9/100 + 1,00,000 × 9/100 × 9/12) @12% p.a for 6 months
M’s Current Account (3,00,000 × 9/100) 27,000 L’s Current Account 720
N’s Current Account 29,250 M’s Current Account 1,080
(4,00,000 × 9/100 – 1,00,000 × 9/100 × 9/12) 81,000 N’s Current Account 1,440 3,240
To Profit transferred to:
L’s Current Account 1,448
M’s Current Account 2,172
N’s Current Account 3,620 7,240
88,240 88,240
Dr. Partners’ Capital Account Cr.
Date Particulars L (`) M (`) N (`) Date Particulars L (`) M (`) N (`)
1.7.19 To Bank A/c – – 1,00,000 1.4.19 By Balance b/d 2,00,000 3,00,000 4,00,000
31.3.20 To Balance c/d 3,00,000 3,00,000 3,00,000 1.7.19 By Bank A/c 1,00,000 – –
3,00,000 3,00,000 4,00,000 3,00,000 3,00,000 4,00,000
Working Notes: Interest on M’s loan = `1,50,000 × 12/100 × 3/12 = `4,500
Dr. Profit and Loss Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on M’s Loan 4,500 By Net Profit (given) 1,01,500
To Rent to N 12,000
To Net Profit c/d 85,000
1,01,500 1,01,500
Q.4 Shreya and Vivek were partners in a firm sharing profits in the ratio of 3:2. The balance in their capital and
current accounts as on 1st April, 2019 were as under:

Particulars Shreya (`) Vivek (`)


Capital accounts 3,00,000 (Cr.) 2,00,000 (Cr.)
Current accounts 1,00,000 (Cr.)   28,000 (Dr.)

The partnership deed provided that Shreya was to be paid a salary of `5,000 p.m. whereas Vivek was to get a
commission of `30,000 for the year. Interest on capital was to be allowed @ 8% p.a. whereas interest on drawings was to
be charged @ 6% p.a. The drawings of Shreya were `3,000 at the beginning of each quarter while Vivek withdrew `30,000
on 1st September, 2019. The net profit of the firm for the year before making the above adjustments was `1,20,000.
Prepare Profit and Loss Appropriation Account and Partners’ Capital and Current Accounts.  (6)
Ans. Dr. Profit And Loss Appropriation A/c for the year ending 31st March, 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To Partners’ Current A/c By Profit and Loss A/c (Net Profit) 1,20,000
Shreya 78,508 By Interest on Drawings
Vivek 42,992 1,21,500 Shreya’s Current A/c 450
Vivek’s Current A/c 1050 1,500
1,21,500 1,21,500
46 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Dr. Partners’ Capital A/c Cr.


Date Particulars Shreya (`) Vivek (`) Date Particulars Shreya (`) Vivek (`)
31.3.20 To Balance c/d 3,00,000 2,00,000 1.4.19 By Balance b/d 3,00,000 2,00,000
3,00,000 2,00,000 3,00,000 2,00,000
Dr. Partner’s Current A/c Cr.
Date Particulars Shreya (`) Vivek (`) Date Particulars Shreya (`) Vivek (`)
1.4.19 To Balance b/d – 28,000 1.4.19 By Balance b/d 1,00,000 –
31.3.20 To Drawings 12,000 30,000 31.3.20 By P& L App. A/c 78,508 42,992
To Interest on drawings 450 1,050 By Balance c/d – 16,058
To Balance c/d 1,66,058 –
1,78,508 59,050 1,78,508 59,050
Working Notes:
Particulars Shreya (`) Vivek (`)
Interest on Capital 24,000 16,000
Salary 60,000 –
Commission – 30,000
Amount to be paid 84,000 46,000
Total amount to be paid = 84,000 + 46,000 = `1,30,000.
Since profits available (including interest on drawings) = 1,20,000 + 1,500 = `1,21,500, therefore, appropriations will be
made to the extent of `1,21,500 only in the ratio of 84,000 : 46,000 = 42 : 23.
Shreya’s share = 42/65 × 1,21,500 = `78,508 ; Vivek’s share = 23/65 × 1,21,500 = `42,992
Q.5 Ali, Bimal and Deepak are partners in a firm. On 1st April, 2019 their capital accounts stood at `4,00,000,
`3,00,000 and `2,00,000 respectively. They shared profits and losses in the proportion of 5 : 3 : 2. Partners are
entitled to interest on capital @ 10% per annum and salary to Bimal and Deepak @ `2,000 per month and `3,000 per
quarter respectively as per the provisions of the partnership deed. Manager is to be allowed a commission `10,000.
Bimal’s share of profit (excluding interest on capital but including salary) is guaranteed at a minimum of `50,000
p.a. Any deficiency arising on that account shall be met by Deepak. The profits of the firm for the year ended 31st
March, 2020 amounted to `2,82,000, before paying rent for his personal building to be used as godown for firm
to Ali at `6,000 per month. Prepare Profit & Loss Appropriation Account. Show your workings clearly. (6)
Ans.
Dr. Profit And Loss Appropriation A/c for the year ending 31st March, 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital By Profit and Loss A/c (Net profit) 2,00,000
Ali’s Capital A/c 40,000
Bimal’s Capital A/c 30,000
Deepak’s Capital A/c 20,000 90,000
To Salary
Bimal’s Capital A/c 24,000
Deepak’s Capital A/c 12,000 36,000
To Profit transferred to:
Ali’s Capital A/c 37,000
Bimal’s Capital A/c 22,200
Add: Deficiency 3,800 26,000
Deepak’s Capital A/c 14,800
Less: Deficiency borne (3,800) 11,000
2,00,000 2,00,000
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 47

Working Notes: 1. Deficiency in Bimal’s share of profit = Guaranteed amount – Amount received
= `50,000 – (`24,000 + `22,200) = `50,000 – `46,200 = `3,800
2.
Dr. Profit and Loss Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Manager’s Commission 10,000 By Net Profit (given) 2,82,000
To Rent to Ali 72,000
To Net Profit c/d 2,00,000
2,82,000 2,82,000
Q.6 Arun, Varun and Tarun were partners of a law firm sharing profits in the ratio of 5:3:2. Their partnership deed
provided the following:
(i) Interest on partners’ capital @ 5% p.a.
(ii) Arun guaranteed that he would earn a minimum annual fee of `6,00,000 for the firm.
(iii) Tarun was guaranteed a profit of `2,50,000 (excluding interest on capital) and any deficiency on account of this
was to be borne by Arun and Varun in the ratio of 2:3.
During the year ending March 31, 2020, Arun earned a fee of `3,20,000 and net profits earned by the firm were
`8,60,000. Partner’s capital on April 01, 2019 were Arun - `30,00,000; Varun - ` 3,00,000 and Tarun- `2,00,000.
Prepare Profit and Loss Appropriation account and show your workings clearly. (6)
Ans.
Dr. Profit and Loss Appropriation Account for the year ending March 31, 2020 Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on Capital: By Profit & Loss A/c – Net Profit b/d 8,60,000
Arun’s Capital A/c 15,000 By Arun’s Capital A/c
Varun’s Capital A/c 15,000 Minimum annual fee guaranteed 6,00,000
Tarun’s Capital A/c 10,000 40,000 Less: Annual fee earned (3,20,000) 2,80,000
To Profit transferred to:
Arun’s Capital A/c 5,50,000
Less: Share in Deficiency (12,000) 5,38,000
Varun’s Capital A/c 3,30,000
Less: Share in Deficiency (18,000) 3,12,000
Tarun’s Capital A/c 2,20,000
Add: Deficiency received from:
Arun 12,000
Varun 18,000 2,50,000
11,40,000 11,40,000

Working notes: Tarun’s deficiency in profits = ` 2,50,000 – `2,20,000 = `30,000 to be borne by Arun & Varun in the ratio
of 2:3 i.e. `12,000 and `18,000 respectively.
PAST ADJUSTMENTS
Q.7 Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March
31, 2020. Their fixed capitals on which interest was to be allowed throughout were:
Leela `80,000, Meera `60,000 and Neha `1,00,000. Their profit sharing ratio during the last three years were:
Year Profit Sharing Ratio
2017-18 1:1:1
2018-19 4:5:1
2019-20 1:2:2
Record adjustment entry. Show your workings clearly. (6)
48 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Ans. Adjustment Entry


Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
2020 Meera’s Current A/c Dr. 10,440
31 Mar. To Leela’s Current A/c 1,440
To Neha’s Current A/c 9,000
(Adjustment for omission of interest on capitals for 3 years)
Working Notes: Adjustment Table
Particulars Leela (`) Meera (`) Neha (`) Total (`)
Omission of Interest on capital @9% p.a. for 3 years, Cr. 21,600 16,200 27,000 64,800
now credited (7,200 × 3) (5,400 × 3) (9000 × 3) (21,600 × 3)
2017–18
Profit (excess credited) now debited (1 : 1 : 1) Dr. 7,200 7,200 7,200 21,600
2018–19
Profit (excess credited) now debited (4 : 5 : 1) Dr. 8,640 10,800 2,160 21,600
2019–20
Profit (excess credited) now debited (1 : 2 : 2) Dr. 4,320 8,640 8,640 21,600
Total amount of profit to be debited Dr. 20,160 26,640 18,000 64,800
Net Effect/Adjustment 1,440 Cr. 10,440 Dr. 9,000 Cr. –

Q.8 Naveen, Qadir and Rajesh were partners doing an electronic goods business in Uttarakhand. After the accounts
of partnership were drawn up and closed, it was discovered that interest on capital has been allowed to partners
@ 6% p.a. for the years ending 31st March, 2019 and 2020, although there is no provision for interest on capital
in the partnership deed. On the other hand, Naveen and Qadir were entitled to a salary of `3,500 and `4,000 per
quarter respectively, which has not been taken into consideration. Their fixed capitals were `4,00,000, `3,60,000
and `2,40,000 respectively.
Year Ended Profit Sharing Ratio
31st March, 2019 3:2:1
31st March, 2020 5:3:2
Pass necessary adjusting entry for the above adjustments on 1st April, 2020. Show your workings clearly. (6)
Ans. Adjustment Entry
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
2020 Rajesh’s Current A/c Dr. 17,800
1 April To Naveen’s Current A/c 10,000
To Qadir’s Current A/c 7,800
(Being interest on Capital wrongly allowed)

Working notes: Adjustment Table


Particulars Naveen (`) Qadir (`) Rajesh (`) Total (`)
A. Cancellation of Interest on Capital 48,000 43,200 28,800 1,20,000
Dr.
for 2 years (24,000 × 2) (21,600 × 2) (14,400 × 2 ) (60,000 × 2)
B. Omission of Salary for 2 years, now credited Cr. 28,000 32,000 60,000

(14,000 × 2) (16,000 × 2) (30,000 × 2)
Difference (A – B) Dr. 20,000 11,200 28,800 60,000
(10,000 × 2) (5,600 × 2) (14,400 × 2 ) (30,000 × 2)
Profit less credited, now credited:
2018-19 (3 : 2 : 1) Cr. 15,000 10,000 5,000 30,000
2019-20 (5 : 3 : 2) Cr. 15,000 9,000 6,000 30,000
Total Cr. 30,000 19,000 11,000 60,000
Net Effect Cr. 10,000 Cr. 7,800 Dr. 17,800 –
CHAPTER-2 Accounting for Partnership Firms EXAM HANDBOOK Accountancy XII (2021 Edition) 49

Q.9 On March 31st, 2020, the balances in the capital accounts of E, M and I after making adjustments for profits
and drawings were `1,60,000, `1,20,000 and `80,000 respectively. Subsequently, it was discovered that the interest
on capital and drawings had been omitted. The profit for the year ended 31st March, 2014 was `40,000. During
the year E and M each withdrew a total sum of `24,000 in equal installments in the beginning of each month and I
withdrew a total sum of `48,000 in equal installments at the end of each month. The interest on drawings was to be
charged @ 5% p.a. and interest on capital was to be allowed @ 10% p.a. The profit sharing ratio among the partners
was 2 : 1 : 1. Showing your working notes clearly, pass the necessary rectifying entry. (6)
Ans. Adjustment Entry
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
2020 E’s Capital A/c Dr. 3,850
31 Mar. To M’s Capital A/c 2,950
To I’s Capital A/c 900
(Being interest on capital and interest on drawings omitted, now adjusted)
Working Notes:
(i) Calculation of Interest on Drawings:
E and M each = 24,000 × 5/100 × 6.5/12 = `650 and I = 48,000× 5/100 × 5.5/12 = `1,100
(ii) Calculation of Opening Capitals and Interest on Capitals:
Details E (`) M (`) I (`)
Closing Capitals 1,60,000 1,20,000 80,000
Less: Profits distributed (20,000) (10,000) (10,000)
Add: Drawings 24,000 24,000 48,000
Opening Capitals 1,64,000 1,34,000 1,18,000
Interest on Capitals 16,400 13,400 11,800
(iii) Adjustment Table
Particulars E (`) M (`) I (`) Total (`)
Profit already distributed Dr. 20,000 10,000 10,000 40,000
Omission of interest on drawings Dr. 650 650 1,100 2,400
Total Dr. 20,650 10,650 11,100 42,400
Omission of interest on capital Cr. 16,400 13,400 11,800 41,600
Share of profit Cr. 400 200 200 800
Total Cr. 16,800 13,600 12,000 42,400
Net Effect Dr. 3,850 Cr. 2,950 Cr. 900 –
Q.10 Mannu and Srishti are partners in a firm sharing profit in the ratio of 3 : 2.
Balance Sheet of Mannu and Srishti as on 31 March 2020
Liabilities Amount (`) Assets Amount (`)
Mannu’s Capital 30,000 Drawings : Mannu 4,000
Srishti’s Capital 10,000 40,000 Srishti 2,000 6,000
Other Assets 34,000
40,000 40,000

Profit for the year ended March 31, 2020 was `5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital
and @ 6% p.a. on drawings was inadvertently enquired. Give the adjustment entry. Show your workings clearly. (6)
Ans. Adjustment Table
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
2020 Srishti’s Capital A/c Dr. 288
31 Mar. To Mannu’s Capital A/c 288
(Adjustment for omission of interest on capitals and drawings)
50 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Working Notes: (i) Calculation of Opening Capitals and Interest on Capitals:


Details Mannu (`) Srishti (`)
Closing Capital 30,000 10,000
Less: Profit distributed (3,000) (2,000)
Opening Capital 27,000 8,000
Interest on Capital @ 5% p.a. 1,350 400

Note: For calculating opening capitals, drawings have not been added as it was not debited to Partner’s Capital Accounts.
(ii) Adjustment Table
Details Mannu (`) Srishti (`) Total (`)
Profit already distributed, now cancelled Dr. 3,000 2,000 5,000
Interest on Drawings @6% p.a. for 6 months Dr. 120 60 180
Total Dr. 3,120 2,060 5,180
Interest on Capitals Cr. 1,350 400 1,750
Share of Profits Cr. 2,058 1,372 3,430
Total Cr. 3,408 1,772 5,180
Adjustment/Net Effect Cr. 288 Dr. 288 –
Q.11 Pass necessary rectifying journal entries for the omissions committed while preparing Profit and Loss
Appropriation Account. You are also required to show your workings clearly. (6)
(a) Gupta and Sarin are partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals are: Gupta
`2,00,000, and Sarin `3,00,000. After the accounts for the year are prepared it is discovered that interest on
capital @10% p.a. as provided in the partnership agreement, has not been credited in the capital accounts of
partners before distribution of profits.
(b) Nusrat, Sonu and Himesh are partners sharing profits and losses in the ratio of 5:3:2. The partnership deed
provides for charging interest on drawing’s @10% p.a. The drawings of Nusrat, Sonu and Himesh during the
year amounted to `20,000, `15,000 and `10,000 respectively. After the final accounts have been prepared, it
was discovered that interest on drawings has not been taken into consideration.
Ans. (a) Adjustment Entry
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Gupta’s Current A/c Dr. 10,000
To Sarin’s Current A/c 10,000
(Adjustment for omission of interest on capitals)
Working Notes: Adjustment Table
Details Gupta (`) Sarin (`) Total (`)
Omission of Interest on capitals, now credited Cr. 20,000 30,000 50,000
Excess Profit Credited, now debited in 3:2 Dr. 30,000 20,000 50,000
Net Effect 10,000 Dr. 10,000 Cr. –
(b) Adjustment Entry
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Sonu’s Capital A/c Dr. 75
Himesh’s Capital A/c Dr. 50
To Nusrat’s Capital A/c 125
(Adjustment for omission of interest on drawings)
Working Notes: Adjustment Table
Particulars Nusrat (`) Sonu (`) Himesh (`) Total (`)
Omission of Interest on Drawings Dr. 1,000 750 500 2,250
Share of Profit less credited (5:3:2) Cr. 1,125 675 450 2,250
Adjustment/Net Effect Cr. 125 Dr. 75 Dr. 50
3
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 51

Chapter
Reconstitution of a
Partnership Firm:
  Goodwill
  Admission of a New Partner
  Change in Profit Sharing Ratio

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


 Goodwill: nature, factors affecting and methods of After going through this Unit, the students will be able to:
valuation - average profit, super profit and capitalization.  state the meaning, nature and factors affecting goodwill
 Change in the Profit Sharing Ratio among the existing  develop the understanding and skill of valuation of goodwill
partners - sacrificing ratio, gaining ratio, accounting for using different methods.
revaluation of assets and reassessment of liabilities and  state the meaning of sacrificing ratio, gaining ratio and the
treatment of reserves and accumulated profits. Preparation change in profit sharing ratio among existing partners.
of revaluation account and balance sheet.
 develop the understanding of accounting treatment of
 Admission of a partner - effect of admission of a partner revaluation assets and reassessment of liabilities and treatment
on change in the profit sharing ratio, treatment of of reserves and accumulated profits by preparing revaluation
goodwill (as per AS 26), treatment for revaluation of assets account and balance sheet.
and reassessment of liabilities, treatment of reserves and  explain the effect of change in profit sharing ratio on
accumulated profits admission of a new partner.
Note: Goodwill to be adjusted through partners capital/ current  develop the understanding and skill of treatment of goodwill as
account (AS 26) per AS-26, treatment of revaluation of assets and re-assessment
of liabilities, treatment of reserves and accumulated profits

Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book

New Accounting Treatment


Goodwill – Accounting Standard 26
(a) Purchased goodwill: Purchased goodwill (or existing goodwill) may be accounted for in the books and shown as
a fictitious asset in the balance sheet. Where it is accounted for in the books and shown as assets, it should be
written off as early as possible. But where it is to be written- off in more than one accounting year, it should be
written off in a period not exceeding 10 years.
In line with what is prescribed by AS-26, goodwill appearing in the balance sheet is written off at the time of
firm's reconstitution among the old partners in old ratio. Journal entry for writing off purchased goodwill is as follows:
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Old Partners' Capital A/cs (individually) Dr.
To Goodwill A/c
(Existing goodwill written off in old ratio)
(b) Self-generated goodwill: Self generated goodwill is the valued goodwill at the time of reconstitution of partnership
firm. It is not accounted for in the books and hence NOT shown as a fictitious asset in the balance sheet.
52 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Valuation of Self-Generated Goodwill


1. Average Profits Method: Goodwill = Average Profits × No. of years purchase
For the purpose of valuation of goodwill, Average Profits means 'Average Maintainable Profits'.
Maintainable Profit of each year = Given profit – Unprovided depreciation – Annual management cost – Annual salary/
remuneration of all partners (if not provided yet) + Abnormal loss (e.g. loss by fire, theft, etc.) – Abnormal gain (e.g.
insurance claim received etc.) ± Rectification (e.g. + over valuation of opening stock – over valuation of closing stock)
2. Super Profits Method: Goodwill = Super Profit × No. of years purchase
Super Profit = Actual/Average Profit – Normal Profit
Normal Rate of Return (NRR)
where, Normal Profit = Actual Firm ’ s Capital ×
100
Note: Actual Firm's Capital (= Net Assets) = Total Assets excluding purchased goodwill and fictitious assets (e.g.
debit balance of Profit and Loss Account, Deferred Revenue Expenditure, etc.) – Outside/External Liabilities (e.g.
creditors, bills payable, bank loan, etc.)
Alternately, Actual Firm's Capital = Partners' capital account credit balances + Partners' current account credit
balances – Partner's capital account debit balance, if any – Partner's current account debit balance, if any + Reserves
and Surplus (i.e. general reserve/reserve fund, credit balance of profit and loss account, etc.) – Fictitious Assets (e.g.
debit balance of Profit and Loss Account, Deferred Revenue Expenditure, etc.)
3. Capitalisation Methods:
100
(a) Capitalisation of Average Profits Method: Goodwill = Capitalised value of the firm (Average profits × )
– Actual firm's capital (Net Assets) NRR
100
(b) Capitalisation of Super Profit Method: Goodwill = Super Profit ×
NRR
Calculation of Hidden Goodwill (on admission of a partner)
Value of Firm's Goodwill = Total Capital of the firm (based on new partner's capital and his share) – Actual total
capital of all partners (i.e. Actual firm's capital before admission + New partner's capital)
Treatment of Goodwill (on admission of a partner)
(a) When the new Partner brings premium for goodwill in cash: The amount of premium brought in by the new
partner is shared by the old partners in their sacrificing ratio. If this amount is paid to the old partners directly
(privately) by the new partner, no entry is passed in the books of the firm. But, when the amount is paid through
the firm, which is generally the case, the following journal entries are passed:
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr.
To Premium for Goodwill A/c
(Amount brought by new partner as premium)
Premium for Goodwill A/c Dr.
To Sacrificing Partners' Capital A/cs (Individually)
(Premium distributed among old partners in their sacrificing ratio)

If the sacrificing partners withdraw their amounts of goodwill (in full or in part), the following additional entry
will be passed:
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Old Partner’s Capital A/c (Individually) Dr.
To Cash/Bank A/c
(Amount of goodwill withdrawn by the old partners)
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 53

(b) When the new Partner does NOT bring premium for goodwill in cash: Goodwill not brought by the new partner
will be debited to current account of new partner while old partners' capital accounts will be credited for their
respective shares in their sacrificing ratio.
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
New Partner's Current A/c Dr.
To Sacrificing Partners' Capital A/cs (individually)
(Account of goodwill not brought in by new partner)
(c) When the new Partner brings only a part of his share of goodwill in cash: Following journal entries will be passed:
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr.
To Premium for Goodwill A/c
(Premium brought by new partner in part)
Premium for Goodwill A/c Dr.
New Partner's Current A/c Dr.
To Sacrificing Partners' Capital A/cs (Individually)
(Goodwill credited in sacrificing ratio)

Treatment of Goodwill (on change in profit sharing ratio among the existing partners)
If the existing partners of a firm decide to change their profit sharing ratio, this results in a gain or sacrifice of share
of the existing partners. In such a situation, Gain and Sacrifice in the value of goodwill will have to be adjusted. This
is done by crediting sacrificing partner's and debiting gaining partner's capital accounts.
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Gaining Partner's Capital A/c Dr.
To Sacrificing Partner's Capital A/c
(Adjustment of goodwill on change in profit sharing ratio)

Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination
 Any change in the relationship of existing partners which results in an end of the existing agreement and enforces
making of a new agreement is called reconstitution of the partnership firm.
1. Admission of a new partner – When firm requires additional capital or managerial help or both for the expansion of
its business, a new partner may be admitted. According to the Partnership Act 1932, a new partner can be admitted
into the firm only with the consent of all the existing partners.
Two main rights of a new partner: (i) Right to share assets of the partnership firm; and (ii) Right to share profits of the
partnership firm.
New partner brings an agreed amount of capital and premium for goodwill to compensate the existing partners for loss
of their share. Ratio in which the old partners sacrifice their share in favour of new partner is called sacrificing ratio.
(Sacrifice by a Partner = Old Share – New Share)
2. Retirement of a partner – It means withdrawal by a partner from the business, due to bad health, old age or change in
business interests. In fact a partner can retire any time if the partnership is at will.
3. Death of a partner 4. Change in the profit sharing ratio among the existing partners 5. Insolvency of a partner
 Goodwill: Goodwill is the value of the reputation of a firm in respect of the profits expected in future over and above the
normal profits. Goodwill exists only when the firm earns super profits. Any firm that earns normal profits or is incurring
losses has no goodwill.
 Factors Affecting the Value of Goodwill
1. Nature of business: A firm that produces high value added products or having a stable demand is able to earn more
profits and therefore has more goodwill.
54 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

2. Location: If the business is centrally located or is at a good market place, the goodwill tends to be high.
3. Efficiency of management results in high productivity, cost efficiency and hence, higher profits. So goodwill will also
be high.
4. Market situation: Monopoly/limited competition leads to high profits and hence, higher value of goodwill.
5. Special advantages like import licences, long-term contracts, patents, trademarks, etc. result in higher value of goodwill.
 Valuation of Goodwill is necessary in the following circumstances: (i) Change in the profit sharing ratio amongst the
existing partners (ii) Admission of new partner (iii) Retirement of a partner (iv) Death of a partner (v) Dissolution of a
firm involving sale of business as a going concern (vi) Amalgamation of partnership firms
 Adjustment for Accumulated Profits and Losses: Accumulated profits (undistributed profits) e.g. General Reserve/
Reserve Fund, Credit Balance of Profit and Loss A/c belong to the old partners, and hence distributed by transferring it to
their capital in old profit sharing ratio.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Reserve A/c/Profit and Loss A/c Dr.
To Old Partners’ Capital A/cs (individually)
(Being accumulated profits distributed in old profit sharing ratio)

Accumulated losses e.g. debit balance of profit and loss account, deferred revenue advertisement expenditure, etc. are
debited to old partners’ capital accounts in old profit sharing ratio.
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Old Partners’ Capital A/cs (individually) Dr.
To Profit and Loss A/c/Deferred Revenue Expenditure A/c
(Being accumulated losses distributed in old profit sharing ratio)
 Revaluation of Assets and Reassessment of Liabilities: Revaluation account is prepared (i) to record the effect of
revaluation of assets and liabilities, and (ii) to ensure that profit/loss on revaluation is divided between old partners in
old ratio.
Dr. Revaluation A/c (or Profit and Loss Adjustment A/c) Cr.
Particulars Amount (`) Particulars Amount (`)
4. To Asset A/c (Decrease in value of Asset) xxx 1. By Asset A/c (Increase in value of asset) xxx
5. To Liability A/c (Increase in amount of liability) xxx 2. By Liability A/c (Decrease in amount of xxx
6. To Unrecorded Liability or Cash/Bank A/c xxx liability) xxx
7. (a) To Profit credited to old partners’ capital/ xxx 3. By Unrecorded Asset or Cash/Bank A/c xxx
current A/cs (individually) in old profit 7. (b) By Loss debited to old partners’
sharing ratio capital/ current A/cs (individually) in
old profit sharing ratio
xxxx xxxx

Journal
Date Particulars L.F. Dr. (`) Cr. (`)
1. For increase in the value of an asset:
Asset A/c (gain) Dr.
To Revaluation A/c
2. For reduction in the value of a liability:
Liability A/c (gain) Dr.
To Revaluation A/c
3. For recording or selling an unrecorded asset:
Unrecorded Asset A/c or Cash/Bank A/c Dr.
To Revaluation A/c
4. For reduction in the value of an asset:
Revaluation A/c Dr.
To Asset A/c (loss)
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 55

5. For increase in the amount of a liability:


Revaluation A/c Dr.
To Liability A/c (loss)
6. For recording or making payment of an unrecorded liability:
Revaluation A/c Dr.
To Unrecorded Liability A/c or Cash/Bank A/c
7.(a) For transfer of gain on revaluation in old ratio:
Revaluation A/c Dr.
To Old Partners’ Capital/Current A/cs (individually)
Or
(b) For transferring loss on revaluation in old ratio:
Old Partners’ Capital/ Current A/cs (individually) Dr.
To Revaluation A/c

 Treatment of Workmen’s Compensation Fund/Reserve


Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Workmen’s Compensation Fund A/c Dr.
To Workmen’s Compensation Claim A/c
To A’s Capital/Current A/c
To B’s Capital/Current A/c
(Being W.C. claim set off from W.C. Fund and surplus distributed between
old partners in their old ratio)
OR
Workmen’s Compensation Fund A/c Dr.
Revaluation A/c Dr.
To Workmen’s Compensation Claim A/c
(Being W.C. claim set off from W.C. Fund and Revaluation A/c if the claim
exceeds W.C. fund)
 Treatment of Investment Fluctuation Fund/Reserve
Journal
Date Particulars L.F. Dr. (`) Cr. (`)
Investment Fluctuation Fund A/c Dr.
To Investments A/c
To X’s Capital/Current A/c
To Y’s Capital/Current A/c
(Decrease in value of investment set off from I.F. Fund and surplus distributed
between old Partners in their old ratio)
OR
Investment Fluctuation Fund A/c Dr.
Revaluation A/c Dr.
To Investments A/c
(Decrease in value of investment set off from I.F. Fund and Revaluation A/c
if decrease in value of investment is more than I.F. fund)

New Ratio and Sacrificing Ratio


Case I: Old profit sharing ratio and proportionate share of the new partner are given. Nothing is specified as to the ratio in
which the new partner acquires his share from the old partners.
In this case, it may be assumed that the new partner acquires his share of profit from the existing partners in their old profit sharing
ratio, i.e. sacrificing ratio = old ratio.
Example: Anil and Vishal are partners sharing profits in the ratio of 3 : 2. They admitted Sumit as a new partner for 1/5 share
in the future profits of the firm.
Sumit’s share = 1/5. Therefore, combined share of Anil and Vishal = 1 – 1/5 = 4/5
Anil’s new share = 3/5 × 4/5 = 12/25; Vishal’s new share = 2/5 × 4/5 = 8/25
New profit sharing ratio of Anil, Vishal and Sumit = 12/25 : 8/25 : 1/5 = 12 : 8 : 5.
56 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Top Tip: In Case I, the new profit sharing ratio between Anil and Vishal = 12 : 8 = 3 : 2 = Their old profit sharing ratio. In other
words, the new profit sharing ratio between Anil and Vishal remains unchanged. This means that Sumit acquires his share of profit
from the old partners in their old profit sharing ratio. Thus, sacrificing ratio of Anil and Vishal = Their old profit sharing ratio = 3 : 2.
Hence, there is no need to calculate the sacrificing ratio.

Case II: Old profit sharing ratio, share of the new partner and the new ratio between old partners are given
Example: Amar and Bahadur are partners in a firm sharing profits in the ratio of 3 : 2. They admitted Mary as a new
partner for 1/4 share. The new profit sharing ratio between Amar and Bahadur will be 2 : 1.
Marry’s share = 1/4. Therefore, combined share of Amar and Bahadur = 1 – 1/4 = 3/4, which is to be shared by Amar and
Bahadur in 2 : 1. Thus, Amar’s new share = 2/3 × 3/4 = 6/12; Bahadur’s new share = 1/3 × 3/4 = 3/12
Therefore, new profit sharing ratio of Amar, Bahadur and Mary = 6/12 : 3/12 : 1/4 = 2 : 1 : 1
Calculation of Sacrificing Ratio: Old ratio – New ratio
Amar’s sacrifice = 3/5 – 2/4 = 2/20; Bahadur’s sacrifice = 2/5 – 1/4 = 3/20
Therefore, sacrificing ratio among Amar and Bahadur = 2 : 3.
Case III: Old partners’ old profit sharing ratio, new partner’s share and sacrificing ratio are given
Example: Akshay and Bharti are partners sharing profits in the ratio of 3:2. They admit Dinesh as a new partner for
1/5th share in the future profits of the firm which he gets equally from Akshay and Bharti.
Sacrificing ratio of Akshay and Bharti = 1 : 1. Therefore, Akshay’s sacrifice = Bharti’s sacrifice = 1/2 × 1/5 = 1/10
Calculation of new profit sharing ratio: New share of an existing partner = Old share – Sacrificing share
Akshay’s new share = 3/5 – 1/10 = 5/10; Bharti’s new share = 2/5 – 1/10 = 3/10
Therefore, new profit sharing ratio between Akshay, Bharti and Dinesh = 5/10 : 3/10 : 1/5 = 5 : 3 : 2
Case IV: Old partners’ old profit sharing ratio, new partner’s share and old partners’ absolute sacrificing share are
given
Example: Anshu and Nitu are partners sharing profits in the ratio of 3 : 2. They admitted Jyoti as a new partner for
3/10 share which she acquired 2/10 from Anshu and 1/10 from Nitu.
Sacrificing ratio of Anshu and Nitu = 2/10 : 1/10 = 2 : 1
Calculation of new profit sharing ratio: New share of an existing partner = Old share – Sacrificing share
Anshu’s new share = 3/5 – 2/10 = 4/10; Nitu’s new share = 2/5 – 1/10 = 3/10
Therefore, new profit sharing ratio between Anshu, Nitu and Jyoti = 4/10 : 3/10 : 3/10 = 4 : 3 : 3
Case V: Old partners’ old profit sharing ratio and their relative sacrificing share are given
Example: Ram and Shyam are partners in a firm sharing profits in the ratio of 3:2. They admit Ghanshyam as a new
partner. Ram surrenders 1/4 of his share and Shyam 1/3 of his share in favour of Ghanshyam.
Ram’s sacrificing share = 1/4 × 3/5 = 3/20; Shyam’s sacrificing share = 1/3 × 2/5 = 2/15
Therefore, Sacrificing Ratio of Ram and Shyam = 3/20 : 2/15 = 9 : 8
Calculation of new profit sharing ratio: New share of an existing partner = Old share – Sacrificing share
Ram’s new share = 3/5 – 3/20 = 9/20; Shyam’s new share = 2/5 – 2/15 = 4/15
Ghanshyam’s share = Ram’s sacrificing share + Shyam’s sacrificing share = 3/20 + 2/15 = 17/60
Therefore, New profit sharing ratio among Ram, Shyam and Ghanshyam = 9/20 : 4/15 : 17/60 = 27 : 16 : 17

Top Tip: If A and B are partners, who share profits and losses in the ratio 3 : 2, admitted C as a partner.
 “A sacrifices 1/4 from his share” means that 1/4 is the absolute sacrificing share of A. Therefore, A’s sacrifice = 1/4
 “A sacrifices 1/4 of his share” means that 1/4 is not the absolute sacrificing share of A, but the relative sacrificing share. That is,
A’s sacrifice = 1/4 × 3/5 = 3/20. Thus, 3/20 is A’s absolute sacrificing share.

Case VI: Not all the old partners sacrifice their share of profit in favour of the new partner. In fact some old
partner(s) may gain on admission of a new partner.
Example: Ramesh and Suresh are partners in a firm sharing profits in the ratio of 4 : 3. They admitted Mohan as a
new partner. The profit sharing ratio of Ramesh, Suresh and Mohan will be 2 : 3 : 1.
Ramesh’s sacrifice = old share – new share = 4/7 – 2/6 = 10/42; Suresh’s sacrifice = 3/7 – 3/6 = –3/42 (gain)
Thus, Suresh gains 3/42th share of profit on Mohan’s admission. So, he will also compensate an amount equal to “Goodwill
of the firm × 3/42” to Ramesh.
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 57

Revaluation Account Adjustments


1.  Change in Value of Assets and Liabilities
Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Sundry creditors 1,00,000 Furniture 40,000
Employee Provident Fund 20,000 Building 5,00,000
Outstanding expenses 10,000 Stock 80,000
Patents 7,500
Plant and Machinery 80,000
Investment 50,000

Adjustments:
(a) Furniture is reduced by 10%. (b) Building is appreciated by 20%.
(c) Furniture is brought up to `50,000. (d) Building appreciated at/to `5,50,000.
(e) Furniture is revalued at `30,000. (f ) Furniture is reduced to 60%.
(g) Stock is overvalued by `4,000. (h) Stock is undervalued by `5,000.
(i)  Stock is undervalued by 20%. (j) 5% provision/reserve is created on sundry creditors for discount.
(k) A creditor of `2,000 is not likely to claim his money and is to be written off.
(l) Patents are valueless./Patents will be completely written off.
(m) Employees’ Provident Fund is to be increased by `5,000.
(n) Stock includes `1,000 for obsolete items.
(o) Stock is overvalued by 60%.
(p) Sundry creditors were unrecorded to the extent of `5,000./A creditor of `5,000 not recorded in the books was to
be taken into account.
(q) Sundry creditors were valued at `1,10,000, one bill for goods purchased have been omitted from books.
(r) 10% depreciation on plant and machinery.
(s) Plant and machinery be revalued at 125%.
(t) Outstanding expenses were brought down to `9,000.
(u) Outstanding expenses will be paid off.
(v) Furniture of `30,000 were taken over by partners A and B equally at book value. Remaining furniture were revalued
at `8,000.
(w) Market value of investments is `45,000.
(x) Investments were revalued at `60,000.
(y) Stock was taken over by a partner, Krishna at `90,000.
(z) A liability on account of damages of `7,000, included in Sundry Creditors, is settled at `12,000.
Treatment in Revaluation A/c and Balance Sheet of the Reconstituted Firm:
Dr. Revaluation A/c/Profit and Loss Adjustment A/c Cr.
Particulars Amount (`) Particulars Amount (`)
(a) To Furniture A/c 4,000 (b) By Building A/c 1,00,000
(e) To Furniture A/c 10,000 (c) By Furniture A/c 10,000
(f ) To Furniture A/c 16,000 (d) By Building A/c 50,000
(g) To Stock A/c 4,000 (h) By Stock A/c 5,000
(l) To Patents A/c 7,500 (i) By Stock A/c 20,000
(m) To Employee Provident Fund A/c 5,000 (j) By Provision for discount on creditors 5,000
(n) To Stock A/c 1,000 (k) By Creditors A/c 2,000
(o) To Stock A/c 30,000 (s) By Plant and Machinery A/c 20,000
(p) To Creditors A/c 5,000 (t) By Outstanding expenses 1,000
(q) To Creditors A/c 10,000 (x) By Investments 10,000
(r) To Plant and Machinery A/c 8,000 (y) By Stock 10,000
(v) To Furniture A/c 2,000
(w) To Investments A/c 5,000
(z) To Provision for Damages A/c 5,000
58 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Balance Sheet of the Reconstituted Firm


Liabilities Amount (`) Assets Amount (`)
(j) Sundry Creditors `1,00,000 (a) Furniture 36,000
Less: Provision for discount `5,000 95,000 (b) Building 6,00,000
(k) Sundry Creditors 98,000 (c) Furniture 50,000
(m) Employee Provident Fund 25,000 (d) Building 5,50,000
(p) Sundry Creditors 1,05,000 (e) Furniture 30,000
(q) Sundry Creditors 1,10,000 (f ) Furniture 24,000
(t) Outstanding expenses 9,000 (g) Stock 76,000
(z) Provision for Damages 5,000 (h) Stock 85,000
Sundry Creditors 1,00,000 (i) Stock 1,00,000
(n) Stock 79,000
(o) Stock 50,000
(r) Plant and Machinery 72,000
(s) Plant and Machinery 1,00,000
(v) Furniture 8,000
(w) Investments 45,000
(x) Investments 60,000

Top Tips
Adjustment (i): Stock is undervalued by 20% means that the stock shown in balance sheet at `80,000 is 80%. Therefore, current
value of stock = 80,000/80 × 100 = `1,00,000. Thus, value of stock increased by `20,000.
Adjustment (o): Stock is overvalued by 60% means that the stock shown in balance sheet at `80,000 is 160%. Therefore, current value
of stock = 80,000/160 × 100 = `50,000. Thus, value of stock decreased by `30,000.
Adjustment (u): Outstanding expenses will be paid off. Balance of Cash/Bank will decreased by `10,000 on assets side of the balance
sheet. Outstanding expenses will not be shown in the revised balance sheet on the liabilities side.
Adjustment (v): Furniture of `30,000 taken over by partners A and B equally. A‘s and B’s capital accounts will debited with Furniture
A/c by `15,000 each.
Adjustment (y): Book value of stock is `80,000. The same is taken over by a partner, Krishna at `90,000. Thus, gain on revaluation of
stock is `10,000, which will be credited to revaluation account. Also, Krishna’s capital account will debited with Stock A/c by `90,000.
No stock will be shown in the balance sheet.
Adjustment (z): Provision for damages `5,000 will be debited to revaluation account and will shown on the liabilities side of balance
sheet separately. Sundry Creditors will appear in the balance sheet at the same value `1,00,000.

2.  Unrecorded Assets and Unrecorded Liabilities


Adjustments:
(a) A reserve of `1,300 to be made for outstanding bill for repair./ There was an outstanding repairs bill of `1,300
which will be shown in the books of accounts.
(b) A liability to the extent of `3,000 created in respect of outstanding salary.
(c) Prepaid/unexpired insurance `2,000.
(d) There is a typewriter of `2,000 (not recorded in the books) was sold at the same amount.
(e) `2,000 be provided for an outstanding electricity bill.
(f ) There is a claim against the firm for damages, a liability to the extent of `5,000 should be created./A claim of
`5,000 for damages against the firm was likely to be maintained. Provision for the same was to be made.
(g) A liability of `18,000 will be created against bills receivables discounted.
(h) There was a claim on account of workmen’s compensation of `10,000
(i) Investment worth `6,000 (not mentioned in the balance sheet) is to be taken into account.
(j) A provision be made for `2,000 for outstanding legal charges.
(k) Two months salary @`6,000 p.m. was outstanding.
(l) An old computer previously written off was sold for `4,000.
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 59

Treatment in Revaluation A/c and Balance Sheet of the Reconstituted Firm:


Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
(a) To Reserve for O/s Bill for repair 1,300 (c) By Prepaid/Unexpired Insurance 2,000
(b) To O/s Salary A/c 3,000 *(d) By Cash/Bank A/c (unrecorded typewriter) 2,000
(e) To Provision for Electricity Bill 2,000 (i) By Investment A/c 6,000
(f ) To Provision for claim for damages A/c 5,000 (l) By Cash/Bank A/c (unrecorded computer) 4,000
(g) To Liability for B/R discounted A/c 18,000
(h) To Workmen’s Compensation Claim A/c 10,000
(j) To Provision for outstanding legal charges 2,000
(k) To Outstanding Salary 12,000
*On the assets side of the revised balance sheet, cash/bank balance will increase by `2,000, i.e. amount realised by selling unrecorded typewriter.
Balance Sheet of the Reconstituted Firm
Liabilities Amount (`) Assets Amount (`)
(a) Reserve for O/s Bill for repair 1,300 (c) Prepaid/Unexpired Insurance 2,000
(b) O/s Salary 3,000 (i) Investment 6,000
(e) Provision for Electricity Bill 2,000
(f ) Provision for claim for damages 5,000
(g) Liability for B/R discounted 18,000
(h) Workmen’s Compensation Claim 10,000
(j) Provision for outstanding legal charges 2,000
(k) To Outstanding Salary 12,000

3. Bad Debts and Provision for Bad and Doubtful Debts


I. Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Debtors/Book debts 30,000
Less: Provision for doubtful debts (5,000) 25,000

Top Tip: Instead of deducting from debtors, provision for doubtful debts may also appear on the liabilities side of balance sheet.

Adjustments:
(a) Provision for doubtful debts is created up to/equal to/at 20% of debtors. OR Debtors were revalued at book value
less 20% provision for bad and doubtful debts.
(b) Provision for doubtful debts is raised to `7,000.
(c) Provision for doubtful debts is reduced by `3,000.
(d) Provision for doubtful debts is reduced to 10% on debtors.
(e) Provision for doubtful debts was found in excess by `1000.
(f ) Bad debts to be written off `6,000.
(g) All debtors are considered good./Provision for doubtful debts is no longer required.
(h) An old customer, whose account was written off as bad debts, has promised to pay `1,000 in settlement of his full
debt of `3,000.
(i) An amount of `1,000 due from Gopal, a debtor, was doubtful and a provision for the same was required.
Treatment:
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
(a) To Provision for Doubtful Debts 1,000 (c) By Provision for Doubtful Debts 3,000
(b) To Provision for Doubtful Debts 2,000 (d) By Provision for Doubtful Debts 2,000
(f ) To Bad Debts 1,000 (e) By Provision for Doubtful Debts 1,000
(i) To Provision for Doubtful Debts 1,000 (g) By Provision for Doubtful Debts 5,000
(h) By Debtors (Bad Debts recovered) 1,000
60 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Balance Sheet of the Reconstituted Firm


Liabilities Amount (`) Assets Amount (`)
(a) Debtors 30,000
Less: Provision for Doubtful Debts (6,000) 24,000
(b) Debtors 30,000
Less: Provision for Doubtful Debts (7,000) 23,000
(c) Debtors 30,000
Less: Provision for Doubtful Debts (2,000) 28,000
(d) Debtors 30,000
Less: Provision for Doubtful Debts (3,000) 27,000
(e) Debtors 30,000
Less: Provision for Doubtful Debts (4,000) 26,000
(f ) Debtors 24,000
(g) Debtors 30,000
(h) Debtors 30,000
Less: Provision for Doubtful Debts (5,000)
Add: Bad Debts recovered 1,000 26,000
(i) Debtors 30,000
Less: Provision for Doubtful Debts (6,000) 24,000

Top Tip: Adjustment (f): Journal Entries


Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bad debts A/c Dr. 6,000
To Debtors A/c 6,000
(For writing off bad debts)
Provision for doubtful debts A/c Dr. 5,000
Revaluation A/c Dr. 1,000
To Bad debts A/c 6,000
(Being bad debts `5,000 set off from provision for doubtful debts and
balance `1,000 debited to Revaluation A/c)

II. Balance Sheet


Liabilities Amount (`) Assets Amount (`)
Debtors 5,000
Adjustment: `500 proved bad and Mr. X, one of the debtors of `500 promised to pay the amount. 10% provision is made for
doubtful debts.
Treatment:
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Bad Debts 500
To Provision for Doubtful Debts 400
  [10% of (5,000 – 500* – 500**)]

Top Tip: Bad Debt = `500* and Good Debt = `500**. Provision is calculated neither on bad debts nor on good debts. It calculated
for doubtful debts only. That is why, for calculating provision for doubtful debts both bad debt and good debt have been deducted
from debtors.

Balance Sheet of the Reconstituted Firm


Liabilities Amount (`) Assets Amount (`)
Debtors 5,000
Less: Bad Debts (500)
Less: Provision for Doubtful Debts (400) 4,100
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 61

Journal Entries
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bad debts A/c Dr. 500
To Debtors A/c 500
(For writing off bad debts)
Revaluation A/c Dr. 900
To Bad debts 500
To Provision for doubtful debts 400
(Being bad debts `500 and provision for doubtful debts `400 debited to Revaluation A/c)
III. Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Debtors 30,000
Cash/Bank 1,00,000
Adjustment: Debtors `3,000 proved bad and will be written off and a provision of 5% is to be made for bad and doubtful
debts. A debtors whose dues of `5,000 were written off as bad debts paid `4,000 in full settlement.
Treatment:
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Bad Debts 3,000 By Cash/Bank A/c (Bad debts recovered) 4,000
To Provision for Doubtful Debts 1,350
[5% of (30,000 – 3000)]
Balance Sheet of the Reconstituted Firm
Liabilities Amount (`) Assets Amount (`)
Debtors 30,000
Less: Bad Debts (3,000)
Less: Provision for Doubtful Debts (1,350) 25,650
Cash/Bank (1,00,000 + 4,000) 1,04,000
Journal Entries
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bad debts A/c Dr. 3,000
To Debtors A/c 3,000
(For writing off bad debts)
Revaluation A/c Dr. 4,350
To Bad debts 3,000
To Provision for doubtful debts 1,350
(Being bad debts and provision for doubtful debts debited to Revaluation A/c)
Cash/Bank A/c Dr. 4,000
To Revaluation A/c 4,000
(Being bad debts recovered transferred to Revaluation A/c)
IV. Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Provision for Bad Debts 2,000 Debtors 18,000
Adjustment: Debtors `1,500 will be written off as bad debts and a provision of 5% is to be made for doubtful debts.
Treatment:
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Provision for Bad and Doubtful Debts 325
[5% of (18,000 – 1,500) – 500]
62 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Balance Sheet of the Reconstituted Firm


Liabilities Amount (`) Assets Amount (`)
Debtors 18,000
Less: Bad Debts (1,500)
Less: Provision for Doubtful Debts (825) 15,675
Journal Entries
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bad debts A/c Dr. 1,500
To Debtors A/c 1,500
(For writing off bad debts)
Provision for bad and doubtful debts A/c Dr. 1,500
To Bad debts A/c 1,500
(Being provision utilised for writing off bad debts)
Revaluation A/c Dr. 325
To Provision for bad and doubtful debts A/c 325
[Being provision for bad debts created = 5% of ` (18,000 – 1,500) – `500 = `825 –
`500 = `325]
V. Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Provision for Bad Debts 4,000 Debtors 36,000
Adjustment: Debtors `2,000 will be written off as bad debts and a provision of 4% is to be made for bad and doubtful debts.
Treatment:
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
By Provision for Bad and Doubtful Debts 640
[2,000 – 4% of (36,000 – 2,000)]
Balance Sheet of the Reconstituted Firm
Liabilities Amount (`) Assets Amount (`)
Debtors 36,000
Less: Bad Debts (2,000)
Less: Provision for Doubtful Debts (1,360) 32,640
Journal Entries
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bad debts A/c Dr. 2,000
To Debtors A/c 2,000
(For writing off bad debts)
Provision for bad and doubtful debts A/c Dr. 2,000
To Bad debts A/c 2,000
(Being provision utilised for writing off bad debts)
Provision for bad and doubtful debts A/c Dr. 640
To Revaluation A/c 640
(Being provision for bad debts decreased)
VI. Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Book Debts 63,000
Less: Provision for Doubtful Debts (2,000) 61,000
Adjustment: Bad debts amount to `3,000 will be written off and a provision of 5% on debtors for bad and doubtful debts will
be maintained.
CHAPTER-3 Goodwill, Admission of a New Partner
and Change in Profit Sharing Ratio EXAM HANDBOOK Accountancy XII (2021 Edition) 63

Treatment:
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Bad Debts 1,000
To Provision for Bad and Doubtful Debts 3,000
[5% of (63,000 – 3,000)]
Balance Sheet of the Reconstituted Firm
Liabilities Amount (`) Assets Amount (`)
Book Debts 63,000
Less: Bad Debts (3,000)
Less: Provision for Doubtful Debts (3,000) 57,000
Journal Entries
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bad debts A/c Dr. 3,000
To Debtors A/c 3,000
(For writing off bad debts)
Provision for bad and doubtful debts A/c Dr. 2,000
Revaluation A/c Dr. 1,000
To Bad debts A/c 3,000
(Being provision `2,000 utilised for writing off bad debts and bad debts of `1,000
debited to revaluation account)
Revaluation A/c Dr. 3,000
To Provision for bad and doubtful debts A/c 3,000
(Being provision for bad debts decreased)
VII. Balance Sheet
Liabilities Amount (`) Assets Amount (`)
General Reserve 50,000 Debtors 1,32,000
Less: Provision for doubtful debts (2,000) 1,30,000

Adjustment: 10% of the general reserve is to be transferred to provision for doubtful debts.
Treatment: Since more provision for doubtful debts is created by transfer from general reserve, provision for doubtful
debts will not be debited to revaluation account.

Balance Sheet of the Reconstituted Firm


Liabilities Amount (`) Assets Amount (`)
Debtors 1,32,000
Less: Provision for Doubtful Debts (7,000) 1,25,000

Top Tip: Remaining 90% of the general reserve `45,000 will be distributed among the old partners in their old profit sharing ratio.

OBJECTIVE TYPE QUESTIONS, MCQs

1. For which of the following situations, the old profit sharing ratio of partners is used at the time of admission of a
new partner? (CBSE SQP 2020-21)
(a) When new partner brings only a part of his share of goodwill.
(b) When new partner is not able to bring his share of goodwill.
(c) When, at the time of admission, goodwill already appears in the balance sheet.
(d) When new partner brings his share of goodwill in cash.
4
CHAPTER-4 Retirement/Death of a Partner EXAM HANDBOOK Accountancy XII (2021 Edition) 87

Chapter
Reconstitution of a
Partnership Firm:
Retirement/Death of
a Partner

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


 Retirement and death of a partner: effect of retirement After going through this Unit, the students will be able to:
/ death of a partner on change in profit sharing ratio,  explain the effect of retirement / death of a partner on change
treatment of goodwill (as per AS 26), treatment for in profit sharing ratio.
revaluation of assets and reassessment of liabilities,  develop the understanding of accounting treatment of
adjustment of accumulated profits and reserves and goodwill, revaluation of assets and re-assessment of liabilities
and adjustment of accumulated profits and reserves on
preparation of balance sheet.
retirement of a partner.
 Calculation of deceased partner’s share of profit till  develop the skill of calculation of deceased partner’s share till
the date of death. the time of his death.
 discuss the preparation of the capital accounts of the remaining
Note: Goodwill to be adjusted through partners capital/ partners and the balance sheet of the firm after retirement of
current account (AS 26) a partner.

Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book

New Accounting Treatment


Treatment of Goodwill (on Retirmement/Death of a partner)
The retiring/deceased partner gets his share of goodwill because goodwill was earned by the firm with the joint efforts
of all the partners. Credit in given to the retiring/deceased partner for his share in goodwill by debiting the gaining
partners’ capital accounts (individually) in their gaining ratio. The journal entry will be:
Journal
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Gaining Partners’ Capital A/c (Individually) Dr.
To Retiring/Deceased Partner’s Capital A/c
(Share in goodwill of retiring/deceased partner adjusted)
Goodwill Appearing in balance sheet
Purchased goodwill (or existing goodwill) is written off at the time of retirement/death of a partner among all the old
partners in old ratio. Journal entry for writing off purchased goodwill is as follows:
Journal
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Old Partners' Capital A/cs (individually) Dr.
To Goodwill A/c
(Existing goodwill written off in old ratio)
88 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

When Partner Retires in the Middle of the Year


Normally retirement of a partner takes place at the end of accounting period. But there can be a case where a partner
decides to retire in the middle of the year. In such a case the claim shall include share of profit or loss, interest on
capital, interest on drawings if any, from the date of last balance sheet to the date of retirement. Here, the main
problem relates to the calculation of profit for the intervening period, i.e., the period from the date of last balance
sheet and the date of retirement. Since it is considered cumbersome to close the books and prepare final account,
for the period, the retiring partner’s share of profit may be calculated on the basis of last year’s profit (or average of
past few years) or on the basis of sales.
(i) On the basis of last year’s profit: Last Year’s Profit × Proportionate Period × His share
(ii) On the basis of average profit of past few years: Average Profit × Proportionate Period × His share
(iii) On the basis of sales: Sales during Intervening Period × *Rate of Profit × His share
Last Year's Profit
*If rate of profit is not given, it is calculated as follows: Rate of Profit =
Last Year's Sales
The Journal Entry for retiring partner’s share of profit for the intervening period will be as follows:
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Profit and Loss Suspense A/c Dr.
To Retiring Partner’s Capital A/c
(Share of profit for the intervening period)
Note: Profit and Loss Suspense A/c will be shown on the asset side of the Balance Sheet on the date of retirement of a partner.

Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination

 Differences between Sacrificing Ratio and Gaining Ratio


Basis Sacrificing Ratio Gaining Ratio
1. Meaning Ratio in which old partners sacrifice their share Ratio in which continuing partners gain the
of profits in favour of new partner. share of retiring/deceased partner.
2. Effect on Share of Profit Old partners’ share of profit decreases. Continuing partners’ share of profit increases.
3. Calculation Sacrificing ratio = Old ratio – New ratio Gaining ratio = New ratio – Old ratio
4. When calculated Admission of a new partner, Change in profit Retirement/death of partner, Change in profit
sharing ratio among the existing partners sharing ratio among the existing partners
 Adjustment of Accumulated Profits and Losses: Accumulated profits or losses belong to all partners and hence transferred to
capital accounts of all partners in old profit sharing ratio.
 Disposal of amount due to retiring/deceased partner: Retiring/deceased partner’s account is settled lumpsum immediately or
in instalments with interest or partly immediately and partly in installments. Amount due is transferred to Retiring Partner’s Loan A/c
or Deceased Partner’s Executors A/c.
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Retiring Partner’s Capital A/c (Total Amount due) Dr.
To Cash/Bank A/c (Amount Paid)
To Retiring Partner’s Loan A/c (Amount of Loan)
OR
(i) Deceased Partner’s Capital A/c (Total Amount due) Dr.
To Deceased Partner’s Executors A/c
(ii) Deceased Partner’s Executors A/c (Amount Paid) Dr.
To Cash/Bank A/c
Note: In the absence of any agreement, Section 37 of the Indian Partnership Act, 1932 is applicable, which states that retiring/ deceased
partner has an option to receive interest @ 6% p.a. or share of profit based on capital ratio.
CHAPTER-4 Retirement/Death of a Partner EXAM HANDBOOK Accountancy XII (2021 Edition) 89

 Calculation of Deceased Partner’s Share of Profit in the Year of Death:


(i) On the basis of last year’s profit: Last Year’s Profit × Proportionate Period × His Share
(ii) On the basis of average profit of past few years: Average Profit × Proportionate Period × His Share
(iii) On the basis of sales turnover: Sales during Intervening Period × Rate of Profit × His Share
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Profit and Loss Suspense A/c Dr.
To Deceased Partner’s Capital A/c
(Share of profit for the intervening period)
When Continuing Partners Decide to Prepare Final Accounts on the Date of Retirement/Death of a Partner
In such a situation, the share of profit of the retiring/deceased partner will be debited to Profit and Loss Appropriation
Account instead of Profit and Loss Suspense Account.

OBJECTIVE TYPE QUESTIONS, MCQs

1. Rex, Tex and Flex are partners in a firm in the ratio of 5:3:2. As per their partnership agreement, the share of
deceased partner is to be calculated on the basis of profits and turnover of previous accounting year. Tex expired on
31st December 2020. Turnover till the date of death was `18,00,000. Their profits and turnover for the year 2019-
20 amounted to `4,00,000 and `20,00,000 respectively. An amount of __________ will be given to his executors
as his share of profits till the date of death. (CBSE SQP 2020-21)
2. A, B and C are partners. C expired on 18th December 2020 and as per agreement surviving partners A and B
directed the accountant to prepare financial statements as on 18th December 2020 and accordingly the share of
profits of C (deceased partner) was calculated as `12,00,000. Which account will be debited to transfer C’s share of
profits? (CBSE SQP 2020-21)
(a) Profit and Loss Suspense Account (b) Profit and Loss Appropriation Account
(c) Profit and Loss Account (d) None of these
3. Diya, Riya and Tiya were partners sharing profits and losses in the ratio of 2:3:5. Tiya died on 28th November, 2020.
Her share of profit was taken equally by Diya and Riya. Diya’s share of profit in the new firm will be ________.
4. A,B and C were partners in a firm sharing profits and losses in the ratio of 5:3:2. C retired and his capital balance
after adjustments regarding reserves, accumulated profits/ losses and his share of gain on revaluation was `
2,50,000. C was paid `3,22,000 including his share of goodwill. The amount credited to C’s capital account, on
his retirement, for goodwill will be:
(a) `72,000 (b) `7,200 (c) `24,000 (d) `36,000
5. Rahul, Sahil and Jatin were partners in a firm sharing profits and losses in the ratio of 4:3:2. Rahul died on 15th
October, 2020. At that time , the capitals of Sahil and Jatin after all the adjustments were ` 3,56,000 and `2,44,000
respectively. Sahil and Jatin decided to adjust their capitals according to their new profit sharing ratio by opening
current accounts. Calculate the new capital of Sahil and Jatin.
6. Piyush, Karan and Aarush were partners sharing profits in the ratio of 5 : 3 : 2. Piyush retired on 31st March, 2019.
Balance in this capital account after all adjustments except goodwill was ` 7,10,000, but he was paid `8,00,000
including his share of goodwill. The value of the firm’s goodwill on Piyush’s retirement was:
(a) `45,000 (b) `27,000 (c) `90,000 (d) `1,80,000
7. Srishti, Nitya and Anand were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 1. Srishti retired
from the firm selling her share of profits to Nitya and Anand for `8,000 and `4,000 respectively. The new profit
sharing ratio between Nitya and Anand will be :
(a) 3 : 2 (b) 7 : 5 (c) 2 : 1 (d) 1 : 1
8. Sunaina, Rohan and Rina were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. Sunaina retired,
selling her share of profits to Rohan and Rina in the ratio of 3 : 1. The new profit-sharing ratio between Rohan and
Rina will be:
(a) 4 : 3 (b) 4 : 1 (c) 2 : 1 (d) 3 : 1
5
CHAPTER-5 Dissolution of a Partnership Firm EXAM HANDBOOK Accountancy XII (2021 Edition) 107

Chapter
Dissolution of a
Partnership Firm

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


 Meaning of dissolution of partnership and partnership After going through this Unit, the students will be able to:
firm, types of dissolution of a firm. • understand the situations under which a partnership firm can
 Settlement of accounts - preparation of realization be dissolved.
account, and other related accounts: capital accounts • develop the understanding of preparation of realisation account
of partners and cash/bank a/c and other related accounts.
Note: (i) The realized value of each asset must be given at
the time of dissolution. (ii) In case, the realization
expenses are borne by a partner, clear indication
should be given regarding the payment thereof.

Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book

New Accounting Treatment


1. For settlement of loan by the firm to a partner (appearing on the assets side of the balance sheet):
Journal Entry:
Cash/Bank A/c Dr.
To Loan to Partner A/c
2. When a partner has agreed to bear the realisation expenses, No entry is required. In the absence of information
about who is paying the expenses, it is implied that expenses are paid by the partner who has agreed to bear expenses.

Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination

 Dissolution of partnership between all the partners of a firm is called the dissolution of the firm. It means breaking of
relationship between all the partners and discontinuance of business of the firm. Dissolution of a firm takes place in any
of the following ways:
1. Dissolution by Agreement: A firm is dissolved: (a) with the consent of all partners or (b) with a contract between partners.
2. Compulsory Dissolution: (a) When all the partners or when all except one partner, become insolvent; (b) when
business of the firm becomes illegal; (c) when some event makes it unlawful to carry on the business in partnership,
e.g., when a partner becomes an alien enemy because of war with his country and India.
3. Dissolution by Court: At the suit of a partner, the court may order dissolution of the firm: (a) when a partner
becomes insane; (b) when a partner becomes permanently incapable of performing his duties as a partner; (c) when a
partner is guilty of misconduct; (d) when a partner breaks partnership agreement; (e) when a partner transferred whole
of his interest in the firm to a third party; (f) when business of the firm cannot be carried on except at a loss; (g) when
the court regards dissolution to be just and equitable.
4. Dissolution by Notice: In case of partnership at will, firm dissolves if any partner gives notice in writing, seeking
dissolution of the firm.
108 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

5. On the happening of certain contingencies: If there is contract between the partners that the firm will be dissolved
(a) on expiry of a time-period; (b) on completion of a venture; (c) on death of a partner; or (d) when a partner
becomes insolvent.
 Distinction between Dissolution of Partnership and Dissolution of Firm
Basis Dissolution of Partnership Dissolution of Firm
1. Termination The business is not terminated. The business of the firm is closed.
2. Settlement of assets Assets and liabilities are revalued and new balance Assets are sold and liabilities are paid-off.
and liabilities sheet is drawn.
3. Court’s intervention Court does not intervene because partnership is A firm can be dissolved by the court’s order.
dissolved by mutual agreement.
4. Economic Economic relationship between the partners Economic relationship between the partners
relationship continues in a changed form. comes to an end.
5. Closure of books Books of accounts are not closed because the Books of account are closed.
business is not terminated.
 Settlement of Accounts on Dissolution of a Firm
1. Treatment of Losses: Losses (including deficiencies of capital) shall be paid: (i) first out of profits, (ii) next out of
parters’ capitals and (iii) lastly, by partners individually in their profit sharing ratio.
2. Application/utilisation of amount realised from Assets in the following order: (i) In paying third party debts/
external liabilities of the firm e.g. creditors, loans, bills payable, partner’s relative’s loan etc. (ii) In paying partner’s loan
(iii) In paying partners’ capitals proportionately.
 Private Debts and Firm’s Debts
Where Private Debts and Firm’s Debts co-exist: (a) Firm’s property/assets shall be applied first in the payment of firm’s
debts and then surplus, if any, shall be divided among the partners as per their claims, which can be utilised for
payment their private debts. (b) Partner’s private property/assets shall be applied first in payment of his private debts
and net private assets (i.e. private assets minus private liabilities) shall be utilised for payment of firm’s debts.
 Realisation Account: Realisation Account is prepared to record the sale of assets, and payment of liabilities and
realisation expenses to calculate profit or loss on realisation which is transferred to partners’ capital accounts in their
profit sharing ratio.
Dr. Realisation Account Cr.
Particulars Amount (`) Particulars Amount (`)
1. To Sundry Assets (including goodwill 2. By External Liabilities (including Bank
excluding cash, bank and the fictitious overdraft, Provision for doubtful debts,
assets e.g. profit and loss A/c Dr., deferred Provision for depreciation and Investment
revenue expenditure) Fluctuation Fund)
Land and Building, Plant and Machinery xxx Sundry creditors, Bills payable, O/s
Furniture and Fittings, Bills receivables expenses, Partner’s relative’s loan, Bank
Sundry debtors, Goodwill, etc. overdraft, Provision for doubtful debts
5. To Cash/Bank (payment of liabilities) xxx Provision for depreciation
6. To Partner’s Capital A/c (liability xxx Investment Fluctuation Fund xxx
assumed by the partner) 3. By Cash/Bank A/c (assets realised) xxx
7. (b) To Cash/Bank A/c (payment to xxx 4. By Partner’s Capital A/c (assets taken) xxx
creditor) 7. (c) By Cash/ Bank A/c (amount xxx
8. (a) To Cash/Bank A/c (expenses) xxx received from creditor as value of asset
(b) To Partner’s Capital A/c xxx taken over exceeds the amount due)
(expenses paid by the partner) 9. By Cash/Bank A/c (sale of unrecorded xxx
(c) (i)To Partner’s Capital A/c xxx assets including goodwill, if any)
(commission paid to the partner) 11. (b) By Partner’s Capital A/c xxx
10. To Cash/Bank A/c xxx (individually)
(payment of unrecorded liabilities) (Loss transferred to partners’ capital
11. (a) To Partner’s Capital A/c accounts in their profit sharing ratio)
xxx
(individually)
(Profit tr. in profit sharing ratio)
xxxxx xxxxx
CHAPTER-5 Dissolution of a Partnership Firm EXAM HANDBOOK Accountancy XII (2021 Edition) 109

Activity Journal Entry Activity Journal Entry


1. Transfer Realisation A/c (Book value) Dr. 9. Unrecorded (i) If unrecorded asset is taken over by a partner:
of assets To Assets (Individually) A/c assets Partner’s Capital A/c Dr.
2. Transfer External Liabilities (individually) A/c Dr. To Realisation A/c
of external To Realisation A/c (ii) If unrecorded assets are sold:
liabilities Cash/Bank A/c Dr.
3. Realisation of Cash/Bank A/c (realised amount) Dr. To Realisation A/c
assets To Realisation A/c 10. Unrecorded Realisation A/c Dr.
4. Asset taken Partner’s Capital A/c Dr. liability To Cash/Bank A/c
over by partner To Realisation A/c 11. Transfer of (a)  In case of profit on realisation:
5. Payment of Realisation A/c Dr. profit or loss Realisation A/c Dr.
liabilities To Cash/Bank A/c on realisation To Partners’ Capital A/c (individually)
6. Liability paid Realisation A/c Dr. (b) In case of loss on realisation:
by partner To Partner’s Capital A/c Partners’ Capital A/c (individually) Dr.
7. Settlement (a) Creditor accepts asset in full settlement of his To Realisation A/c
of creditor claim: No entry 12. Accumulated General Reserve/Profit and Loss A/c Dr.
through asset (b) Creditor accepts asset as part payment and balance profits and Workmen’s Compensation Fund A/c Dr.
paid through cash/cheque. W.C Fund To Partners’ Capital A/c (individually)
Realisation A/c Dr.
To Cash/Bank A/c
13. Fictitious Partners’ Capital (individually) Dr.
(c) Creditor accepts asset whose agreed value is more
assets To Profit and Loss A/c
than his claim, he will pay cash to the firm.
To Deferred Revenue Expenditure A/c
Cash/Bank A/c Dr.  
To Realisation A/c 14. Partner’s loan (i) Partner’s loan is settled at the same amount:
(appearing Partner’s Loan A/c Dr.
8. Realisation (a) Realisation expenses paid by firm:
on the liability   To Cash/Bank A/c
Expenses/ Realisation A/c Dr.
side) (ii) Partner’s loan is settled at less amount (i.e. gain):
Dissolution To Cash/Bank A/c
Expenses (b) Realisation expenses paid by a partner: Partner’s Loan A/c Dr.
Realisation A/c Dr.   To Cash/Bank A/c
To Partner’s Capital A/c   To Realisation A/c
(c) Partner undertakes the dissolution work for 15. Loan to Cash/Bank A/c Dr.
remuneration(e.g. commission) and bears the Partner To Loan to Partner A/c
actual realisation expenses: 16. Settlement (a) If partner’s capital A/c shows a credit balance, he
(i) For agreed remuneration: of partners’ will be paid the amount:
Realisation A/c Dr. capital Partner’s Capital A/c Dr.
  To Partner’s Capital A/c accounts To Cash/Bank A/c
(ii) For payment of realisation expenses
(b) If partner’s capital A/c shows a debit balance:
• If the partner incurs/pays: No entry
• If firm pays on behalf of the partner: Cash/Bank A/c Dr.
Partner’s Capital A/c Dr. To Partner’s Capital A/c
  To Cash/Bank A/c

Dissolution of a Firm – Journal Entries


Narration Journal Entry
1. Land and Building (book value `1,60,000) sold for `3,00,000 Cash/Bank A/c Dr. 2,94,000
through a broker, who charged 2% commission on the deal. To Realisation A/c 2,94,000
2. Investment (face value `4,000 and market value `3,000) was Cash/Bank A/c Dr. 2,000
realised at 33 13 % less in the open market. To Realisation A/c 2,000
3. Debtors amounting to `1,40,000 were handed over to a debt Cash/Bank A/c Dr. 1,63,000
collection agency which charged 5% commission. The remaining To Realisation A/c 1,63,000
debtors were `47,000, out of which debtors of `17,000 could not
be recovered because the same became insolvent.
4. Furniture of `70,000 was sold for `68,000 by auctioneer and Cash/Bank A/c Dr. 66,000
auctioneer’s commission amounted to `2,000. To Realisation A/c 66,000
5. Land and building was sold to Raman, a partner for cash Cash/Bank A/c Dr. 5,00,000
`5,00,000. To Realisation A/c 5,00,000
6. Stock worth `7,500 is taken by a partner, Rohit at `7,000. Rohit’s Capital A/c Dr. 7,000
To Realisation A/c 7,000
7. Bank loan of `3,00,000 was paid along with interest of `21,000. Realisation A/c Dr. 3,21,000
To Cash/Bank A/c 3,21,000
110 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

8. Sundry creditors amounting to `36,000 which were payable Realisation A/c Dr. 35,400
after two months were settled at a discount of 10% p.a. To Cash/Bank A/c 35,400
9. Creditors amounting to `50,000 which were payable after one Realisation A/c Dr. 47,500
month were settled at a discount of 5%. To Cash/Bank A/c 47,500
10. A partner, Pawan paid to creditors `4,000. Partners’ capitals Realisation A/c Dr. 4,000
were fixed. To Pawan’s Current A/c 4,000
11. Balance Sheet of the firm showed a loan of `10,000 given by C’s Realisation A/c Dr. 10,000
brother, F. C agreed to pay his brother’s loan. To C’s Capital A/c 10,000
12. Creditors were `16,000. They accepted Machinery valued at No Entry
`18,000 in full settlement of their claim.
13. A creditor to whom `10,000 was due accepts office equipment Realisation A/c Dr. 2,000
worth `8,000 and is paid `2,000 in cash. To Cash/Bank A/c 2,000
14. Creditors were `90,000. They accepted Buildings valued at Cash/Bank A/c Dr. 30,000
`1,20,000 and paid cash to the firm `30,000. To Realisation A/c 30,000
15. Realisation expenses/ Dissolution cost amounted to `2,500. Realisation A/c Dr. 2,500
To Cash/Bank A/c 2,500
16. Realisation expenses amounting to `3,000 were paid by Ashok, Realisation A/c Dr. 3,000
one of the partners. Partners’ capitals were fixed. To Ashok’s Current A/c 3,000
17. Realisation expenses are to be borne by Rashim for which Realisation A/c Dr. 70,000
he will be paid `70,000 as remuneration for completing the To Rashim’s Capital A/c 70,000
dissolution process. The actual expenses incurred by Rashim No entry for actual expenses`1,20,000 paid/incurred by Rashim.
were `1,20,000.
18. Naman, a partner, was appointed to look after the process of (i) Realisation A/c Dr. 9,000
dissolution for which he was allowed a remuneration of `9,000. To Naman’s Capital A/c 9,000
Naman agreed to bear the dissolution expenses. Actual dissolution (ii) Naman’s Capital A/c Dr. 4,000
expenses `4,000 were paid by the firm. To Cash/BankA/c 4,000
19. Jeev, a partner, agreed to do the work of dissolution for which (i) Realisation A/c Dr. 10,000
he was allowed a commission of `10,000. He agreed to bear the To Jeev’s Capital A/c 10,000
dissolution expenses. Actual dissolution expenses paid by Jeev (ii) Jeev’s Capital A/c Dr. 12,000
were `12,000. These expenses were paid by Jeev by drawing cash To Cash/Bank A/c 12,000
from the firm.
20. Amit, a partner was appointed to realise the assets, at a cost of (i) Realisation A/c Dr. 4,000
`4,000. The actual amount of realisation amounted to `3,000. To Amit’s Capital A/c 4,000
(ii) Realisation A/c Dr. 3,000
To Cash/Bank A/c 3,000
21. Q, a partner was appointed to look after the process of dissolution No Entry
for which he was allowed a remuneration of `18,000. Q agreed to
take over stock worth `18,000 as his remuneration. The stock had
already been transferred to Realisation Account.
22. Jay, a partner, was appointed to look after the process of dissolution (i) Realisation A/c Dr. 15,000
and was allowed a remuneration of `15,000. Jay agreed to bear To Jay’s Capital A/c 15,000
dissolution expenses. Actual dissolution expenses `16,000 were (ii) Jay’s Capital A/c Dr. 16,000
paid by Vijay another partner on behalf of Jay. To Vijay’s Capital A/c 16,000
23. A debtor of `8,000 already transferred to realisation account No Entry
agreed to pay the realisation expenses of `7,800 in full settlement
of his account.
24. There was an old typewriter which had been written-off completely Priya’s Capital A/c Dr. 300
from the books. It was estimated to realise `400. It was taken To Realisation A/c 300
away by Priya at an estimated price less 25%.
25. There were 100 shares of `10 each in Star Limited acquired at a Paras’ Capital A/c Dr. 400
cost of `2,000 which had been written-off completely from the Priya’s Capital A/c Dr. 200
books. These shares are valued @ `6 each and divided among the To Realisation A/c 600
partners Paras and Priya in their profit sharing ratio 2 : 1.
26. An unrecorded furniture realised `5,500. Cash/Bank A/c Dr. 5,500
To Realisation A/c 5,500
27. There was an old computer which was written-off in the books Cash/Bank A/c Dr. 3,000
of accounts in the previous year. The same was sold to a partner, To Realisation A/c 3,000
Nitin for `3,000.
28. The firm’s goodwill was realised at `30,000. Cash/ Bank A/c Dr. 30,000
To Realisation A/c 30,000
29. Paras agreed to takeover the firm’s goodwill (not recorded in the Paras’ Capital A/c Dr. 30,000
books of the firm), at a valuation of `30,000. To Realisation A/c 30,000
CHAPTER-5 Dissolution of a Partnership Firm EXAM HANDBOOK Accountancy XII (2021 Edition) 111

30. The firm paid `40,000 as compensation to employees. Realisation A/c Dr. 40,000
To Cash/Bank A/c 40,000
31. A bills receivable of `3,000 which was discounted from a bank Realisation A/c Dr. 3,000
at `2,800 was dishonoured as the acceptor had become insolvent To Bank A/c 3,000
and hence the bill had to be met by the firm.
32. There was an outstanding bill for repairs for `2000, which was Realisation A/c Dr. 2,000
paid off. To Cash/Bank A/c 2,000
33. Profit on Realisation amounting to `18,000 is to be distributed Realisation A/c Dr. 18,000
between the partners Ashish and Tarun in the ratio of 5:7. To Ashish’s Capital A/c 7,500
To Tarun’s Capital A/c 10,500
34. Loss on realisation `42,000 was to be distributed between the Arti’s Current A/c Dr. 18,000
partners Arti and Karim in the ratio of 3:4. Partners’ capitals Karim’s Current A/c Dr. 24,000
were fixed. To Realisation A/c 42,000
35. Gopal and Balram are partners, who share profits in the ratio of Reserve Fund A/c Dr. 13,500
3 : 2. On 31 March 2020, the firm was dissolved. Reserve fund Workmen’s Compensation Fund A/c Dr. 20,000
`13,500 and Workmen’s Compensation Fund `20,000 appeared To Gopal’s Capital A/c 20,100
in the balance sheet on the date of dissolution. To Balram’s Capital A/c 13,400
36. Shyam and Madhav were sharing profits (or losses) in the ratio of Shyam’s Current A/c Dr. 4,500
3 : 2. On 31 March 2020, the firm was dissolved. Profit and Loss Madhav’s Current A/c Dr. 3,000
Account `2,500 and Advertisement expenditure account `5,000 To Profit and Loss A/c 2,500
appeared on the assets side of the balance sheet. Partners’ capitals
To Advertisement Expenditure A/c 5,000
were fixed.
37. A partner Kartik’s loan of `12,000 is paid. Kartik’s Loan A/c Dr. 12,000
To Cash/Bank A/c 12,000
38. A partner Ganesh’s loan of `12,000 was settled at `12,500. Ganesh’s Loan A/c Dr. 12,000
Realisation A/c Dr. 500
To Cash/Bank A/c 12,500
39. A partner Nandi’s loan of `12,000 was settled at `11,000. Nandi’s Loan A/c Dr. 12,000
To Cash/Bank A/c 11,000
To Realisation A/c 1,000
40. Loan to A `10,000 is appearing on the assets side of the Balance Cash/Bank A/c Dr. 10,000
Sheet. To Loan to A A/c 10,000
41. On the dissolution of the firm of P and Q, the capital accounts P’s Capital A/c Dr. 1,20,000
of P and Q showed credit balances of `1,20,000 and `80,000 Q’s Capital A/c Dr. 80,000
respectively after all adjustments related to accumulated profits, To Cash/Bank A/c 2,00,000
realisation profit, etc.
42. On the dissolution of the firm of A and B, the capital account of Cash/Bank A/c Dr. 20,000
A showed a debit balance of `20,000 after all adjustments related To A’s Capital A/c 20,000
to accumulated profits, realisation loss, etc.
43. On the dissolution of the firm of P and Q, the current account (i) P’s Current A/c Dr. 15,000
of P showed a credit balance of `15,000 and Q’s current account To P’s Capital A/c 15,000
showed a debit balance of `5,000. (ii) Q’s Capital A/c Dr. 5,000
To Q’s Current A/c 5,000
44. A machine that was not recorded in the books was taken over by Chander’s Capital A/c Dr. 3,000
Chander at `3,000 whereas its expected value was `5,000. To Realisation A/c 3,000
45. Total creditors of the firm were `40,000. Creditors worth `10,000 Realisation A/c Dr. 27,000
were given a piece of furniture costing `8,000 in full and final To Bank A/c 27,000
settlement. Remaining creditors allowed a discount of 10%.
46. Amitesh, an old customer whose account for `60,000 was Bank A/c Dr. 54,000
written off as bad debt in the previous year, paid 90%. To Realisation A/c 54,000
47. There was a bill of exchange of `10,000 under discount. The bill Realisation A/c Dr. 10,000
was received from Derek who became insolvent. To Bank A/c 10,000
48. Bills payable of `30,000 falling due after 1 month were discharged Realisation A/c Dr. 29,550
at `29,550. To Bank A/c 29,550
49. Creditors of `30,000 took over stock of `10,000 at 10% Realisation A/c Dr. 21,000
discount and the balance was paid to them in cash. To Cash/Bank A/c 21,000
50. The book value of assets (other than cash and bank) transferred to Atul’s Capital A/c Dr. 40,000
Realisation Account is `1,00,000. 50% of the assets are taken over Bank A/c Dr. 26,000
by a partner Atul, at a discount of 20%; 40% of the remaining To Realisation A/c 66,000
assets are sold at a profit of 30% on cost; 5% of the balance being No entry for assets worth `1,500 being obsolete and assets worth
obsolete, realised nothing and remaining assets are handed over to `28,500 taken over by creditors in full settlement of their claim.
a Creditor, in full settlement of his claim.
112 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

51. The firm had stock of `80,000. Ankit took over 50% of the stock Ankit’s Capital A/c Dr. 32,000
at a discount of 20% while remaining stock was sold off at a profit Cash/Bank A/c Dr. 52,000
of 30% on cost. To Realisation A/c 84,000
52. A liability under a suit for damages included in creditors was Realisation A/c Dr. 69,000
settled at `32,000 as against only `13,000 provided in the To Cash/Bank A/c 69,000
books. Total creditors of the firm were `50,000.
53. Bobby’s sister’s loan of `20,000 was paid off along with interest Realisation A/c Dr. 22,000
of `2,000. To Cash/Bank A/c 22,000
54. A machinery with a book value of `6,00,000 was taken over Gaurav’s Capital A/c Dr. 3,00,000
by Gaurav at 50% and stock worth `5,000 was taken over by a To Realisation A/c 3,00,000
creditor of `9,000 in full settlement of his claim. No entry for stock worth `5,000 taken over by a creditor of `9,000 in full
settlement of his claim.
55. The remaining creditors were paid `76,000 in full settlement of (i) Realisation A/c Dr. 76,000
their claim and the remaining assets were taken over by Vaibhav To Cash/ Bank A/c 76,000
for `17,000. (ii) Vaibhav’s Capital A/c Dr. 17,000
To Realisation A/c 17,000
56. Creditors amounting to `5,000 were paid `3,500 in full Realisation A/c Dr. 3,500
settlement of their claim and balance creditors were handed over To Cash/Bank A/c 3,500
stock of `90,000 in full settlement of their claim of `95,000. No entry for stock worth `90,000 taken over by creditors of `95,000 in
full settlement.
57. Stock of `7,500 included obsolete items worth `500, which Cash/Bank A/c Dr. 7,000
could not be realised. Remaining stock realised in full. To Realisation A/c 7,000
58. Total investments were `1,50,000. Investments with book value Vinit’s Capital A/c Dr. 45,000
of `1,00,000 were given to Creditors in full settlement of their To Realisation A/c 45,000
account. The remaining investments were taken over by Vinit at
an agreed value of `45,000.
59. Total debtors were `2,40,000. Anju takes over debtors amounting Anju’s Capital A/c Dr. 1,85,000
to `2,00,000 at `1,85,000. Sanju takes over remaining debtors at Sanju’s Capital A/c Dr. 32,000
80% of book value. To Realisation A/c 2,17,000
60. There was a Motor Cycle in the firm which was bought out of the Cash/Bank A/c Dr. 10,000
firm’s money, was not shown in the books of the firm. It was now To Realisation A/c 10,000
sold to Lily for `10,000.
61. There was a contingent liability in respect of outstanding electric Realisation A/c Dr. 5,000
bill of `5,000. To Cash/Bank A/c 5,000
62. Total debtors were `2,00,000. Sunil, a debtor of `50,000 had to Cash/Bank A/c Dr. 1,97,500
pay the amount due 3 months after the date of dissolution. He To Realisation A/c 1,97,500
was allowed a discount of 5% for making payment immediately.
The remaining debtors were collected in full.
63. Total stock were `1,50,000. 50% of the stock was taken over by Ragini’s Capital A/c Dr. 60,000
Ragini at market price which was 20% less than the book value Cash/Bank A/c Dr. 60,000
and the remaining was sold at market price. To Realisation A/c 1,20,000
64. Dissolution expenses were `8,000. `3,000 were to be borne by Realisation A/c Dr. 3,000
the firm and the balance by Dhrupad. The expenses were paid To Cash/Bank A/c 3,000
by him. No entry for payment of realisation expenses `5,000 by Dhrupad since he
was to bear this amount of expenses.
65. Buildings realised for `1,90,000, Bills receivable realised for Cash/Bank A/c Dr. 5,75,000
`1,10,000; Stock realised `1,50,000; and Machinery was sold to To Realisation A/c 5,75,000
Sonia, a partner for `50,000 and furniture for `75,000.
66. Contingent liability in respect of bills discounted with the bank Realisation A/c Dr. 8,800
was also materialised and paid off `9,800. To Cash/Bank A/c 9,800
67. Rita was appointed to realise the assets. Rita was to receive 5% Realisation A/c Dr. 7,870
commission on the sale of assets (except cash) and was to bear all To Rits’s Capital A/c 7,870
expenses of realisation. Assets were realised as follows: Debtors Note: Rita’s commission = 5% of `1,57,400 = `7,870
`30,000; Stock `26,000; Plant `42,750; Investments 85% of No entry for payment of realisation expenses `4,100 by Rita since she was
the book value (Book value was `69,000). Expenses of realisation to bear this amount of expenses.
amounted to `4,100, which were paid by Rita.
68. On the date of dissolution of the firm, Investment Fluctuation Investment Fluctuation Fund A/c Dr. 15,000
Fund appeared in the Balance Sheet at `15,000. To Realisation A/c 15,000
69. On the date of dissolution of the firm, Goodwill appeared on the Realisation A/c Dr. 20,000
assets side of the Balance Sheet at `20,000. To Goodwill A/c 20,000
70. Total creditors were `80,000. One of the creditors for `10,000 Realisation A/c Dr. 77,000
was paid only `3,000 in full settlement of his account. To Cash/Bank A/c 77,000
CHAPTER-5 Dissolution of a Partnership Firm EXAM HANDBOOK Accountancy XII (2021 Edition) 113

71. Total stock were `70,000. Ganesh took over part of stock at Ganesh’s Capital A/c Dr. 8,000
`8,000 (being 20% less than the book value). Balance of the Stock Cash/Bank A/c Dr. 42,000
was sold at 30% discount. To Realisation A/c 50,000
72. Total investments were `1,40,000. Romesh took over some of Romesh’s Capital A/c Dr. 8,100
the Investments at `8,100 (book value less 10%). The remaining Bhawan’s Capital A/c Dr. 1,17,000
investments were taken over by Bhawan at 90% of the book value To Realisation A/c 1,25,100
less `900 discount.
73. Total creditors were `80,000 and bills payable were `40,000. It Realisation A/c Dr. 1,03,000
is found that investment not recorded in the books amounted to To Cash/Bank A/c 1,03,000
`10,000. The same were accepted by one creditor for this amount No entry for investment worth `10,000 taken over by creditors for this
and other Creditors were paid at a discount of 10%. Bills payable amount in full settlement.
were paid full.
74. Bank loan was `60,000. Bhawan paid bank loan along with one Realisation A/c Dr. 63,600
year interest at 6% p.a. To Cash/Bank A/c 63,600
75. Stock has book value of `24,000. Kanav took over 40% of the Kanav’s Capital A/c Dr. 7,680
stock at 20% less than book value. Remaining stock was sold at Cash/Bank A/c Dr. 15,840
a gain of 10%. To Realisation A/c 23,520
76. Debtors were `34,000 and creditors `80,000. Half of the debtors (i) Cash/Bank A/c Dr. 12,000
realised `12,000 and remaining debtors were used to pay off 25% To Realisation A/c 12,000
of the creditors. (ii) Realisation A/c Dr. 60,000
To Cash/Bank A/c 60,000
No entry for debtors of `22,000 used to pay off creditors of `20,000 in
full settlement.
77. Total debtors were `25,000. Debtors realised 90% only and Cash/Bank A/c Dr. 23,700
`1,200 were recovered for bad debts written-off last year. To Realisation A/c 23,700
78. Total debtors were `24,200. A takes over debtors amounting to A’s Capital A/c Dr. 17,200
`20,000 at `17,200. The remaining debtors were sold to a debt Cash/Bank A/c Dr. 2,100
collecting agency at 50% of the Book value. To Realisation A/c 19,300
79. Sundry assets were `17,000. B is to take over some sundry assets B’s Capital A/c Dr. 7,200
at `7,200 (being 10% less than the book value). C is to take over C’s Capital A/c Dr. 8,100
remaining sundry assets at 90% of the book value. To Realisation A/c 15,300
80. Office equipment of `5,000 was accepted by a creditor for `6,000 Realisation A/c Dr. 2,500
at `3,500 and the balance was paid to him by cheque. To Cash/Bank A/c 2,500
No entry for office equipment of `5,000 taken over by creditor at `3,500.
81 Bank overdraft was `7,000. Bankers accepted stock worth `5,000 Realisation A/c Dr. 2,000
at the same value and the balance in cash. To Cash/Bank A/c 2,000
82. The firm purchased 200 convertible debentures of a leasing No Entry
company in 2016-17. After sometime the investment was treated
as bad and was written off. These debentures were found to be
having a market value of `8,000 and were accepted by a creditor
at this value.
83. Cash/Bank A/c
There was a typewriter which realised `500 and goodwill was sold Dr. 5,500
for `5,000. To Realisation A/c 5,500
84. Y’s Capital A/c
Stocks were of `25,000. Y took over part of stock at `4,000 (being Dr. 4,000
20% less than the book value). Balance stock realised 50%. Cash/Bank A/c Dr. 10,000
To Realisation A/c 14,000
85. Anubha looked after the dissolution work for remuneration of (i) Realisation A/c Dr. 8,500
`8,500 and agreed to bear dissolution expenses upto `6,000. To Anubha’s Capital A/c 8,500
Actual expenses paid by her were `7,600. (ii) Realisation A/c Dr. 1,600
To Anubha’s Capital A/c 1,600

OBJECTIVE TYPE QUESTIONS, MCQs

1. On the basis of the following data, how much final payment will be made to a partner on firm’s dissolution? Credit
balance of capital account of the partner was `50,000. Share of loss on realization amounted to `10,000. Firm’s
liability taken over by him was for `8,000: (CBSE SQP 2020-21)
(a) `32,000 (b) `48,000 (c) `40,000 (d) `52,000
CHAPTER-8 Analysis of Financial Statements EXAM HANDBOOK Accountancy XII (2021 Edition) 165

Chapter 8
Analysis
of Financial
Statements

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


 Financial statements of a Company: Statement of Profit After going through this Unit, the students will be able to:
and Loss and Balance Sheet in prescribed form with major  develop the understanding of major headings and sub-
headings and sub headings (as per Schedule III to the headings (as per Schedule III to the Companies Act, 2013)
Companies Act, 2013) Exceptional items, extraordinary items of balance sheet as per the prescribed norms / formats.
and profit (loss) from discontinued operations are excluded.  state the meaning, objectives and limitations of financial
 Financial Statement Analysis: Objectives,importance and statement analysis.
limitations.  discuss the meaning of different tools of ‘financial statements
 Tools for Financial Statement Analysis: Comparative statements, analysis’.
common size statements, cash flow analysis, ratio analysis.  develop the understanding and skill of preparation of
 Accounting Ratios: Meaning, Objectives, classification and comparative and common size financial statements.
computation.  state the meaning, objectives and significance of different
 Liquidity Ratios: Current ratio and Quick ratio. types of ratios.
 Solvency Ratios: Debt to Equity Ratio, Total Asset to Debt  develop the understanding of computation of current ratio
Ratio, Proprietary Ratio and Interest Coverage Ratio. and quick ratio.
 Activity Ratios: Inventory Turnover Ratio, Trade Receivables  develop the skill of computation of debt equity ratio, total asset

Turnover Ratio, Trade Payables Turnover Ratio and Working to debt ratio, proprietary ratio and interest coverage ratio.
Capital Turnover Ratio.  develop the skill of computation of inventory turnover ratio,

 Profitability Ratios: Gross Profit Ratio, Operating Ratio, trade receivables and trade payables ratio and working capital
Operating Profit Ratio, Net Profit Ratio and Return on Investment. turnover ratio.
 develop the skill of computation of gross profit ratio, operating ratio,
Note: Net Profit Ratio is to be calculated on the basis of profit
before and after tax. operating profit ratio, net profit ratio and return on investment.

PROPOSED DIVIDEND – New Accounting Treatment (as per CBSE Guidelines and NCERT book 2020-21)
Proposed dividend is proposed by the Board of Directors and declared (approved) by the shareholders in their Annual General
Meeting. Board of Directors propose the dividend after the annual accounts for the year have been prepared. Annual General
Meeting of the shareholders is held thereafter meaning it is held in the next financial year.
Shareholders may reduce the amount of proposed dividend but cannot increase it. Since declaration of proposed (final) dividend
is contingent upon shareholders approval, Proposed dividend is shown as contingent liability.
AS-4, Contingencies and Events Occurring after the Balance Sheet Date, prescribes that proposed dividend will be shown in the
Notes to Accounts. After the Proposed dividend is declared by the shareholders, it becomes a liability for the company and is
accounted in the books. As a consequence, proposed dividend of previous year will be declared (approved) by the shareholders
in the current year and this declared (approved) proposed dividend will be accounted during the year. Proposed dividend for the
current year will be relevant for the next financial year.
Briefly, proposed dividend of previous year will be accounted in the current year after it is declared (approved) by the shareholders
in their annual general meeting.
166 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Theoretical Concepts, Formats and Formulae As per Revised Syllabus for 2021 Examination

Balance Sheet of Company as at 31st March, 2020 as per Revised Schedule III of the Companies Act, 2013 (`)
Note Current Previous
Particulars
No. year year
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus (Capital Reserve, Securities Premium Reserve, General Reserve, Debenture Redemption Reserve,
Capital Redemption Reserve, Stock Options Outstanding A/c, Surplus, i.e. Balance in Statement of Profit & Loss) Note: • ‘Debit’
balance of statement of profit and loss shall be shown as a negative figure under ‘Surplus’ head. • Balance of “Reserve and Surplus” after adjusting
negative balance of Surplus shall be shown under “Reserve and Surplus” head even if resulting figure is ‘negative’. • Preliminary expenses are to be
written-off completely in the same year first from securities premium reserve and the balance if any, from statement of profit & loss.
(c) Money received against share warrants (It is the amount received by the company which are converted into shares at
a specified date on a specified rate. The instrument issued against the amount so received is called as share warrants.)
2. Share Application money pending allotment (Share application money not exceeding the issued capital and to the
extent non-refundable shall be classified as non-current.)
3. Non-current Liabilities (A liability which is not classified as current liability)
(a) Long term borrowings (Loans repayable after 12 months/operating cycle e.g. Debentures/Bonds, Long-term loans, public deposits)
(b) Deferred tax liabilities (net) (are always non-current)
(c) Other long term liabilities (e.g. trade payables to be settled after 12 months, Premium on redemption of debenture)
(d) Long term provisions (Provisions whose claims are to be settled after 12  months, e.g. Provision for employee benefits
such as Provident Fund, Provision for Warranties)
4. Current Liabilities (A liability to be settled within 12 months/operating cycle)
(a) Short-term borrowings (Bank Overdraft, Loans repayable on demand, Short-term deposits payable on demand)
(b) Trade payables (Amount due on account of goods/services purchased e.g. Creditors, Bills Payable to be settled within 12 months)
(c) Other current liabilities (Unpaid/Unclaimed dividend, Interest accrued and due/not due on borrowings, Income received
in advance, Calls in advance and Interest on calls in advance, O/s expenses, Provident Fund payable/GST payable, Current
maturities of long-term debts)
(d) Short-term provisions (Provisions for which claim is to be settled within 12 months e.g. Provision for tax, Provision for doubtful debts)
Total
II. ASSETS
1. Non-Current Assets
(a) Fixed assets (Those assets which are acquired for purpose of reuse in the business but not for purpose of resale. Even if
useful life of a fixed asset < 12 months, it will be a non-current asset.)
(i) Tangible assets (Assets which can be physically seen and touched, e.g. Land, Buildings, Plant and Machinery, Furniture &
Fixture, Vehicles, Office Equipment, Livestock, Computer and Related Equipment) Note: Provision for Depreciation/Accumulated
Depreciation will be deducted from tangible assets under notes to account and the net tangible assets will be shown on the face of the
balance sheet under this head.
(ii) Intangible assets (Those fixed assets which are not tangible, e.g. Goodwill, Brand/Trademarks, Computer Software, Mining
rights, Masthead and Publishing titles Copyrights, Patents and other intellectual property rights, Recipes, formulae, models, designs
and prototypes,Licenses and franchise)
(iii) Capital work-in-progress
(iv) Intangible assets under development (patents, intellectual property rights, etc. being developed)
(b) Non-current investments (Investments which are held not for resell but to retain them. Non-current investments are
classified into ‘Trade Investments’ – investments made by a company in shares or debentures of another company and ‘Other
Investments’ – investments which are not trade investments)
(c) Deferred tax assets (net)(are always non-current)
(d) Long-term loans and advances ( Capital Advances, Security Deposits, e.g. for telephones, electricity, etc.)
(e) Other non-current assets (e.g. Trade receivables– debtors and bills receivable– to be realised after 12 months)
2. Current Assets
(a) Current investments (Those investments which are held to be converted into cash within a short period of less than
12 months, e.g. Marketable securities, Treasury bills, Debenture Redemption Investment, Investments in Equity Instrument/
Government Securities/Mutual Funds with maturity period less than 12 months)
(b) Inventories (All inventories are always treated as current. Inventories include e.g. Stock of raw materials, Work-in-progress,
Stock of finished goods, Stock in trade, Stores and Spares, Loose tools, Goods in transit)
(c) Trade receivables (Amount due on account of goods/services sold e.g. Debtors and Bills receivables)
(d) Cash and cash equivalents ( Balance with banks; Cheques, drafts on hand and Cash on hand)
(e) Short term loans and advances
(f ) Other current assets (Prepaid expenses, Accrued incomes, Advance tax, Goodwill, Patents, etc. to be written off within
12 months, Interest due on calls-in-arrears)

Total
CHAPTER-8 Analysis of Financial Statements EXAM HANDBOOK Accountancy XII (2021 Edition) 167

Items Major Head Sub-head (if any)


1. Prepaid Insurance Current Assets Other Current Assets
2. Investment in shares or debentures of another company Non Current Assets Non Current Investments
3. Calls-in-arrears Shareholders’ Funds Share Capital/Subscribed Capital
4. Unpaid/unclaimed dividend Current Liabilities Other Current Liabilities
5. Capital Reserve Shareholders’ Funds Reserves and Surplus
6. Loose Tools Current Assets Inventories
7. Capital work-in-progress Non Current Assets Fixed Assets
8. Patents being developed by the company Non Current Assets Fixed Assets- Intangible Assets under development
9. Interest accrued and due on debentures Current liabilities Other Current Liabilities
10. Accrued Interest on Calls in advance Current Liabilities Other Current Liabiliites
11. Interest due on calls in arrears Current Assets Other Current Assets
12. Trademarks, Copyrights, Patents, Mining rights, Publishing Non Current Assets Fixed Assets–Intangible
Titles, Design, Computer Software, Licenses and Franshise
13. Premium on redemption of debentures Non Current Liabilities Other Long-term Liabilities
14. Plant and Machinery Non Current Assets Fixed Assets–Tangible
15. Balance of statement of profit & loss Shareholder’s Fund Reserves and Surplus
16. Interest accrued on investment Current Assets Other Current Assets
17. Livestock Non Current Assets Fixed Asset–Tangible
18. Securities Premium Reserve Shareholders' Funds Reserves and surplus
19. Work in progress Current assets Inventories
20. Debentures with maturity period in current year Current liabilities Other Current Liabilities
21. Cheques/Bank Drafts in Hand, Cash in Hand, Cash at Bank Current Assets Cash & Cash Equivalents
22. Long term Investments with maturity period less than six months Current Assets Current Investments
23. Debtors Current Assets Trade Receivables
24. Bank Overdraft Current Liabilities Short term borrowings
25. Subsidy Reserve Shareholders’ funds Reserves and surplus – other reserves
26. Capital redemption reserve Shareholders’ funds Reserves and surplus
27. Debit balance in Statement of P&L Shareholders’ Funds Reserves and Surplus
28. Debenture Redemption Reserve Shareholders’ Funds Reserves and Surplus
29. Provision for tax Current Liabilities Short term Provisions
30. Retirement Benefits Payable to employees Non-Current Liabilities Long-term Provisions
31. Calls in Advance Current Liabilities Other Current Liabilities
32. Stores & Spares Current Assets Inventories
33. Provision for employee benefits Non-Current liabilities Long-term Provisions
34. Term loan from Bank Non-Current Liabilities Long-term Borrowings
35. Income received in advance Current Liabilities Other Current Liabilities
36. Capital Advances Non-Current Assets Long term Loans and Advances
37. Provision for warranties Non-Current Liabilities Long-term Provisions
38. General Reserve Shareholders’ Funds Reserves and Surplus
39. Short term loans and advances Current Assets Short term loans and advances
40. Loan payable on demand Current Liabilities Short-term Borrowings
41. Computer and related equipment Non-Current Assets Fixed Assets–Tangible
42. Goods acquired for trading Current Assets Inventories
43. Long Term Provisions Non-Current liabilities Long-term Provisions
44. Goodwill Non-Current assets Fixed Assets– Intangible
45. Stock of finished goods Current Assets Inventories
46. 9% Debentures repayable after three years Non-Current liabilities Long-term Borrowings
47. Balances with banks Current Assets Cash and Cash Equivalents
48. Goods-in-transit Current Assets Inventories
49. Vehicles Non-Current assets Fixed Assets–Tangible
168 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

50. Short term deposits payable on demand Current Liabilities Short-term Borrowings
51. Office Equipments Non-Current Assets Fixed Assets–Tangible
52. Net loss as shown by statement of Profit and Loss Shareholders' Funds Reserves and Surplus (as a negative item)
53. Bonds Non-Current Liabilities Long-term Borrowings
54. Buildings Non-Current assets Fixed Assets– Tangible
55. Raw material Current Assets Inventories
56. Provision for bad debts Current Liabilities Short-term Provisions
57. Negative balance as per statement of Profit and Loss Shareholders' Funds Reserves and Surplus (as a negative item)
58. Loan payable after 3 years Non-Current Liabilities Long-term Borrowings
59. Advance Tax Current Assets Other Current Assets
60. Land Non-Current Assets Fixed Assets–Tangible
61. Trade payables Current Liabilities Trade Payables
62. Cash and cash equivalents Current Assets Cash and Cash Equivalents
63. 5 years loan obtained from SBI Non-Current Liabilities Long-term Borrowings
64. Investments Non-Current Assets Non-Current Investments
65. Share Forfeited Account Shareholders' Funds Share Capital
66. Acceptances Current Liabilities Trade Payables
67. Preliminary expenses Shareholders' Funds Reserves and Surplus (as a negative item)
68. Interest accrued but not due on borrowings Current Liabilities Other Current Liabilities
69. Bills Receivables Current Assets Trade Receivables
70. Advances from customers Current Liabilities Other Current Liabilities
71. Discount/Loss on issue of debentures Shareholders' Funds Reserves and Surplus (as a negative item)
72. Security Deposits for telephone Non-Current Assets Long-term Loans and Advances
73. Furniture and Fittings Non-Current Assets Fixed Assets– Tangible
74. Patents to be written off within 12 months Current Assets Other Current Assets
75. Balances with Banks held as margin money Current Assets Cash and Cash Equivalents
76. Public Deposits Non-Current Liabilities Long-term Borrowings
77. Authorised Capital Shareholders' Funds Share Capital
78. Mastheads Non-Current Assets Fixed Assets – Intangible
79. 10% Debentures Non-Current Liabilities Long-term Borrowings
80. Trade Receivables to be realised beyond 12 months Non-Current Assets Other Non-Current Assets
81. Debenture Redemption Investment Current Assets Current Investments
82. Treasury Bills Current Assets Current Investments
83. Models Non-Current Assets Fixed Assets–Intangible
84. Investments in Mutual Funds for less than 12 months Current Assets Current Investments
85. Trade Investments Non-Current Assets Non-Current Investments
86. Brand Non-Current Assets Fixed Assets–Intangible
87. Recipes/ Formula Non-Current Assets Fixed Assets–Intangible
88. Provident Fund Payable Current Liabilities Other Current Liabilities
89. GST Payable Current Liabilities Other Current Liabilities
90. Application money received for allotment of securities and due Current Liabilities Other Current Liabilities
for refund and interest thereon
91. Outstanding expenses Current Liabilities Other Current Liabilities
92. Unpaid matured debentures and interest thereon Current Liabilities Other Current Liabilities
93. Trade payables to be settled beyond 12 months Non-Current Liabilities Other Long-term Liabilities
94. Stock option outstanding account Shareholders' Funds Reserves and Surplus
95. Revaluation Reserve Shareholders' Funds Reserves and Surplus
96. Gain on reissue of forfeited shares (Capital Reserve) Shareholders' Funds Reserves and Surplus
97. Provident Fund Non-Current Liabilities Long-term Provisions
98. Investment in Land for investment purpose Non-Current Assets Non-Current Investment
99. Proposed dividend Contingent Liability to be shown in Notes to Accounts.
100. Provision for Depreciation/Accumulated Depreciation Deducted from tangible assets shown as notes to accounts.
CHAPTER-8 Analysis of Financial Statements EXAM HANDBOOK Accountancy XII (2021 Edition) 169

Statement of Profit and Loss for the year ended 31 March, 20..... (`)
Particulars Note No. Current year Previous year
I Revenue from operations (This includes sale of products, sale of services and other operating revenues.)
II Note: In respect to a finance company, revenue from operations shall include revenue from interest, dividend and
income from other financial services.
Other income (Interest income + Dividend income +/– Net gain/loss on sale of investments +
Other non-operating income net of expenses directly attributable to such income)
III Total Revenue (I+II)
IV Less: Expenses:
• Cost of materials consumed (It applies to manufacturing companies. It consists of raw
materials and other materials consumed in manufacturing of goods.)
• Purchases of stock-in-trade (It means purchases of goods for the purpose of trading.)
• Changes in inventories of finished goods work-in-progress and stock-in-trade
(Opening inventory – Closing inventory)
• Employee benefits expense (Expenses incurred on employees towards salary, wages, leave
encashment, staff welfare, etc.)
• Finance costs (e.g. Interest paid on debentures/long term loans, Interest on bank overdraft,
Interest paid on public deposits, loss on issue on debentures, etc.) Note: Other financial expenses
such as bank charges are shown under “Other Expenses”.
• Depreciation and amortisation expense (e.g. Depreciation on plant and machinery,
Goodwill/Patents written off )
• Other expenses (All other expenses which do not fall in the above categories are shown under
other expenses.)
Total expenses
V Profit before tax (III–IV)
VI Less: Tax provision
VII Profit after tax (V–VI)
 Meaning of Analysis of Financial Statements: ‘Financial Analysis’ is the process of identifying financial strengths and weaknesses of
the firm by properly establishing relationships between the various items of balance sheet and statement of profit and loss.
 Objectives of Financial Analysis: (i) Assessing the earning capacity or profitability of the firm. (ii) Assessing the managerial efficiency
(iii) Assessing the short term and the long term solvency of the enterprise (iv) Inter-firm and intra-firm comparisons.
 Importance/Significance of Analysis of Financial Statements
1. Finance manager: (i) Financial analysis helps finance manager to assess corporate efficiency, financial strengths and weaknesses
and creditworthiness of the company. (ii) It helps in constant review of financial operations.
2. Top management: Financial analysis helps the management in measuring the success of company’s operations, evaluating
individual’s performance and evaluating the system of internal control.
3. Trade payables/Creditors: Trade payables evaluate the ability of the company to meet their claims over a very short period of
time, i.e. firm’s liquidity position.
4. Lenders/Bankers: They are concerned with the firm’s long-term solvency and survival. They analyse the firm’s profitability over a
period of time and its ability to generate cash.
5. Investors/Owners: Investors concentrate on the analysis of the firm’s present and future profitability. They also evaluate the
efficiency of the management and determine whether a change is needed or not.
6. Labour unions: They assess whether an enterprise can presently afford a wage increase and check whether an enterprise can
increase productivity or raise the prices of products/services to absorb a wage increase.
7. Others: (a) Economists, researchers, etc., analyse the financial statements to study the present business and economic conditions.
(b) Government agencies need it for price regulations, taxation and other similar purposes. (c) Tax authorities are interested to
analyse the financial statements to know about the performance of the company and to collect various types of taxes.
 Limitations of Financial Analysis: (i) It is just a historical analysis and doesn’t reflect on the current and future positions. (ii) It
ignores price level changes. (iii) Non-monetary aspects/ qualitative aspects are ignored, e.g. quality of management, quality of staff
etc. (iv) It is affected by the personal ability and bias of the analyst. (v) It may lead to window dressing, i.e. showing better financial
position by manipulating the books of accounts.
 Tools (or techniques) of Analysis of Financial Statements: (1) Comparative statements indicate the trend and direction of financial
position and operating results of a firm over a period of time. This analysis is also known as ‘horizontal analysis’/’time series analysis’.
(2) Common-size statements – A financial tool for studying the key changes and trends in the financial position and operational
result of a company. (3) Ratio analysis describes the relationship between various items of balance sheet and statement of profit and
loss to assess the profitability, solvency and efficiency of the business. (4) Cash flow Statements.
 Objectives of Ratio Analysis: (i) To assess the profitability, liquidity, solvency and efficiency levels in the business; (ii) To know the
areas of the business which need more attention.
170 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Accounting Ratios at a Glance


Types Accounting Ratio and Its Formula Explanation and Significance
Liquidity Current Assets The excess of current assets over current liabilities provides a measure of
Ratios: Current Ratio= Current Liabilities safety margin available against uncertainty in realisation of current assets
Liquidity ratios Note: • Inventories do not include ‘Loose Tools’ and flow of funds.
are calculated and ‘Stores and Spares’. Currnet ratio should be reasonable. It should neither be very high or very
to measure • (Net) Working capital = Current Assets – low.
the short-term Current Liabilities • A very high current ratio implies heavy investment in current assets i.e.
solvency of the • 2 : 1 is the ideal current ratio under utilisation of resources.
business, i.e. • A low current ratio means the firm will not be able to pay its short-term
the firm’s debt on time.
ability to meet Quick Ratio (or Liquid Ratio or Acid Test Quick ratio provides a measure of the capacity of the business to meet its
its current Ratio) short-term obligations without any flaw. It is safe to have a quick ratio of
obligations. = Quick Assets 1 : 1 as unnecessarily low ratio will be very risky and a high ratio suggests
Current Liabilities unnecessarily deployment of resources in otherwise less profitable short-term
Quick assets (or Liquid assets) are those assets investments.
which are quickly convertible into cash. • Because of exclusion of non-liquid current assets quick ratio is considered
Quick assets = Current assets – Closing inventory better than current ratio as a measure of liquidity position of the business.
(excluding Loose tools and Stores & spares) – Other • Quick ratio is calculated to serve as a supplementary check on liquidity
current assets (e.g. prepaid expenses, advance tax) position of the business and is therefore, also known as ‘Acid-Test Ratio’.
Solvency Long-term Debts This ratio measures the degree of indebtedness of an enterprise and gives
Ratios: Debt-Equity Ratio = Shareholders’ Funds an idea to the long-term lender regarding extent of security of the debt.
Solvency ratios • Long-term Debts (also termed as ‘Debt’) = Non- • Less debt and more equity is considered favourable as it reduces the
are calculated Current Liabilities = Long term borrowings chances of bankruptcy.
to determine + Other long-term liabilities + Long-term • A high debt equity ratio is risky as it may put the firm into difficulty in
the ability of provisions meeting its obligations to outsiders. However, greater use of debt (trading
the business to • Shareholders’ Funds (also termed as ‘Equity’) = on equity)increases earning per share (EPS) if
service its debt Share capital + Reserves and Surplus + Money ROI > Rate of Interest on debt.
in the long run. received against share warrants
Solvency ratios Shareholders' Funds Higher proportion of shareholders funds in financing the total assets is a
judge the firm’s Proprietary Ratio = Total Assets positive feature as it provides security to creditors.
ability meet • Total assets = Non-current assets + current assets
its contractual • Shareholders’ funds = Share capital + Reserves Alternately, Total assets = Shareholders’ funds + Non-current liabilities +
obligations and Surplus + Money received against share Current liabilities
towards warrants
stakeholders, Total assets This ratio indicates the rate of external funds in financing total assets and
Total Assets to Debt Ratio = Long-term debts the extent of coverage of long-term debts by assets.
particularly
towards Interest Coverage Ratio Interest Coverage Ratio (ICR) deals with the servicing of interest on loan. It is
external Net Profit before Interest and Tax a measure of security of interest payable on long-term debts.
stakeholders. = Interest on long term debts It reveals the number of times interest on long-term debts is covered by the
Net profit after tax profits available for payment of interest.
• Net profit before tax = ¥ 100 A higher interest coverage ratio ensures safety of interest on debts.
100 - Tax rate
• Profit before interest and tax (PBIT)
= Net profit before tax + Interest on long-term debts
Activity Ratios Inventory Turnover Ratio Inventory Turnover Ratio determines the number of times inventory
(or Turnover) Cost of Revenue from Operations is converted into revenue from operations during an accounting year. It
= Average Inventory
Ratios or studies the frequency of conversion of inventory of finished goods into
Efficiency Average Inventory = revenue from operations. Thus, it throws light on utilisation of inventory
Opening Inventory + Closing Inventory
Ratios: of goods.
2
Turnover ratios It is also a measure of liquidity as it determines how many times
measure the Cost of Revenue from Operations inventory is purchased or replaced during a year.
efficiency of = Revenue from Operations – Gross Profit (or + • Low inventory turnover ratio may be due to bad buying, obsolete
operations of Gross Loss) inventory, etc., and is a danger signal.
business based Alternately, Cost of Revenue from Operations • High inventory turnover ratio is good but it must be carefully interpreted
on effective = Opening Inventory + Net Purchases + Direct as it may be due to buying in small lots or selling quickly at low margin to
utilisation of Expenses – Closing Inventory realise cash.
resources. These • Net purchases = Cash purchases + Credit Note: In absence of information regarding ‘Inventory in the beginning’
ratios indicate purchases – Returns outward (i.e. purchase return) and ‘Inventory at the end’, the ‘Inventory’ is treated as Average Inventory.
• Direct expenses include wages, carriage inward,
etc.
CHAPTER-8 Analysis of Financial Statements EXAM HANDBOOK Accountancy XII (2021 Edition) 171

the speed at Trade Receivables Turnover Ratio This ratio indicates the number of times the receivables are turned over and
which, activities Net Credit Revenue from Operations converted into cash in an accounting year.
=
of the business Average Trade Receivabless • It helps in working out the average collection period.
are being Average collection period = Months in a year/ Days in a year
Average Trade Receivables =
performed. Opening Debtors and Bills receivables + Closing Debtors and Bills receivables
Trade Receivables Turnover Ratio
Higher turnover 2 • Higher trade receivables turnover ratio means speedy collection from trade
ratio means Note: Debtors should be taken before making any receivable.
better utilisation provision for doubtful debts. Note: If opening debtors and B/R are not given, closing figures are taken as
of assets average. Thus, average trade receivables = Debtors + B/R
and signifies Trade Payables Turnover Ratio Trade payables turnover ratio indicates the pattern of payment of trade
improved Net Credit Purchases payable.
efficiency and =
Average Trade Payables •It reveals average payment period, which is equal to:
profitability, Number of days / months in a year
Average Trade Payables =
and as such Opening Creditors and Bills payable + Closing Creditors and Bills payable Trade Payables Turnover Ratio
are known as 2
efficiency ratios. • Lower trade payables turnover ratio means credit allowed by the supplier is for
Note: If opening Creditors and B/P are not given,
a long period or delayed payment to suppliers, which may affect the reputation
closing figures are taken as average. Thus, average
of the business.
trade payables = Creditors + B/P
Working Capital Turnover Ratio • Working Capital = Current Assets
Net Revenue from Operations – Current Liabilities
=
Working Capital • Net revenue from operations = Revenue from operations – Returns inward
High ratio implies efficient utilisation of resources, resulting in higher
liquidity and profitability in the business.
Profitability Gross Profit Ratio Gross Profit Ratio is computed to have an idea about gross margin.
Ratios: Gross Profit • It indicates gross margin on products sold. It also indicates the margin
= ×100
Profitability Net Revenue of Operations available to cover operating expenses, non-operating expenses, etc.
ratios are • Change in gross profit ratio may be due to change in selling price or cost
Gross profit = Net revenue from operations – Cost
calculated to of revenue from operations or a combination of both.
of revenue from operations
analyse the • A low gross profit ratio may indicate unfavourable purchase and sales
Note: GP on cost = 1/4 ⇒ GP on sales = 1/5
earning capacity policy. Higher gross profit ratio is always a good sign.
GP on cost = 1/5 ⇒ GP on sales = 1/6
of the business
which is the Operating Ratio Operating ratio is computed to analyse cost of operation in relation to
outcome of = Cost of Revenue from Operations + Operating Expenses ¥ 100 revenue from operations.
utilisation Net Revvenue from Operations • It is computed to express cost of operations excluding financial charges in
of resources Operating expenses = Office expenses + relation to revenue from operations.
employed in the Administrative expenses + Selling expenses • Lower operating ratio is a very healthy sign.
business. + Distribution expenses + Depreciation and
There is a close amortisation expenses + Employee benefit expenses
relationship
between the
profit and the Operating Profit Ratio Particulars Amt. (`)
Operating Profit
efficiency with = ¥ 100 Gross Profit xxx
Revenue from Operations
which the Less: Operating expenses (xxx)
resources Operating Profit Ratio = 100 – Operating Ratio Add: Operating incomes (Commission received, Royalty xxx
employed in Operating Profit Ratio is calculated to reveal received, etc.)
the business operating margin. Operating profit xxx
are utilised. • It helps to analyse the performance of business Less: Non-operating expenses (Loss by fire/Accidental (xxx)
Profitability and throws light on the operational efficiency of the loss, Loss on sale of non-current assets, Interest on xxx
Ratios analysis business. long-term debts paid, Bank charges, etc.)
profits in relation • It is very useful for inter-firm as well as intra-firm Add: Non-operating incomes (Interest received, Rent
to revenue from comparisons. received, Dividend received, Profit on sale of non-
operations or current assets, Speculation gain, etc.)
funds (or assets) Net profit before tax xxx
employed in the Less: Tax provision (xxx)
business.
Net profit after tax xxx

Net Profit Ratio Generally, net profit refers to profit after tax (PAT). However, as per CBSE
Net profit Guidelines, Net Profit Ratio is to be calculated on the basis of net profit
= ¥ 100
Revenue from Operations before and after tax.
Net Profit Ratio is a measure of net profit margin in relation to revenue
Net profit = Gross profit – Indirect Expenses
from operations. It reflects the overall efficiency of the business.
172 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Return on Investment (ROI) or ROI measures return on capital employed in the business. It explains the
Return on Capital Employed (ROCE) overall utilisation of funds by a business enterprise.
Net Profit before Interest and Tax • It reveals the efficiency of the business in utilisation of funds entrusted to it
= × 100
Capital Employed by shareholders, debenture-holders and long-term loans.
• For inter-firm comparison, ROI is considered a good measure of profitability.
Capital employed = Shareholders’ Funds + Non-
• It helps in assessing whether the firm is earning a higher return on capital
current liabilities
employed as compared to the interest rate paid.
Alternately, capital employed
= Non-current assets + Working capital

Top Tip
Let us understand how any ratio is affected if there is change in the amount of its numerator or denominator or both.
Case I: When only numerator increases: The ratio increases.
Case II: When only numerator decreases: The ratio decreases.
Case III: When only denominator increases: The ratio decreases.
Case IV: When only denominator decreases: The ratio increases.
Case V: When numerator increases while denominator decreases: The ratio increases.
Case VI: When numerator decreases while denominator increases: The ratio decreases.
Case VII: When both numerator and denominator increase by the same amount: In this case, there may be three situations:
Situation (i): If the original ratio is greater than 1, the ratio decreases.
Situation (ii): If the original ratio is less than 1, the ratio increases.
Situation (iii): If the original ratio is equal to 1, the ratio remains the same, i.e. 1.
Case VIII: When both numerator and denominator decrease by the same amount: In this case also, there may be three situations:
Situation (i): If the original ratio is greater than 1, the ratio increases.
Situation (ii): If the original ratio is less than 1, the ratio decreases.
Situation (iii): If the original ratio is equal to 1, the ratio remains the same, i.e. 1.

OBJECTIVE TYPE QUESTIONS, MCQs

1. Which of the following is not an activity ratio?


(a) Inventory turnover ratio (b) Interest coverage ratio
(c) Working capital turnover ratio (d) Trade receivables turnover ratio
2. The Balance Sheet provides information about financial position of an enterprise:
(a) over a period of time (b) during a period of time
(c) for a period of time (d) at a point of time
3. The current ratio of a company is 2:1. State giving reason whether purchase of goods on credit will increase, decrease or not
change the ratio.
4. ‘Prepaid Expenses’ are presented in the Balance Sheet of a company under the sub-head __________.
5. Which of th following is a limitation of financial analysis:
(a) It is just a study of reports of the company.
(b) It judges the ability of the firm to repay its debts.
(c) It identifies the reasons for change in financial position.
(d) It ascertains relative importance of different components of the financial position of the firm.
6. ‘Interest accrued on investment’ will be presented in the Balance Sheet of a company under the sub-head _________.
7. The debt-equity ratio of X Ltd. is 1 : 2. Will ‘issue of bonus shares’ increase, decrease or not change the ratio? Give reasons in
support of your answer.
8. ‘Calls in advance’ appears in the company’s Balance Sheet under the head:
(a) Non-Current Assets (b) Current Liabilities
(c) Shareholders Funds (d) Non-Current Liabilities
9. ‘Loose Tools appear’ in the company ‘s Balance Sheet under the head/sub head
(a) Inventory (b) Non-Current Assets
(c) Other Current Assets (d) Stores and spare parts
10. ‘Security Deposits’ appear in the Balance Sheet of a company under the head/sub head _____.
CHAPTER-9 Cash Flow Statement EXAM HANDBOOK Accountancy XII (2021 Edition) 187

Chapter 9
Cash Flow
Statement

Revised CBSE Syllabus for 2021 Examination Learning Outcomes


Meaning, objectives and preparation (as per AS 3 (Revised) After going through this Unit, the students will be able to:
(Indirect Method only): Adjustments relating to depreciation
 state the meaning and objectives of cash flow statement.
and amortization, profit or loss on sale of assets including
investments, dividend (both final and interim) and tax.  develop the understanding of preparation of Cash Flow

Note: Bank overdraft and cash credit to be treated as short term Statement using indirect method as per AS 3 with given
borrowings.
Current Investments to be taken as Marketable adjustments.
securities unless otherwise specified.

PROPOSED DIVIDEND – New Accounting Treatment (as per CBSE Guidelines and NCERT book 2020-21)
CBSE Guidelines: Previous years’ Proposed Dividend to be given effect, as prescribed in AS-4, Events occurring after the Balance
Sheet date. Current years’ Proposed Dividend will be accounted for in the next year after it is declared by the shareholders.
NCERT Guidelines: As per AS-4, Contingencies and Events Occurring after the Balance Sheet Date, Proposed dividend is shown
in the Notes to Accounts. It will be shown as contingent liability since it becomes a liability after it is declared (approved) by
the shareholders. It will be accounted in the books of account after it is declared (approved) by the shareholders in the Annual
General Meeting. Since, previous year’s Proposed Dividend will be declared (approved) in the current year; previous year’s Proposed
Dividend will be accounted as dividend payable. Also, declared dividend is paid within 30 days of its declaration therefore; it will
be paid within the same financial year.
Briefly, proposed dividend of previous year after declaration (approved) by the shareholders will be debited to surplus i.e., Balance
in Statement of Profit and Loss. While preparing cash flow statement, previous year’s proposed dividend will be added to Act
Profit under operating activities and will be shown under financial activity.

Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination
 Cash Flow Statement is a financial statement which shows inflows and outflows of cash and cash equivalents from various
activities (operating activities, investing activities and financing activities) of an enterprise during an accounting year.
 Cash and Cash Equivalents: As per AS-3, ‘Cash’ comprises cash in hand and cash at bank (demand deposits with banks). ‘Cash
equivalents’ means short-term highly liquid investments which are easily convertible into cash having insignificant risk of changes in
value. An investment will be treated as cash equivalents only when it has a short maturity of 3 months/90 days or less.
 Cash Flows: ‘Cash Flows’ (cash inflows and cash outflows) means movement of cash and cash equivalents (in and out) due to
non-cash items. Proceeds from sale of machinery, cash received from trade receivables, dividend received, etc. are cash inflows.
Purchase of machinery for cash, payment to trade payables, interest payments, etc. are cash outflows.
 Objectives of Cash Flow Statement: • (Primary objective) To provide information about cash inflows and outflows of an
enterprise during an accounting year under various heads – operating activities, investing activities and financing activities. • To
assess the ability of the enterprise to generate cash and cash equivalents.
188 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

 Classification of Activities for Preparation of Cash Flow Statement


1. Cash flows from Operating Activities: Operating activities are main revenue generating activities.
Cash Inflows: (i) Cash receipts from sale of goods and services (ii) Cash receipts from royalties, fees, commissions etc.
Cash Outflows: (i) Cash payments to suppliers of goods (ii) Cash payments of office and administrative expenses (iii) Cash
payments income taxes.
2. Cash Flows from Investing Activities: Investing activities relate to purchase and sale of fixed assets and long-term investments.
Cash Outflows: (i) Cash payments to purchase fixed assets (both tangible and intangible) (ii) Cash payments to purchase shares/
debentures of other companies (iii) Loans and Advances made to third parties (short-term or long-term both).
Cash Inflows: (i) Cash receipts from sale of fixed assets (ii) Interest received (iii) Dividend received
3. Cash Flows from Financing Activities: Financing activities relate to long-term funds or capital of an enterprise.
Cash Inflows: (i) Cash proceeds from issuing shares (ii) Cash proceeds from issuing debentures, bank overdraft, loans/borrowings
(short-term or long-term both).
Cash Outflows: (i) Redemption of debentures or preference shares, buy back of equity shares, repayment of long-term loans, etc.
(ii) Interest paid on debentures, long-term loans and public deposits (iii) Dividends paid (final dividend and interim dividend)
 Key Points
• Extraordinary items are non-recurring in nature, e.g. Loss due to theft/earthquake flood (ii) Insurance proceeds from famine
settlement/earthquake disaster settlement.
• Interest and Dividend: In case of a non-financial enterprise: (i) Payment of interest and dividends are classified as cash outflows
from financing activities. (ii) Receipt of interest and dividends are classified cash inflows from investing activities.
In case of a financial enterprise (whose main business is lending and borrowing): (i) Interest paid, interest received and dividend
received are classified as operating activities. (ii) Dividend paid is a cash outflow from financing activities.

Types of Taxes Classification of Activities
Income tax (i.e. tax on normal profit/operating profit) Cash outflow from operating activities
Capital gains tax (i.e. tax on capital profits) Cash outflow from investing activities
Dividend tax (i.e. tax on amount distributed as dividend) Cash outflow from financing activities
• Investing and financing transactions that do not involve use of cash and cash equivalents are non-cash transactions e.g. Issue of
shares/debentures to the vendors for purchase of fixed assets, Issue of fully paid bonus shares, etc.
• Cash flows arising from purchase and sale of dealing/trading securities are classified as operating activities as they represent ‘Inventory’
specifically held for resale.  (6)
• Cash advances and loans made by financial enterprises are operating activities since these are their main activity.
• Instalment paid for machinery purchased on deferred payment basis includes both interest and loan, the interest element is cash
outflow from financing activities and the loan element is cash outflow from investing activities.
• Purchase of shares is an operating activity for a share brokerage firm (an investment company).
• Activities which investing activities for every type of enterprise: Purchase of Fixed assets, Sale of fixed assets
• Activities which are financing activities for every type of enterprise: Dividends paid, Issue of Shares/Debentures, Long-term Loans
State, giving reasons, whether the following transactions will result in inflow or outflow or no flow of Cash or Cash equivalents:
S. No. Transaction Effect on Cash and Cash Equivalents Reason
1. Sale of fixed asset (Book Value Cash inflow `95,000 There is movement of cash in from a non-
`100,000) at a loss of `5,000 cash item, i.e., fixed asset.
2. Purchase of Stock-in-trade Cash outflow There is movement of cash out from a non-
for Cash cash item, i.e., stock-in-trade.
3. Cash received from debtors Cash inflow There is movement of cash in from a non-cash
item, i.e., debtors.
4. Cash deposited in Bank/ No effect on Cash and Cash Equivalents It simply represents the movement between
Short term deposits in Banks items of cash and cash equivalents.
5. Cash withdrawn from Bank No effect on Cash and Cash Equivalents It simply represents the movement between
items of cash and cash equivalents.
6. Sale of marketable securities No effect on Cash and Cash Equivalents It simply represents the movement between
for cash at par items of cash and cash equivalents.
7. Proposed Dividend No effect on Cash and Cash Equivalents Dividend is not yet paid since it is not yet declared/
approved by the shareholders. Hence, there
is no outflow of cash and cash equivalents.
CHAPTER-9 Cash Flow Statement EXAM HANDBOOK Accountancy XII (2021 Edition) 189

8. Dividend/Interest Paid Cash outflow There is movement of cash out from a non-cash item.
9. Interest received on debentures Cash inflow There is movement of cash in from a non-
held as investment cash item, i.e., investments.
10. Discount received on making No effect on cash and cash equivalents There is no inflow or outflow of cash on
payment to suppliers discount received.
11. Old furniture written off No effect on cash and cash equivalents There is no inflow or outflow of cash when
an old furniture is written off.
12. Purchase of fixed assets on No effect on cash and cash equivalents There is no immediate outflow of cash.
long term deferred payment
13. Charging of depreciation on No effect on cash and cash equivalents Depreciation is a non-cash expense. There is no
furniture inflow or outflow of cash when depreciation
is charged on furniture.
14. Payment of cash to creditors Cash outflow There is movement of cash out from a non-cash
item, i.e., creditors.
15. Goodwill written off No effect on cash and cash equivalents There is no inflow or outflow of cash and cash
equivalents.
16. Refund of Tax Cash inflow There is movement of cash in from non-cash item.
17. Provision for Tax No effect on cash and cash equivalents There is no outflow of cash yet. Only provision
for tax has been made from Statement of Profit
and Loss.
Classify the following transactions into cash flows from operating activities, investing activities and financing activities:
S. No. Transaction Cash flow Activities
1. Purchase of machinery for cash Cash outflow Investing activities
2. Proceeds from issuance of equity share capital Cash inflow Financing activities
3. Cash revenue from operations Cash inflow Operating activities
4. Proceeds from long-term borrowings Cash inflow Financing activities
5. Proceeds from sale of old machinery Cash inflow Investing activities
6. Cash receipt from trade receivables Cash inflow Operating activities
7. Trading commission received Cash inflow Operating activities
8. Purchase of non-current investment Cash outflow Investing activities
9. Redemption of preference shares for cash Cash outflow Financing activities
10. Cash purchases Cash outflow Operating activities
11. Proceeds from sale of non-current investment Cash inflow Investing activities
12. Purchase of goodwill Cash outflow Investing activities
13. Cash paid to suppliers for goods purchased Cash outflow Operating activities
14. Interim dividend paid on equity shares Cash outflow Financing activities
15. Employee benefits expenses paid Cash outflow Operating activities
16. Proceeds from sale of patents Cash inflow Investing activities
17. Interest received on debentures held as investments by a non-financial enterprise Cash inflow Investing activities
18. Interest paid on long-term borrowings by a non-financial enterprise Cash outflow Financing activities
19. Office and administrative expenses paid Cash outflow Operating activities
20. Manufacturing overheads paid Cash outflow Operating activities
21. Dividend received on shares held as investment by a non-financial enterprise Cash inflow Investing activities
22. Rent received on property held as investment Cash inflow Investing activities
23. Selling and distribution expenses paid Cash outflow Operating activities
24. Income tax paid Cash outflow Operating activities
25. Dividend paid on preferences shares Cash outflow Financing activities
190 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

26. Rent paid Cash outflow Operating activities


27. Bank overdraft and Cash credit Cash inflow Financing activities
28. Underwriting commission paid Cash outflow Financing activities
29. Brokerage paid on purchase of non-current investment Cash outflow Investing activities
30. Refund of income-tax received Cash inflow Operating activities
31. Purchase of property, plant or equipment for cash Cash outflow Investing activities
32. Sale of property, plant or equipment Cash inflow Investing activities
33. Procurement of loans Cash inflow Financing activities
34. Buy back of equity shares Cash outflow Financing activities
35. Tax paid on sale of land and building Cash outflow Investing activities
36. Dividend distribution tax paid Cash outflow Financing activities
37. Dividend paid by a finance company Cash outflow Financing activities
38. Dividend paid by a non-financial company Cash outflow Financing activities
39. Interest paid by a finance company Cash outflow Financing activities
40. Interest received by a finance company Cash inflow Operating activities
41. Dividend received by a Mutual Fund Company Cash inflow Operating activities
42. Purchase of shares by a share brokerage firm Cash outflow Operating activities
43. Securities premium reserve on issue of shares or debentures Cash inflow Financing activities
44. Redemption of debentures by payment in lump sum Cash outflow Financing activities
45. Loan element of the installment paid in respect of a machinery purchased Cash outflow Investing activities
on long-term deferred payment basis
46. Short-term loans and advances made to third parties by a financial enterprise Cash outflow Operating activities
47. Cash receipt from sale of debt instruments of other enterprises Cash inflow Investing activities
48. Interest received in cash from loans and advances made to third parties Cash inflow Investing activities
49. Cash receipt from the repayment of advances or loans made to third parties Cash inflow Investing activities
50. Purchase of securities for trading purpose Cash outflow Operating activities
51. Cash payments for insurance premiums Cash outflow Operating activities
52. Cash receipts from royalties, fees, commissions, etc. Cash inflow Operating activities
53. Cash proceeds from short-term borrowings Cash inflow Financing activities
54. Receipt of interest by a bank Cash inflow Operating activities
55. Acquired machinery for `2,50,000 paying 20% by cheque and Cash outflow Investing activities
executing a bond for the balance payable. `50,000
56. Paid `2,50,000 to acquire shares in Informa Tech. and received a Cash outflow Investing activities
dividend of `50,000 after acquisition. `2,00,000
57. Sold machinery of original cost `2,00,000 with an accumulated Cash inflow Investing activities
depreciation of `1,60,000 for `60,000. `60,000
 Preparation of Cash Flow Statement
CASH FLOW STATEMENT OF _____ (Company) for the year ending _____
Particulars Details (`) Amount (`)
I. CASH FLOWS FROM OPERATING ACTIVITIES
Net Profit/Loss before Tax and Extraordinary Items xxx or (xxx)
Add: Non-cash and non-operating expenses for which deductions already made: • xxx
Depreciation • Goodwill/Patents written-off • Loss on sale of fixed assets/ non-
current assets • Interest paid on debentures/ long-term loans • Preliminary
expenses written off • Discount/loss on issue of debentures written off •
Provision made for doubtful debts • Premium on redemption of debentures
Less: Non-operating incomes for which additions already made • Interest income •
Dividend income • Profit on sale of fixed assets/non-current assets xxx
Operating Profit before working capital changes xxx or (xxx)
Add: • Decrease in current assets • Increase in current liabilities xxx
Less: • Increase in current assets • Decrease in current liabilities (xxx)
Note: Current assets will not include current investments, cash and cash equivalents and
short-term loans and advances. Current liabilities will not include short-term borrowings
and short-term provisions
CHAPTER-9 Cash Flow Statement EXAM HANDBOOK Accountancy XII (2021 Edition) 191

Cash Generated from (or used in) Operating Activities before Tax and Extraordinary Items xxx or (xxx)
Less: Income Tax paid (Tax on normal profits/operating profits) (xxx)
Add: Income Tax Refund received xxx
Cash Generated from (or used in) Operating Activities after Tax but before xxx or (xxx)
Extraordinary Items xxx or (xxx)
+/– Effects of Extraordinary Items (+ Insurance proceeds from earthquake disaster
settlement – Loss due to theft/fire)
A. Net Cash from (or used in) Operating Activities xxx or (xxx)
II. CASH FLOWS FROM INVESTING ACTIVITIES
(i) Proceeds from Sale of Tangible Fixed Assets xxx
(ii) Proceeds from Sale of Non-Current Investments xxx
(iii) Interest received, Dividend received and Rent received xxx
(iv) Purchase of Fixed Tangible Assets (machinery and Intangible Assets (goodwill/ (xxx)
patents)
(v) Purchase of Non-Current Investments (xxx)
(vi) Capital Gain Tax paid (xxx)
B. Net Cash from (used in) Investing Activities xxx or (xxx)
III. CASH FLOWS FROM FINANCING ACTIVITIES
(1) Proceeds from issue of Share Capital (both equity and preference shares) xxx
(2) Proceeds from Long-term Borrowings (debentures, long-term loans, x% deposits) xxx
(3) Securities Premium Reserve (Premium on issue of shares/debentures) xxx
(4) Proceeds from Bank Overdraft raised xxx
(5) Redemption of Debentures/Preference Shares (including premium on redemption) (xxx)
(6) Repayment of Long-term Loans (xxx)
(7) Buy Back of Equity Shares (xxx)
(8) Dividend Paid (both final dividend and interim dividend) (xxx)
(9) Interest on Long-term Borrowings (e.g. interest on debentures/long-term loan/ (xxx)
x% deposits)
(10)Dividend Tax paid (xxx)
C. Net Cash from (used in) Financing Activities xxx or (xxx)
NET INCREASE (OR DECREASE) IN CASH & CASH EQUIVALENTS (A+B+C) xxx
Add: Cash and Cash Equivalents in the beginning
Cash in hand xxx
Cash at bank xxx
Current Investments (marketable securities) xxx xxx
Cash and cash Equivalents at the end of the year
Cash in hand xxx
Cash at bank xxx
Current Investments (marketable securities) xxx xxx
Working Notes:
1. Calculation of Tax paid/Provision for Tax made during current year (if additional information of tax provision/tax paid is given):
Dr. Provision for Tax A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Bank A/c (Tax paid) By Balance b/d
To Balance c/d By Statement of Profit and Loss
(Tax provision of current year)

2. When accumulated depreciation account is not appearing in Notes to Accounts:


Dr. Tangible Fixed Assets (e.g. Machinery) A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d By Depreciation
To Statement of Profit and Loss (profit on sale) By Bank A/c (sale)
To Bank A/c (purchase) By Statement of Profit and Loss (loss on sale)
By Balance c/d
192 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

When accumulated depreciation account is appearing in Notes to Accounts of Balance Sheet:


Dr. Tangible Fixed Assets (e.g. Machinery) A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d By Bank A/c  (proceeds from sale)
To Statement of Profit and Loss (profit on sale)* By Accumulated Depreciation (on fixed asset sold)
To Bank A/c (new fixed assets purchased) By Statement of Profit and Loss (loss on sale)*
By Balance c/d

Dr. Accumulated Depreciation Account Cr.


Particulars Amount (`) Particulars Amount (`)
To Tangible Fixed Assets A/c (accumulated By Balance b/d
depreciation on machinery sold) By Statement of Profit and Loss (Depreciation
To Balance c/d charged during the year)

3. Calculation of Net profit/loss before tax and extraordinary items:


Particulars Amount (`)
Net Profit/Loss after Appropriations (Current year’s balance of Statement of Profit and Loss – Previous year’s figure) xxx or (xxx)
Add: Dividend paid (both final dividend and interim dividend) xxx
Add: Transfer to Reserves (e.g. General reserve) xxx
Add: Provision for Tax made during the current year xxx
Less: Income Tax Refund received (xxx)
Net Profit/Loss before Tax xxx or (xxx)
Less: Insurance proceeds from earthquake disaster settlement (Extraordinary item) Or Add: Loss by fire/ theft (xxx)
Net Profit before Tax and Extraordinary Items xxx or (xxx)

Analysis of Balance Sheet of company for the purpose of preparing Cash Flow Statement
Particulars
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
• Share Capital (It includes Equity share capital and x% Preference share capital.
– If it is increasing, it means – Issue of Shares. It will be shown as ‘Cash Inflow from Financing Activities’.
– If Equity share capital is decreasing, it means – Buy back of equity shares, which is shown as ‘Cash Outflow from Financing Activities’.
– If x% Preference share capital is decreasing, it means – Redemption of preference shares, which is shown as ‘Cash Outflow from Financing Activities’.)
• Reserves and Surplus (It includes i. Surplus i.e. balance in Statement of Profit and Loss ii. General Reserve iii. Securities Premium Reserve.
i. Surplus i.e. balance in Statement of Profit and Loss – It is the basis for calculating Net Profit/Loss before Tax and extraordinary items. Net profit
for the year = Balance of Surplus in current year – Balance of previous year. If it is negative, it means Net loss for the year.
ii. General Reserve – Increase in balance of general reserve means ‘Transfer to General Reserve’, which is added back to Net profit/Loss for the year
while calculating Net Profit/Loss before Tax and extraordinary items.
iii. Securities Premium Reserve – Increase in balance of securities premium reserve will be shown as ‘Cash Inflow from Financing Activities’ because
shares/debentures must have been issued at a premium during the year.)
2. Non-current Liabilities
Long term borrowings (It includes x% debentures, x% long-term bank loan, x% long-term deposits, etc. Here x% is the rate of interest. So interest paid
on long-term borrowings will be calculated, which first will be added to Net profit before tax and extraordinary items while calculating operating profit before
working capital changes, and then will be shown as ‘Cash Outflow from Financing Activities’. Now the balance of long-term borrowing may be increasing or
decreasing.
– If it is increasing, it means ‘Issue of x% debentures or long-term bank loan/long-term deposits raised during the year’, which will be shown as ‘Cash
Inflow from Financing Activities’.
– If it is decreasing, it means ‘Redemption of x% debentures or Repayment of long-term bank loan/long-term deposits during the year’, which will be
shown as ‘Cash Outflow from Financing Activities’.
3. Current Liabilities
• Short-term borrowings (It includes Bank overdraft or Short-term bank borrowings. It is always shown under Financing Activities.
– If it is increasing, it means ‘Bank overdraft or Short-term borrowings raised, which will be shown as ‘Cash Inflow from Financing Activities’.
– If it is decreasing, it means ‘Repayment of Bank overdraft/Short-term borrowings’, which will be shown as ‘Cash Outflow from Financing Activities’.)
• Short-term provisions (It includes mainly Provision for Tax.
i. If additional information about tax is NOT given: Previous year figure of Provision for tax is – Tax paid which is shown as ‘Cash Outflow from Operating
activities’, and Current year figure of Provision for tax is – Tax Provision made during the year which is added to Net profit for the year while calculating
Net Profit/Loss before Tax and extraordinary items.
ii. If additional information about tax is given: Provision for Tax account is prepared to calculate Tax paid or Tax Provision made during the year.)
• Trade payables (These two items of current liabilities are shown under ‘Working Capital Changes’ while calculating ‘Cash flow from
• Other current liabilities Operating Activities’. The rule is – Add: Increase in current liability; Less: Decrease in current liability)

Total
CHAPTER-9 Cash Flow Statement EXAM HANDBOOK Accountancy XII (2021 Edition) 193

II. ASSETS
1. Non-Current Assets
• Fixed assets
(i) Tangible assets (Tangible assets include plant and machinery, land and building, furniture etc. Depreciation provided on fixed tangible assets will be
added to Net Profit/Loss before Tax and extraordinary items while calculating operating profit before working capital changes.
i. If additional information about Depreciation or Sale or Purchase is NOT given:
– If balance of tangible fixed asset is increasing, it means ‘Purchase of Tangible Fixed Asset’ which will be shown as ‘Cash Outflow from Investing Activites’.
– If balance of tangible fixed asset is decreasing, it means ‘Sale of Tangible Fixed Asset’ usually in case of land and building which will be shown
as ‘Cash Inflow from Investing Activites’. However, decrease in balance of machinery, furniture, etc. must be treated as ‘Depreciation’.
ii. If additional information about Depreciation or Sale or Purchase is given: Tangible Fixed Asset Account is prepared. Accumulated Depreciation/
Provision for Depreciation Account is also prepared if Accumulated Depreciation/Provision for Depreciation is given in Notes to Accounts as
deduction from Tangible Fixed Asset and additional information about Accumulated Depreciation/Provision for Depreciation is also given.
(ii) Intangible assets (Intangible assets include Goodwill, Patents etc.
– If the balance of Intangible asset is increasing, it means ‘Purchase of Intangible asset’, which will be shown as ‘Cash Outflow from Investing Activities’.
– If the balance of Intangible asset is decreasing, it means ‘Intangible asset amortised/written off ’, which will be added to Net Profit/Loss before Tax
and extraordinary items while calculating operating profit before working capital changes.)
• Non-current investments (Non-current investments include x% Government Bonds, Investment in Shares or Debentures of other companies, etc. Here x%
is the rate of interest/dividend on investment. So interest received will be calculated, which first will be subtracted from Net profit before tax and extraordinary
items while calculating operating profit before working capital changes, and then will be shown as ‘Cash Intflow from Investing Activities’. Now the balance
of Non-current investments may be increasing or decreasing.
– If it is increasing, it means ‘Purchase of Non-current investments’, which will be shown as ‘Cash Outflow from Investing Activities’.
– If it is decreasing, it means ‘Sale of Non-current investments’, which will be shown as ‘Cash Inflow from Investing Activities’.
• Long-term loans and advances (It always shown under Investing Activities. If increasing, it means Long-term loans and advances given, which is shown as ‘Cash
Outflow from Investing Activities’. If decreasing, it means Repayment of Long-term loans and advances given, which is shown as ‘Cash Inflow from Investing Activities’)
2. Current Assets
• Current investments (Both of these two items of current assets are treated as ‘Cash and Cash Equivalents’ for the purpose of preparing Cash Flow Statement)
• Cash and cash equivalents
• Short term loans and advances (It always shown under Investing Activities. If increasing, it means Short-term loans and advances given, which is shown as ‘Cash
Outflow from Investing Activities’. If decreasing, it means Repayment of Short-term loans and advances given, which is shown as ‘Cash Inflow from Investing Activities’)
• Inventories
(These three items of current assets are shown under ‘Working Capital Changes’ while calculating ‘Cash flow from
• Trade receivables
Operating Activities’. The rule is – Add: Decrease in current asset; Less: Increase in current asset)
• Other current assets
Total

OBJECTIVE TYPE QUESTIONS, MCQs

1. Under which type of activity will Rent Paid’ be classified while preparing Cash Flow Statement ?
2. Machinery was purchased for `10,00,000, paying 40% by issue of equity shares of `10 each and the balance by a cheque. This
transaction will result in :
(a) Cash used in investing activities `6,00,000. (b) Cash generated from financing activities `4,00,000.
(c) Decrease in cash and cash equivalents `10,00,000. (d) Cash used in investing activities `10,00,000.
3. Interest received in cash on loans and advances results in cash inflow from ___________ activity.
4. While preparing Cash Flow Statement, cash comprises __________ and with bank.
5. ‘An investment normally qualifies as a cash equivalent only when it has a maturity of three months or more from the date of
acquisition. Is this statement correct? Give reason in support of your answer.
6. Z Ltd. Purchase a building for `50,00,000 from j Ltd. paying 40% by the issue of 9% debentures of 9% debentures and the
balance by cheque. The above transaction will result in:
(a) Cash used in investing activities `20,00,000 (b) Cash generated form financing activities `20,00,000
(c) Decrease in cash and cash equivalents `20,00,000 (d) Cash used in investing activities `30,00,000
7. Paid `7,00,000 to acquire shares in K.l, Ltd. and received a dividend of `20,000 after acquisition. These transactions will result in:
(a) Cash used in investing activities`7,00,000 (b) Cash generated form financing activities ` 7,20,000.
(c) Cash generated from financing activities `6,80,000. (d) Cash used in investing activities `6,80,000
8. X Ltd. redeemed `1,00,000, 9% debentures at 10% premium. What will be the amount of ‘Cash Flows financing activities’?
9. Short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value are called ________.
10. Which of the following transactions will not result into flow of cash :
(a) Issue of equity shares of ` 1,00,000. (b) Purchase of machinery of ` 1,75,000.
(c) Redemption of 9% debentures ` 3,50,000. (d) Cash deposited into bank ` 15,000.
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 217

New CBSE
Sample Question
Papers 2021

Important Tips for Attempting CBSE Accountancy Examination 2021


 During 15 minutes reading time, first of all read the questions having internal choice (Accounting for Share
Capital – 8 marks question, Accounting for Partnership Firm – 8 marks question, etc.) and make selection of
the option in those questions.
Then read all the Objective Type Question, MCQs and Calculate their answers.
 Make Formats properly including Date Column, J.F/L.F Column etc. (Format is not compulsory in Theory Questions)
 Don’t forget to write Account Heads – Revaluation Account, Partners’ Capital Accounts, etc.
 Don’t forget to write Question Number you are answering.
 Read all questions word to word. Otherwise you may miss important information, e.g. X Ltd. issued 1,00,000
shares at a premium of `10 per share payable as `10 on Application, `30 (including premium) on Allotment and
`10 on first and final call each. In this question there are two calls of `10 each. So the Face Value of a share is `50.
Similarly, the profit sharing ratio of partners, sometimes, may not be given in the beginning but at the end of the question.
 Write Working Notes only when asked in the questions with instruction – ‘Show your workings clearly.’
 Answer each question from new page (except 1 mark questions)
 Always follow Step by Step Calculation in questions related to Ratio Analysis, Valuation of Goodwill, Stationery
Consumed etc.
 If you are a slow-writer and not able to finish the paper on time in your school examinations, you must follow
the following important tips to be able to finish your paper on time with some revision time on hand:
• Y ou needn’t use pencil and scale to draw formats. You may use the pen itself you are writing with to draw
formats.
• You needn’t write ‘To’ and ‘By’ in Ledger Accounts. It will save at least 5 minutes of time in total.
• Write narrations of the journal entries as briefly as possible without writing ‘Being’ or ‘For’, for example,
‘Forfeiture of 1,000 shares.’
 Attempting the full paper on time with 20-25 minutes Revision Time in hand is necessary to score 100% marks.
The following Time Schedule will help you managing your time when sitting the examination hall.
Time Schedule
S. No. Questions Marks Duration Time
1. Part B – Analysis of Financial Statements 20 marks 40 minutes 11:10 a.m.
• 7 objective type questions of 1 marks each = 7 marks
• 1 short question on ratio analysis/balance sheet = 3 marks
• 1 short question on comparative/common size statement = 4 marks
• 1 long question on cash flow statement = 6 marks
2. Long Questions of 8 marks 16 marks 30 minutes 11:40 a.m.
• Accounting for Share Capital = 8 marks
• Admission of a new partner/Retirement or
Death of a partner/Dissolution of a partnership firm = 8 marks
218 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

3. Long Questions of 6 marks 12 marks 25 minutes 12:05 p.m.


• Accounting for Not-for -Profit Organisations = 6 marks
• Accounting for Debentures = 6 marks
4. Short Questions of 4 marks 16 marks 30 minutes 12:35 p.m.
• 3 short questions from Accounting for Partnership Firms = 12 marks
• Accounting for Share Capital = 4 marks
5. Short Question of 3 marks 3 marks 5 minutes 12:40p.m.
• Accounting for Not-for -Profit Organisations = 3 marks
6. Objective Type Questions of 1 mark each 13 marks 25 minutes 1:05 p.m.
• 13 Objective Type Questions, MCQs = 13 marks
7. Revision 25 minutes 1:30 p.m.
During Revision Time: First, ensure that you've attempted all questions and written the question number of the
answers. Then read the questions and your answers checking all calculations.
 Accountancy Paper is not a Theory Paper and requires a relaxed mind when attempting the Question Paper. ‘Study
the whole night before the exam’ is the major cause of under-performance.
Successful students always have given proper rest to their mental faculty so as to do all calculations correctly when
sitting the Examination Hall.
In my teaching career, I’ve seen many students making calculations as 2 × 3 = 5 who ultimately score 70 to 80 per
cent marks only, just because they had spent the whole night solving questions on Accounting for Share Capital,
Cash Flow Statement, Death of a Partner and so on one after the other.
 I hope these tips will help you take CBSE Accountancy XII Exam 2021 successfully and you will score sky touching
marks. I’ll feel pleasure to solve any of your queries/doubts related to the subject through my social media handles.

Phone/Whatsapp Number   9810475716

Instagram: subhashdey_20: https://www.instagram.com/subhashdey_20/


Email: subhashdey200881@gmail.com

Mobile App: Shree Radhey Publications: https://play.google.com/store/apps/details?id=com.


shreeradheypublications&hl=en

Finally I pray the Supreme Divine to bestow the best of blessings on you!
Regards
Your servant

SUBHASH DEY
B.Com. (Hons.), M.Com. (DSE), M.A. (Economics), PGDBA (Finance), B.Ed, PGD in Labour and Administrative Laws
• Author and Publisher of CBSE Books – Accountancy, Business Studies, Economics, Mathematics and English
• M.Com (Delhi School of Economics)– Gold Medalist, Topper of Delhi University
• Consecutive four years’ Economics topper of Delhi University
• Ex- Lecturer of Commerce in Hindu College, Delhi University
• Resource Person and Educationist conducting Workshops/Seminars of Teachers and Students
• Founder/Director of ‘Shree Radhey Academy, The Gurukul’ (C-3/6 Yamuna Vihar, Delhi-53)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 219

Sample Question Papers

CBSE Sample Question Paper 2020-21


Maximum Marks – 80 Time – 3 Hours
Part-A
(Accounting for Not-for-Profit Organizations, Partnership Firms and Companies)
Q.1 Which of the following items is not dealt through Profit and Loss Appropriation Account? (1)
(a) Interest on Partner’s Loan (b) Partner’s Salary
(c) Interest on Partner’s Capital (d) Partner’s Commission
Q.2 For which of the following situations, the old profit sharing ratio of partners is used at the time of admission of a new partner? (1)
(a) When new partner brings only a part of his share of goodwill.
(b) When new partner is not able to bring his share of goodwill.
(c) When, at the time of admission, goodwill already appears in the balance sheet.
(d) When new partner brings his share of goodwill in cash.
Q.3 Reserve Capital is not a part of: (1)
(a) Authorized Capital (b) Subscribed capital
(c) Unsubscribed capital (d) Issued Share Capital
Q.4 Sports Star Charitable club has income of `16,000 and ‘deficit’ debited to capital fund of `4,300 for the year 2019-20, then
expenditure for the year 2019-20 is: (1)
(a) `11,700 (b) `4,300
(c) `20,300 (d) None of these
Q.5 At the time of dissolution of partnership firm, journal entry for the settlement of loan advanced by the firm to a partner
would be: (1)
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
(a) Bank A/c Dr.
To Loan to Partner A/c
(b) Loan to partner A/c Dr.
To Bank A/c
(c) Realization A/c Dr.
To Loan to Partner A/c
(d) None of these
Q.6 A company forfeited 4,000 shares of `10 each on which application money of `3 has been paid. Out of these 2,000 shares
were reissued as fully paid up and `4,000 has been transferred to capital reserve. Calculate the rate at which these shares
were reissued. (1)
(a) `10 Per share (b) `9 Per share
(c) `11 Per share (d) `8 Per share
220 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.7 On the basis of the following data, how much final payment will be made to a partner on firm’s dissolution?
Credit balance of capital account of the partner was `50,000. Share of loss on realization amounted to `10,000. Firm’s
liability taken over by him was for `8,000. (1)
(a) `32,000 (b) `48,000
(c) `40,000 (d) `52,000
Q.8 Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5:1. (1)
Balance Sheet (Extract)
Liabilities Amount (`) Assets Amount (`)
Machinery 40,000
If value of machinery in the balance sheet is undervalued by 20%, then at what value will machinery be shown in new
balance sheet:
(a) `44,000 (b) `48,000
(c) `32,000 (d) `50,000
Q.9 Rex, Tex and Flex are partners in a firm in the ratio of 5:3:2. As per their partnership agreement, the share of deceased
partner is to be calculated on the basis of profits and turnover of previous accounting year.
Tex expired on 31st December 2019. Turnover till the date of death was `18,00,000. Their profits and turnover for the year
2018-19 amounted to `4,00,000 and `20,00,000 respectively.
An amount of `____________will be given to his executors as his share of profits till the date of death. (1)
Q.10 Retirement or death of a partner will create a situation for the continuing partners, which is known as: (1)
(a) Dissolution of Partnership (b) Dissolution of partnership firm
(c) Winding up of business (d) None of the above
Q.11 A, B and C are partners. C expired on 18th December 2019 and as per agreement surviving partners A and B directed the
accountant to prepare financial statements as on 18th December 2019 and accordingly the share of profits of C (deceased
partner) was calculated as `12,00,000. Which account will be debited to transfer C’s share of profits:
(a) Profit and Loss Suspense Account
(b) Profit and loss Appropriation Account
(c) Profit and loss Account
(d) None of the above
Q.12 E, F and G are partners sharing profits in the ratio of 3:3:2. As per the partnership agreement, G is to get a minimum amount
of `80,000 as his share of profits every year and any deficiency on this account is to be personally borne by E. The net profit for
the year ended 31st March, 2020 amounted to `3,12 ,000. Calculate the amount of deficiency to be borne by E? (1)
(a) `1,000 (b) `4,000
(c) `8,000 (d) `2,000
Q.13 Pick the odd one out: (1)
(a) Rent to partner. (b) Manager’s Commission.
(c) Interest on Partner’s Loan. (d) Interest on Partner’s capital.
Q.14 From the following information, calculate the amount to be charged to Income and Expenditure Account for ‘Sports
material consumed’ for the year 2019-20. (3)
Particulars Amount (`)
Stock of Sports material (01-04-2019) 60000
Amount paid to creditors (during 2019-20) 3,00,000
Creditors for Sports Materials (01-04-2019) 1,00,000
Creditors for Sports Materials (31-03-2020) 80000
Sports Material sold During the year (Book Value `35,000) 15000
Cash Purchases of Sports Material (During the Year 2019-20) 1,30,000
There was zero stock at the end of financial year 2019-20.
OR
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 221

Calculate the amount of Subscription to be credited to Income and Expenditure account for the year 2019-20.
Particulars Amount (`)
Amount received during the year (including `20,000 for 2018-19, `30,000 for 2020-21 and 7,80,000
`10,000 for 2021-22)
Subscription received in advance as on 01-04-2019 (including `15,000 for 2020-21) 35,000
Subscription in arrears as on 01-04-2019 40,000
Subscription in arrears as on 31-03-2020 50,000
Out of subscription in arrears on 01-04-2019, `15,000 are no longer recoverable.
Q.15 Rohit, Raman and Raina are partners in a firm. Their capital accounts on 1st April, 2019, stood at `2,00,000, `1,20,000
and `1,60,000 respectively. Each partner withdrew `15,000 during the financial year 2019-20. (4)
As per the provisions of their partnership deed:
(a) Interest on capital was to be allowed @ 5% per annum.
(b) Interest on drawings was to be charged @ 4% per annum.
(c) Profits and losses were to be shared in the ratio 5:4:1.
The net profit of `72,000 for the year ended 31st March 2020, was divided equally amongst the partners without providing
for the terms of the deed. You are required to pass a single adjustment entry to rectify the error (Show workings clearly).
OR
A&B are partners in the ratio of 3:2. The firm maintains fluctuating capital accounts and the balance of the same as on 31-03-
2020 amounted to `1,60,000 and `1,40,000 for A and B respectively. Their drawings during the year were `30,000 each.
As per partnership deed interest on capital @10% p.a. on opening capitals had been provided to them. Calculate opening
capitals of partners given that their profits were `90,000. Show your workings clearly.
Q.16 From the following information complete Journal entries. (Face value of share is `10 each) (4)
Journal
Date Particulars L.F. Dr. Amt (`) Cr. Amt (`)
Share Capital A/c Dr. ?
Securities Premium Reserve A/c Dr. 1000
To Share Forfeiture A/c ?
To Calls in Arrears A/c 3,500
(Being___?___shares forfeited for non-payment of `_?___ including
premium of `2 per share)
Bank A/c Dr. ?
Share Forfeiture A/c Dr. ?
To Share Capital A/c ?
(Being_?___shares reissued at `9 per share as fully paid)
Share forfeiture A/c Dr. 600
To Capital Reserve A/c 600
(Being forfeiture money transferred to capital reserve)
Dr. Share forfeiture A/c Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
To Share Capital A/c ? By Share Capital A/c 1500
To Capital reserve A/c 600
To Balance c/d 600
1500 1500
Q.17 Pass necessary journal entries in the following cases on the dissolution of a partnership firm of partners X, Y, A and B: (4)
(i) Realization expenses of ` 5,000 were to borne by X, a partner. However, it was paid by Y.
(ii) Investments costing ` 25,000 (comprising 1000 shares), had been written off from the books completely. These shares
are valued at ` 20 each and were divided amongst the partners.
(iii) Y’s loan of `50,000 settled at ` 48,000.
(iv) Machinery (book value ` 6,00,000) was given to creditor at a discount of 20%.
222 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.18 Ajay, Binod and Chandra entered into partnership on 1st April 2019 with a capital of `3,00,000, `2,00,000 and `1,00,000
respectively. In addition to capital Chandra has advanced a loan of `1,00,000. Since they had no agreement to guide them,
they faced following issues during and at the end of the year. (4)
1. Ajay wanted interest on capital to be provided @8% pa but Binod and Chandra did not agree.
2. Chandra wanted that interest on loan be paid to him @ 10% pa but Ajay and Binod wanted to pay @ 5% pa.
3. Ajay and Binod demanded to share profits in the ratio of their capital contribution, Chandra is not in agreement with
this proposal.
4. Binod, being working partner, demands a lump sum payment of `40,000 as remuneration for which other others
partners are not in agreement.
You are required to suggest and help them resolve these issues.
Q.19 From the following Receipts and Payments Account of Krish Fitness and wellness Club for the year ended 31st March 2020,
prepare Income and Expenditure Account. (6)
Receipts Amount (`) Payments Amount (`)
To Balance b/d 85,000 By Doctors and Coaches Honorarium 25,000
To Subscription 68,500 By Medicines 15,500
To Entrance Fees 25,000 By Medical Equipment 30,000
To Life Membership Fees 30,000 By General Expenses 8,000
To Donations for tournament fund 20,000 By Furniture 20,000
To Sale of old Medical equipment 5,000 By Newspaper 8,000
(Book Value `15,000) By Rent, Rates and Taxes 5,000
To Miscellaneous Receipts 15,000 By Tournament expenses 60,000
By Balance c/d 77,000
2,48,500 2,48,500
Additional Information:
Following opening balances appeared in the books on 1st April, 2019.
(a) Tournament fund `15,000.
(b) Medical Equipment `1,50,000.
(c) Outstanding Subscription was ` 8,000 and Advance Subscription `5,000 (for 2019-20).
During the year 2019-20 Depreciation on medical equipment was `25,000.
There were 600 members each paying an annual subscription of `100.
Q.20 (i) Neeraj Ltd. took over business of Ajay enterprises on 1-04-2020. The details of the agreement regarding the assets and
liabilities to be taken over are: (6)
Particulars Book Value (`) Agreed Value (`)
Building 20,00,000 35,00,000
Plant and Machinery 12,00,000 8,00,000
Stock 4,00,000 4,00,000
Trade receivables 5,00,000 4,00,000
Creditors 2,00,000 3,00,000
Outstanding Expenses 50,000 1,00,000
It was decided to pay for purchase consideration as `7, 00,000 through Cheque and balance by issue of 2,00,000, 9%
Debentures of `20 each at a premium of 25%. Journalize.
(ii) On April 1, 2019 Z Ltd. issued, 10,000, 8% Debentures of `100 each at premium of 5%, to be redeemable at a premium
of 10%, after 5 years. The entire amount was payable on application. The issue was oversubscribed to the extent of 10,000
debentures and the allotment was made proportionately to all the applicants. The securities premium amount has not been
utilized for any other purpose during the year. Give journal entries for the issue of debentures and writing off loss on issue of
debentures.
Q.21 Sunaina and Tamanna are partners in a firm sharing profits and losses in the ratio of 3:2. Their Balance Sheet as at 31st
March, 2020 stood as follows: (8)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 223

Balance Sheet
Liabilities Amount (`) Assets Amount (`)
Capital Accounts: Plant & Machinery 1,20,000
Sunaina 60,000 Land and Building 1,40,000
Tamanna 80,000 1,40,000 Debtors 1,90,000
Current Accounts: Less: Provision for
Sunaina 10,000 Doubtful debts (40,000) 1,50,000
Tamanna 30,000 40,000 Stock 40,000
General Reserve 1,20,000 Cash 30,000
Workmen’s Compensation Reserve 50,000 Goodwill 20,000
Creditors 1,50,000
5,00,000 5,00,000
They agreed to admit Pranav into partnership for 1/5th share of profits on 1st April, 2020, on the following terms:
(a) All Debtors are good.
(b) Value of land and building to be increased to `1,80,000.
(c) Value of plant and machinery to be reduced by `20,000.
(d) The liability against Workmen’s Compensation Fund is determined at `20,000 which is to be paid later in the year.
(e) Mr. Anil, to whom `40,000 were payable (already included in above creditors), drew a bill of exchange for 3 months
which was duly accepted.
(f ) Pranav to bring in capital of `1,00,000 and `10,000 as premium for goodwill in cash.
Journalize.
OR
Krish, Vrish and Peter are partners sharing profits in the ratio of 3:2:1. Vrish retired from the firm. On that date the
Balance Sheet of the firm was as follows:
Balance Sheet as on March 31, 2020
Liabilities Amount (`) Assets Amount (`)
Creditors 15,000 Bank 7,600
General Reserve 12,000 Furniture 41,000
Bills Payable 12,000 Stock 9,000
Outstanding Salary 2,200 Premises 80,000
Provision for Legal Damages 6,000 Debtors 6,000
Capitals: Less: Provision for
Krish 46,000 Doubtful Debts 400 5,600
Vrish 30,000
Peter 20,000
1,43,200 1,43,200
Additional Information:
• Premises to be appreciated by 20%, Stock to be depreciated by 10% and Provision for doubtful debts was to be
maintained @5% on Debtors. Further, provision for legal damages is to be increased by `1,200 and furniture to be
brought up to `45,000.
• Goodwill of the firm is valued at `42,000.
• `26,000 from Vrish’s Capital account be transferred to his loan account and balance to be paid through bank; if
required, necessary loan may be obtained from bank.
• New profit sharing ratio of Krish and Peter is decided to be 5:1.
Prepare Revaluation Account, Partners Capital Accounts and Balance Sheet.
Q.22 Zocon Ltd. issued a prospectus inviting applications for 5,00,000 equity shares of `10 each issued at a premium of 10%
payable as: `3 on Application, ` 5 on Allotment (including premium) and `3 on call.
Applications were received for 6,60,000 shares. Allotment was made as follows:
(a) Applicants of 4,00,000 shares were allotted in full.
(b) Applicants of 2,00,000 shares were allotted 50% on pro-rata basis.
(c) Applicants of 60,000 shares were issued letters of regret.
224 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

A shareholder to whom 500 shares were allotted under category (a) paid full amount on shares allotted to him along with
allotment money. Another shareholder to whom 1,000 shares were allotted under category (b) failed to pay the amount due
on allotment. His shares were immediately forfeited. These shares were then reissued at `14 per share as `7 paid up. Call has
not yet been made.
Journalise. (8)
OR
X Ltd. has offered 50,000 equity shares of `100 each at a premium of `20, payable as follows:
Application `50; Allotment `40 (including premium); and balance on first and final call.
The bank account of the company has received `35,00,000 on account of share application money.
X Ltd. decided to allot shares to all the applicants on Pro Rata basis. The balance in calls in arrears account at the time of
allotment and first and final call amounted to `1,00,000 and `1,50,000 respectively. These shares were forfeited and re-
issued at `90 per share as fully paid up. Journalize. (8)

Part-B
(Analysis of Financial Statements)
Q.23 Balance Sheet (Extract)
Equity and liabilities 31-3-2019 31-3-2020
12% Debentures 2,00,000 1,60,000
Additional Information:
Interest on debentures is paid on half yearly basis on 30th September and 31st March each year.
Debentures were redeemed on 30th September 2019. How much amount (related to above information) will be shown in
Financing Activity for Cash Flow Statement prepared on 31st March 2020? (1)
(a) Outflow `40,000 (b) Inflow `42,600
(c) Outflow `61,600 (d) Outflow `64,000
Q.24 What will be the Current ratio of a company whose Net Working Capital is Zero? (1)
Q.25 Which of the following is not a part of Finance Cost (in statement of profit and loss)? (1)
(a) Bank Charges (b) Interest Paid on Debentures
(c) Interest Paid on Public Deposits (d) Loss on Issue of Debentures
Q.26 Which of the following is not an investing cash flow? (1)
(a) Purchase of marketable securities for `25,000 cash.
(b) Sale of land for `28,000 cash.
(c) Sale of 2,500 shares (held as investment) for `15 each.
(d) Purchase of equipment for `500 cash.
Q.27 Proposed dividend is a _______________ liability.
Q.28 The ___________ may indicate that the firm is experiencing stock outs and lost sales. (1)
(a) Average payment period (b) Inventory turnover ratio
(c) Average collection period (d) Quick ratio
Q.29 Current ratio of Vidur Pvt. Ltd. is 3:2. Accountant wants to maintain it at 2:1. Following options are available. (1)
(i) He can repay Bills Payable (ii) He can purchase goods on credit
(iii) He can take short term loan
Choose the correct option:
(a) Only (i) is correct (b) Only (ii) is correct
(c) Only (i) and (iii) are correct (d) Only (ii) and (iii) are correct
Q.30 Calculate proprietary ratio, if Total assets to Debt ratio is 2:1. Debt is `5,00,000. Equity shares capital is 0.5 times of debt.
Preference Shares capital is 25% of equity share capital. Net profit before tax is `10,00,000 and rate of tax is 40%. (3)
OR
From the following information, calculate ‘Interest Coverage Ratio.
Profit after interest and tax `7,50,000
Rate of income tax 25%
9 % Debentures `8,00,000
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 225

Q.31 Prepare a comparative Statement of Profit and Loss from the following: (4)
Particulars 31-3-2019 (`) 31-3-2020 (`)
Revenue From operations 20,00,000 25,00,000
Cost of materials Consumed 10,00,000 13,00,000
Other Expenses nil 1,20,000
Tax rate 50% 50%
OR
From the following Balance Sheet of R Ltd., Prepare a Common Size Statement. (4)
Balance Sheet of R Ltd. (as at 31st March, 2020)
Particulars Note No. 31.3.2020 (`) 31.3.2019 (`)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share Capital 2,50,000 2,00,000
(b) Reserves and Surplus 80,000 60,000
2. Current Liabilities
(a) Trade payables 70,000 40,000
Total 4,00,000 3,00,000
II. ASSETS
1. Non-Current Assets
(a) Fixed assets
(i) Tangible assets 1,60,000 1,20,000
(ii) Intangible assets 20,000 30,000
2. Current Assets
(a) Inventories 80,000 30,000
(b) Trade receivables 1,20,000 1,00,000
(d) Cash and cash equivalents 20,000 20,000
Total 4,00,000 3,00,000
Q.32 Prepare Cash Flow Statement on the basis of information given in the Balance Sheets of Relga Ltd. as at 31st March, 2019
and 31st March, 2020:
Particulars Note No. 31.3.2019 (`) 31.3.2020 (`)
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital 2,00,000 2,50,000
(b) Reserves and Surplus 1 50,000 70,000
(2) Non-Current Liabilities
Long- term borrowings 2 1,00,000 80,000
(3) Current Liabilities
(a) Trade Payables 3 60,000 1,60,000
(b) Other Current Liabilities 4 25,000 20,000
Total 4,35,000 5,80,000
II. ASSETS
(1) Non-Current Assets
(a) Fixed Assets
(i) Tangible Assets 5 1,50,000 2,00,000
(ii) Intangible Assets 6 10,000 2,000
(b) Long-term Loans and Advances 1,00,000 1,30,000
(2) Current Assets
(a) Inventories 70,000 90,000
(b) Trade Receivables 40,000 60,000
(c) Cash and Cash Equivalents 65,000 98,000
Total 4,35,000 5,80,000
226 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Notes to Accounts:
Note No. Particulars 31.3.2019 (`) 31.3.2020 (`)
(1) Reserves and Surplus
General Reserve 50,000 70,000
(2) Long-term borrowings
12% Debentures 1,00,000 80,000
(3) Trade Payables
Creditors 40,000 60,000
Bills Payable 20,000 1,00,000
60,000 1,60,000
(4) Other Current Liabilities
Outstanding Expenses 25,000 20,000
(5) Tangible Fixed Assets
Machinery 2,00,000 2,60,000
Less: Provision for Depreciation (50,000) (60,000)
1,50,000 2,00,000
(6) Intangible Fixed Assets
Goodwill 10,000 2,000
Additional Information: (i) During the year a piece of machinery with a book value of ` 30,000; provision for depreciation

on it ` 10,000 was sold at a loss of 50% on book value. (ii) Debentures were redeemed on 31st March 2020.

Answer Key
1. (a) Interest on Partner’s Loan 2. (c) When, at the time of admission, goodwill already appears in the balance sheet.
3. (c) Unsubscribed capital 4. (c) `20,300
5. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
(a) Bank A/c Dr.
To Loan to Partner A/c
6. (b) `9 Per share 7. (b) `48,000
8. (d) `50,000 9. `1,08,000
10. (a) Dissolution of Partnership 11. (b) Profit and loss Appropriation Account.
12. (d) `2,000 13. (d) Interest on Partner’s capital.
14. Credit Purchases of Sports Material = Payment made to creditors + Closing Creditors – Opening Creditors
= `3,00,000 + `80,000 – `1,00,000 = `2,80,000
Amount to be charged to Income and Expenditure Account for Sports Material consumed for the year 2019-20
= Opening Stock of Sports Material + Purchases (Cash + Credit) – Book Value of Sports Material Sold
= `60,000 + (`2,80,000 + `1,30,000) – `35,000 = `4,35,000
OR
Dr. Subscription A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d (arrears in Beginning) 40,000 By Balance b/d (advance in beginning) 35,000
To Income and Expenditure A/c 7,85,000 By Receipts and payments A/c 7,80,000
To Balance c/d (advance at end) 55,000 By Income and Expenditure A/c (not recoverable) 15,000
By Balance c/d (arrears at end) 50,000
8,80,000 8,80,000
15. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
31 Mar. Raina’s Capital A/c Dr. 11,410
2020 To Rohit’s capital A/c 10,150
To Raman’s Capital A/c 1,260
(Being adjustment entry passed)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 227

Working Notes: Adjustment Table


Particulars Rohit Raman Raina Firm
1. Interest on Capital 10,000 6,000 8,000 (24,000)
2. Interest on Drawings (300) (300) (300) 900
3. Profit Wrongly Distributed in equal ratio (24,000) (24,000) (24,000) 72,000
Total (14,300) (18,300) (16300) (48,900)
Distribution of profit in the ratio of 5:4:1 24450 19560 4890 48900
Net Effect 10,150 Cr. 1,260 Cr. (11410) Dr. –
OR
Calculation of Opening Capital:
Particulars A B
Closing Capital 1,60,000 1,40,000
Add: Drawings 30,000 30,000
Less: Profits (37,800) (25,200)
1,52,200 1,44,800
Less: Interest on Capital 13,836 13,164
Opening Capital 1,38,364 1,31,636
Working Notes:
Details Amount (`)
Total Closing Capital (of A and B) = `1,60,000 + `1,40,000 3,00,000
Add: Total Drawings (of A and B) 60,000
Less: Profits (including interest on Capital) (90,000)
Total Capital in the beginning of the year 2,70,000
Interest on Capital = 10% of `2,70,000 27,000
Divisible profits = `90,000 – `27,000 63,000
16. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Share Capital A/c Dr. 4,000
Securities Premium Reserve A/c Dr. 1,000
To Share Forfeiture A/c 1,500
To Calls in Arrears A/c 3,500
(500 shares forfeited for non-payment of `7 per share including premium `2).
Bank A/c Dr. 2700
Share Forfeiture A/c Dr. 300
To Share Capital A/c 3,000
(Being 300 shares reissued at `9 per share as fully paid).
Share forfeiture A/c Dr. 600
To Capital Reserve A/c 600
(Being forfeiture money transferred to capital reserve)
Dr. Share forfeiture A/c Cr.
Date Particulars Amount (`) Date Particulars Amount (`)
To Share Capital A/c 300 By Share Capital A/c 1,500
To Capital reserve A/c 600
To Balance c/d 600
1,500 1,500
17. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
(i) X’s Capital A/c Dr. 5,000
To Y’s Capital A/c 5,000
(Being Realization expenses of `5,000 were to be borne by X, whereas, paid by Y.)
(ii) X’s Capital A/c Dr. 5,000
Y’s Capital A/c Dr. 5,000
A’s Capital A/c Dr. 5,000
B’s Capital A/c Dr. 5,000
To Realization A/c 20,000
(Investments taken over by all partners )
228 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

(iii) Y’s Loan A/c Dr. 50,000


To Bank A/c 48,000
To Realization A/c 2,000
(Y’s loan of `50,000 settled at `48,000)
(iv) No Entry
18. In the absence of Partnership deed, the Provisions of Partnership Act 1932 will apply according to which: (i) No interest on
capital is payable. (ii) Interest on loan by partner will be paid @6% pa. (iii) Profits will be shared equally. (iv) No salary/
remuneration is payable to any partner.
19. Dr. Income & Expenditure A/c for the year ending 31st March, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Loss on Sale of Medical Equipment 10,000 By Subscription 60,000
To Doctors and Coaches Honorarium 25,000 By Entrance Fees 25,000
To Medicine Consumed 15,500 By Miscellaneous Receipts 15,000
To Depreciation on Medical Equipment 25,000 By Deficit (excess of expenditure over income) 21,500
To General Expenses 8,000
To Newspaper 8,000
To Rent, Rates and Taxes 5,000
To Tournament Expenses 25,000
1,21,500 1,21,500
20. Journal of Neeraj Ltd.
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Building A/c Dr. 35,00,000
Plant and Machinery A/c Dr. 8,00,000
Stock A/c Dr. 4,00,000
Trade Receivables A/c Dr. 4,00,000
Goodwill A/c Dr. 10,00,000
To Creditors A/c 3,00,000
To Outstanding Expenses A/c 1,00,000
To Ajay Enterprises A/c 57,00,000
(Assets and liabilities of business taken over, recorded at agreed value)
Ajay Enterprises A/c Dr. 57,00,000
To Bank A/c 7,00,000
To 9% Debentures A/c 40,00,000
To Securities Premium Reserve A/c 10,00,000
(Being purchase consideration paid to Ajay enterprises)
(ii) Journal of Z Ltd.
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2019 Bank A/c Dr. 21,00,000
Apr 01 To Debenture Application and Allotment A/c 21,00,000
(Being application money received on 20,000 8% debentures)
Apr 01 Debenture Application and Allotment A/c Dr. 21,00,000
Loss on Issue of Debentures A/c Dr. 1,00,000
To 8% Debentures A/c 10,00,000
To Securities Premium Reserve A/c 50,000
To Premium on Redemption of Debentures A/c 1,00,000
To Bank A/c 10,50,000
(Being debentures allotted and the balance refunded)
2020 Securities Premium Reserve A/c Dr. 50,000
Mar 31 Statement of Profit and Loss A/c Dr. 50,000
To Loss on Issue of Debentures A/c 1,00,000
(Being loss on Issue of Debentures written off )
21. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
1 Apr. Revaluation A/c Dr. 20,000
2020 To Plant and Machinery A/c 20,000
(Being plant and machinery revalued)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 229

Land and Building A/c Dr. 40,000


Provision for Doubtful debts A/c Dr. 40,000
To Revaluation A/c 80,000
(Land & building revalued and provision for doubtful debts written back)
Revaluation A/c Dr. 60,000
To Sunaina’s current A/c 36,000
To Tamanna’s current A/c 24,000
(Being profit on revaluation credited to partners current account)
Creditors A/c Dr. 40,000
To Bills Payable A/c 40,000
(Being Bills accepted from Mr. Anil)
Sunaina’s current A/c Dr. 12,000
Tamanna’s current A/c Dr. 8,000
To Goodwill A/c 20,000
(Being Goodwill written off )
Cash A/c Dr. 1,10,000
To Pranav’s Capital A/c 1,00,000
To Premium for Goodwill A/c 10,000
(Being capital and premium brought in by new partner)
Premium for Goodwill A/c Dr. 10,000
To Sunaina’s current A/c 6,000
To Tamanna’s current A/c 4,000
(Being Premium distributed among sacrificing partners)
General Reserve A/c Dr. 1,20,000
To Sunaina’s current A/c 72,000
To Tamanna’s current A/c 48,000
(Being reserve distributed among old partners)
Workmen Compensation Reserve A/c Dr. 50,000
To Claim for workmen compensation 20,000
To Sunaina’s current A/c 18,000
To Tamanna’s current A/c 12,000
(BeingWC fund balance distributed among old partners)
OR
Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Stock 900 By Premises 16,000
To Provision for legal damages 1,200 By Provision for Doubtful Debts 100
To Capital A/c (Profit): Krish 9,000 By Furniture 4,000
Vrish 6,000
Peter 3,000 18,000
20,100 20,100
Dr. Partners’ Capital Accounts Cr.
Particulars Krish Vrish Peter Particulars Krish Vrish Peter
To Vrish’s Capital A/c 14,000 – – By Balance b/d. 46,000 30,000 20,000
To Vrish’s Loan A/c – 26,000 – By General Reserve A/c 6,000 4,000 2,000
To Bank A/c – 28,000 – By Revaluation A/c 9,000 6,000 3,000
To Balance c/d 47,000 – 25,000 By Krish’s Capital A/c – 14,000 –
61,000 54,000 25,000 61,000 54,000 25,000
Balance Sheet of Krish and Peter (As at 1st April 2020)
Liabilities Amount (`) Assets Amount (`)
Creditors 15,000 Furniture 45,000
Bank Loan 20,400 Stock 8,100
Bills Payable 12,000 Premises 96,000
Outstanding Salary 2,200 Debtors 6,000
Provision For Legal Damages 7,200 Less: Provision for
Vrish’s Loan A/c 26,000 Doubtful Debts 300 5,700
Capitals: Krish 47,000
Peter 25,000
1,54,800 1,54,800
230 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

22. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr. 19,80,000
To Equity Share Application A/c 19,80,000
(Being application money received)
Equity Share Application A/c Dr. 19,80,000
To Equity Share capital A/c 15,00,000
To Equity Share Allotment A/c 3,00,000
To Bank A/c 1,80,000
(Being Shares allotted and balance refunded)
Equity Share Allotment A/c Dr. 25,00,000
To Equity Share capital A/c 20,00,000
To Securities Premium Reserve A/c 5,00,000
(Being Share allotment money including premium due)
Bank A/c Dr. 21,99,500
Calls in Arrears A/c Dr. 2,000
To Equity Share Allotment A/c 22,00,000
To Calls in Advance A/c 1,500
(Being allotment money received)
Equity Share Capital A/c Dr. 7,000
Securities premium Reserve A/c Dr. 1,000
To Shares Forfeited A/c 6,000
To Calls In Arrears A/c 2,000
(1000 shares forfeited for non-payment of allotment including premium)
Bank A/c Dr. 14,000
To Share Capital A/c 7,000
To Securities Premium Reserve A/c 7,000
(Being forfeited shares reissued at `14 per share)
Shares Forfeited A/c Dr. 6,000
To Capital Reserve A/c 6,000
(Being share forfeited money transferred to Capital Reserve account)
OR
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr. 35,00,000
To Equity Share Application A/c 35,00,000
(Being application money received)
Equity Share Application A/c Dr. 35,00,000
To Equity Share capital A/c 25,00,000
To Equity Share Allotment A/c 10,00,000
(Being application adjusted)
Equity Share Allotment A/c Dr. 20,00,000
To Equity Share capital A/c 10,00,000
To Securities Premium Reserve A/c 10,00,000
(Being Share allotment money including premium due)
Bank A/c Dr. 9,00,000
Calls in Arrears A/c Dr. 1,00,000
To Equity Share Allotment A/c 10,00,000
(Being allotment money received ,except for 5,000 shares)
Equity Share First and Final call A/c Dr. 15,00,000
To Equity Share capital A/c 15,00,000
(Being share first and final call money due)
Bank A/c Dr. 13,50,000
Calls in Arrears A/c Dr. 1,50,000
To Equity Share First and Final call A/c 15,00,000
(Being first and final call money received, except for 5,000 shares)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 231

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


Securities premium Reserve A/c Dr. 1,00,000
To Shares Forfeited A/c 3,50,000
To Calls In Arrears A/c 2,50,000
(5000 shares forfeited for non-payment of allotment money and call)
Bank A/c Dr. 4,50,000
Shares Forfeited A/c Dr. 50,000
To Share Capital A/c 5,00,000
(Being forfeited shares reissued at `90 per share, as fully paid up)
Shares Forfeited A/c Dr. 3,00,000
To Capital Reserve A/c 3,00,000
(Being share forfeited money transferred to Capital Reserve)
23. (c) Outflow `61,600.
24. 1:1
25. (a) Bank Charges
26. (a) Purchase of marketable securities for `25,000 cash.
27. Contingent
28. (b) Inventory turnover ratio
29. (a) Only (i) is correct
30. Proprietary Ratio = Proprietors’ Funds /Total Assets
Total Assets = Debts × 2 = `5,00,000 × 2 = `10,00,000
Proprietors’ Funds = Equity Share Capital + Preference Share Capital + Surplus = (5,00,000 × 0.5) + (5,00,000 × 0.5 ×
25%) + (10,00,000 – 40% of 10,00,000) = 2,50,000 + 62,500 + 6,00,000 = `9,12,500
Proprietary Ratio = `9,12,500 / `10,00,000 = 0.912 : 1
OR
Interest coverage Ratio = Profit before Interest and Tax / Interest on Long term Debts
Profit before Tax = Profit after Tax × 100/ (100 – Tax Rate) = `7,50,000 × 100/75 = `10,00,000
Profit before Interest and Tax = Profit before Tax + Interest on Debentures = `10,00,000 + `72,000 = `10,72,000
Interest coverage Ratio = 10,72,000/72,000 = 14.89 times
31. Comparative Statement of Profit and Loss for the years ended March 31, 2019 and 2020
Particulars Note No. 2018-19 (`) 2019-20 (`) Absolute Change (`) Percentage Change (`)
I. Revenue from operations 20,00,0000 25,00,000 5,00,000 25.00
II. Total Revenue (I + II) 20,00,000 25,00,000 5,00,000 25.00
Less: Expenses
III. Cost of material Consumed 10,00,000 13,00,000 3,00,000 30.00
IV. Other Expenses — 1,20,000 1,20,000 —
Total Expenses 10,00,000 14,20,000 4,20,000 42.00
V. Profit before tax (II – IV) 10,00,000 10,80,000 80,000 8.00
Less: Tax @ 50% 5,00,000 5,40,000 40,000 8.00
VI. Profit after tax 5,00,000 5,40,000 40,000 8.00
OR
Comparative Statement of Profit and Loss for the years ended March 31, 2019 and 2020
Particulars Note Absolute Absolute As a % of Balance Sheet
No.
31.3.2019 (`) 31.3.2020 (`) 31.3.2019 (%) 31.3.2020 (%)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds:
(a) Share capital 2,00,000 2,50,000 66.67 62.5
(b) Reserves and surplus 60,000 80,000 20 20
2. Current Liabilities:
(a) Trade payable 40,000 70,000 13.33 17.5
Total 3,00,000 4,00,000 100 100
232 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

II. ASSETS
1. Non-current assets:
(a) Fixed assets
(i) Tangible Assets 1,20,000 1,60,000 40 40
(ii) Intangible Assets 30,000 20,000 10 5
2. Current assets
(a) Inventories 30,000 80,000 10 20
(b) Trade Receivables 1,00,000 1,20,000 33.33 30
(d) Cash and cash equivalents 20,000 20,000 6.67 5
Total 3,00,000 4,00,000 100 100
32. Cash flow statement of Relga Ltd. (As per As-3 revised)
Particulars Detasils (`) Amount (`)
OPERATING ACTIVITIES
Profit before Tax and Extra-ordinary items 20,000
Non-Operating and Non-cash items:
Loss on Sale of Machinery 15,000
Depreciation Charged on Machinery 20,000
Goodwill amortized 8,000
Interest on Debentures 12,000
Operating profit before changes in working capital 75,000
Changes in working Capital:
Increase in creditors 20,000
Increase in Bills Payable 80,000
Decrease in outstanding expenses (5,000)
Increase in inventories (20,000)
Increase in trade receivables (20,000)
Cash inflow from operating activities 1,30,000
INVESTING ACTIVITIES
Sale of Machinery 15,000
Purchase of Machinery (1,00,000)
Loans advanced (30,000)
Cash used in investing activities (1,15,000)
FINANCING ACTIVITIES
Issue of shares 50,000
Debentures Redeemed (20,000)
Interest on Debentures (12,000)
Cash from financing activities 18,000
Net Cash inflow during the year 33,000
Add: opening Cash and cash equivalents 65,000
Closing Cash and Cash equivalents 98,000
Working Notes:
Dr. Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 2,00,000 By Bank A/c (Sale) 15,000
To Bank A/c (Purchase) 1,00,000 By Statement of Profit and Loss (Loss on sale) 15,000
By Provision for Depreciation A/c 10,000
By Balance c/d 2,60,000
3,00,000 3,00,000
Dr. Provision for Depreciation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Machinery A/c 10,000 By Balance b/d 50,000
To Balance sc/d 60,000 By Depreciation A/c (balancing figure) 20,000
70,000 70,000
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 275

Sample Question Paper 8 (for Practice)


Part-A
(Accounting for Not-for-Profit Organizations, Partnership Firms and Companies)
Q.1 Disha and Abha were partners in a firm. Farad was admitted as a new partner for 1/5th share in the profits of the firm, for
which she brought her proportionate capital. Capitals of Disha and Abha after all adjustments were `64,000 and `46,000
respectively. Capital brought by Farad was: (1)
(a) `22,000 (b) `27,500 (c) `55,000 (d) `28,000
Q.2 Which of the following is not a capital receipt? (1)
(a) Donations for tournament (b) Donations for building fund
(c) Life membership fee (d) Entrance fees
Q.3 What is meant by ‘Authorised Capital?’ (1)
Q.4 Saurabh, Shirin and Somesh are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Somesh retires and the
new profit sharing ratio between Saurabh and Shirin is 3 : 2. The gaining ratio between Saurabh and Shirin will be: (1)
(a) 3:2 (b) 3:1 (c) 1:1 (d) 2:1
Q.5 Mohit and Rohit were partners in a firm with capital of `80,000 and `40,000 respectively. The firm earned a profit of
`30,000 during the year. Mohit’s share in the profit will be: (1)
(a) `20,000 (b) `10,000 (c) `15,000 (d) `18,000
Q.6 In case of retirement of a partner, profit or loss on revaluation of assets and re-assessment of liabilities is distributed among
___________ partners in ______________ ratio. (1)
Q.7 Vanya Ltd. forfeited 20,000 equity shares of `100 each for non-payment of first and final call of a `40 per share. The
maximum amount of discount at which these shares can be re-issued will be: (1)
(a) `8,00,000 (b) `12,00,000 (c) `20,00,000 (d) `20,000
Q.8 _________ means any offer of securities to a select group of persons by a company other than by way of public offer. (1)
Q.9 On 1.4.2017, Z Ltd. obtained a loan of `1,00,000 from SBI and issued `1,00,000 8% debentures of `100 each as a
collateral security. On 31 March 2020, Z Ltd. repaid the loan along with interest, the account debited for cancellation of
8% debentures as collateral security will be _____________. (1)
Q.10 Which of the following does not result into reconstitution of a firm? (1)
(a) Dissolution of partnership firm (b) Dissolution of partnership
(c) Change in profit-sharing-ratio of existing partners (d) Death of a partner
Q.11 Jaipur Club has a prize fund of `6,00,000. It incurs expenses on prizes amounting to `5,20,000. The expenses should be:
(a) debited to income and expenditure account. (1)
(b) presented on the asset side of the balance sheet.
(c) debited to income and expenditure account and presented on the asset side of the balance sheet.
(d) deducted from the prize fund on the liability side of the balance sheet.
Q.12 X Ltd. purchased assets worth `28,80,000. It issued debentures of `100 each at a discount of 4 per cent in full satisfaction
of the purchase consideration. The number of debentures issued to vendor is: (1)
(a) 30,000 (b) 28,800 (c) 32,000 (d) 3,00
Q.13 The portion of uncalled capital to be called only in the event of winding up of the company is called ____________ . (1)
Q.14 Kabir and Farid are partners in a firm sharing profits in the ratio of 3 : 1. On 1-4-2020 they admitted Manik into partnership
for 1/4th share in the profits of the firm. Manik brought his share of goodwill premium in cash. Goodwill of the firm was valued on
the basis of 2 years purchase of last three years average profits. The profits of last three years were: 2017-18 `90,000; 2018-19 `1,30,000;
2019-20 `86,000. During the year 2019-20 there was a loss of `20,000 due to fire which was not accounted for while calculating the
profit. Calculate the value of goodwill and pass the necessary journal entries for the treatment of goodwill. (3)
OR
Raka, Seema and Mahesh were partners sharing profit and losses in the ratio of 5:3:2 With effect from 1st April 2020, they
mutually agreed to share profits and losses in the ratio of 2:2:1. On that date, there was a workmen’s compensation fund of
`90,000 in the books of the firm. It a was agreed that:
(i) Goodwill of the firm be valued at `70,000.
(ii) Claim for workmen’s compensation amounted `40,000.
(iii) Profit on revaluation of assets and re-assessment of liabilities amounted to `40,000.
Pass necessary journal entries for the above transactions in the books of the firm.
276 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.15 How will the following items be treated while preparing the Income and Expenditure Account and Balance Sheet of a Not-
for-profit-organization for the year ended 31st March, 2020?
As at 1-4-2019 (`) As at 31-3-2020(`)
Creditors for sports materials 18,000 41,000
Stock of sports materials 27,000 38,000
During 2019-20 the payment made to creditors for sports material was `5,23,000. (4)
OR
From the following particulars of Glorious Club, prepare Receipts and payments Account for the year ended 31st March, 2020.
Particulars Amount (`)
Opening balance of cash 16,000
Subscriptions (including `13,000 for 2018-19) 93,000
Investments purchased 35,000
Maintenance expenses 15,000
Locker rent 40,000
Life membership fees 85,000
Insurance premium 6,000
Q.16 On March 31st, 2020, the balances in the capital accounts of E, M and I after making adjustments for profits and drawings
were `1,60,000, `1,20,000 and `80,000 respectively. Subsequently, it was discovered that the interest on capital and
drawings had been omitted. The profit for the year ended 31st March, 2014 was `40,000. During the year E and M each
withdrew a total sum of `24,000 in equal installments in the beginning of each month and I withdrew a total sum of
`48,000 in equal installments at the end of each month. The interest on drawings was to be charged @ 5% p.a. and interest
on capital was to be allowed @ 10% p.a. The profit sharing ratio among the partners was 2 : 1 : 1.
Showing your working notes clearly, pass the necessary rectifying entry. (4)
Q.17 Harshad and Dhiman are in partnership since April 01, 2019. No Partnership agreement was made. They contributed
`4,00,000 and `1,00,000 respectively as capital. In addition, Harshad advanced an amount of `1,00,000 to the firm, on
October 01, 2019. Due to long illness, Harshad could not participate in business activities from August 1, to September 30,
2019. The profits for the year ended March 31, 2020 amounted to `1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims: (i) He should be given interest @ 10% per annum on capital and loan. (ii) Profit should be distributed in
proportion of capital. Dhiman Claims: (i) Profits should be distributed equally. (ii) He should be allowed `2,000 p.m. as
remuneration for the period he managed the business, in the absence of Harshad; (iii) Interest on Capital and loan should
be allowed @ 6% p.a. Settle the dispute between Harshad and Dhiman. (4)
Q.18 Following is the Receipt and Payment Account of Indian Sports Club for the year ended 31.12.2020:
Receipts Amount (`) Payments Amount (`)
To Balance b/d 10,000 By Salary 15,000
To Subscriptions 52,000 By Billiards Table (1.1.2020) 20,000
To Entrance Fee 5,000 By Office Expenses 6,000
To Tournament Fund 26,000 By Tournament Expenses 31,000
To Sale of old newspapers 1,000 By Sports Equipment 40,000
To Legacy 37,000 By Balance c/d 19,000
1,31,000 1,31,000
Other Information: On 31.12.2020 subscription outstanding was`2,000 and on 31.12.2019 subscription outstanding was
`3,000. Salary outstanding on 31.12.2020 was `1,500. On 1.1.2020 the club ‘had building `75,000, furniture `18,000,
12% investment `30,000 and sports equipment `30,000. Depreciation charged on Fixed Assets including purchases was
10%. Prepare Income and Expenditure Account of the Club for the year ended 31.12.2020. (4)
Q.19 Nayana and Arushi were partners sharing profits equally. Their Balance Sheet as on March 31, 2020 was as follows:
Liabilities Amount (`) Assets Amount (`)
Capitals: Nayana 1,00,000 Bank 30,000
Arushi 50,000 1,50,000 Debtors 25,000
Creditors 20,000 Stock 35,000
Arushi’s current account 10,000 Furniture 40,000
Workmen Compensation Fund 15,000 Machinery 60,000
Bank overdraft 5,000 Nayana’s current account 10,000
2,00,000 2,00,000
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 277

The firm was dissolved on the above date.


1. Nayana took over 50% of the stock at 10% less than its book value, and the remaining stock was sold at a gain of 15%.
Furniture and Machinery realised for `30,000 and `50,000 respectively.
2. There was an unrecorded investment which was sold to Nayana for `25,000.
3. Debtors realised 90% only and `1,200 were recovered for bad debts written-off last year.
4. There was an outstanding bill for repairs which had to be paid for `2,000.
Prepare necessary ledger accounts to close the books of the firm. (6)
OR
Supriya and Monika are partners, who share profit in the ratio of 3:2. Following is the balance sheet as on March 31, 2020.
Balance Sheet of Supriya and Monika as on March 31, 2020
Liabilities Amount (`) Assets Amount (`)
Supriya’s Capital 32,500 Cash and Bank 40,500
Monika’s Capital 11,500 Stock 7,500
Sundry Creditors 48,000 Sundry debtors 21,500
Reserve fund 13,500 Less: Provision for doubtful debts 500 21,000
Fixed Assets 36,500
1,05,500 1,05,500
The firm was dissolved on March 31, 2020. Close the books of the firm with the following information:
(i) Debtors were realised through a debt collecting agency which charged 5% commission.
(ii) Stock included obsolete items worth `500, which could not be realised. Remaining stock realised in full.
(iii) Fixed assets realised at `42,000.
(iv) Realisation expenses amounted to `1,500 which was paid by the firm.
Pass journal entries on dissolution of the firm.
Q.20 (a) Hero Ltd. purchased plant and machinery for `18,00,000 from Pearl Machines Ltd. payable `3,00,000 by drawing a
promissory note and the balance by issue of 9% debentures of `100 each at a premium of 20%.
Pass the necessary journal entries in the books of Hero Ltd. for the above transactions.
(b) BGP Ltd. invited applications for issuing 15,000, 11% debentures of `100 each at a premium of `50 per debenture.
The full amount was payable on application. Applications were received for 25,000 debentures. Applications for 5,000
debentures were rejected and the application money refunded.
Debentures were alloted to the remaining applicants on pro-rata basis.
Pass the necessary journal entries for the above transactions in the books of BGP Ltd.
(c) Agam Ltd. issued 40,000 9% debentures of `100 each on April 1, 2019 at a discount of 10%, redeemable at a premium
of 10%. Assuming that interest was paid half yearly on September 30 and March 31 and the tax deducted at source
was 10%, give journal entries relating to debenture interest for the half year ended March 31,2020. (6)
Q.21 Premier Tools Ltd. invited applications for issuing 2,00,000 equity shares of ` 10 each at a premium of ` 2 per share. The
amount was payable as follows:
On application – `5 per share (including premium)
On allotment – `3 per share
On first & final call – Balance
Applications were received for 2,50,000 shares. Applications for 10,000 shares were rejected and pro-rata allotment was
made to the remaining applications. Over payment received on application were adjusted towards sums due on allotment.
All calls were made and duly received except allotment and first and final call from Naveen who applied for 7,200 shares.
His shares were forfeited. Half of the forfeited shares were reissued for `48,000 as fully paid.
Pass the necessary journal entries for the above transactions in the books of Premier Tools Ltd. Open calls-in-arrears account
wherever required. (8)
OR
Concept Stationary Ltd. invited applications for issuing 3,00,000 shares of `10 each at a premium of `3 per share. The
amounts were payable as follows: On application and allotment – `7 per share. On first & final call – Balance (including
premium of `3). Applications were received for 4,00,000 shares & allotment was made as follows:
(i) To applicants for 80,000 shares – Full
(ii) To applicants for 40,000 shares – Nil
(iii) Balance of the applicants were alloted shares on pro-data basis.
278 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Excess money received with applicants was adjusted towards sums due on first and final call.
Amit, who belonged to category (i) and was allotted 4,000 shares and Veni, who belonged to category (iii) and was allotted
4,400 shares failed to pay the first and final call money. Their shares were forfeited. The forfeited shares were re-issued at `7
per share fully paid-up.
Pass necessary journal entries for the above transactions in the books of the company.
Q.22 Achla and Boddy were partners in a firm sharing profits and losses in the ratio of 3:1. On 31st March, 2020, their balance
sheet was as follows: (8)
Liabilities Amount (`) Assets Amount (`)
Creditors 1,10,000 Cash at bank 60,000
General Reserve 40,000 Debtors 40,000
Workmen’s compensation reserve 50,000 Stock 45,000
Capitals: Furniture 1,55,000
Achla 4,00,000 Land & Building 5,00,000
Boddy 2,00,000 6,00,000
8,00,000 8,00,000
On 1st April,2020, they admitted Vihaan as a new partner for 1/5th share in the profits of the firm on the following terms:
(a) Vihaan brought `1,00,000 as his capital.
(b) Goodwill of the firm was valued at `4,00,000. Vihaan brought the necessary amount in cash for his share of goodwill
premium, half of which was withdrawn by the old partners.
(c) Liability on account of workmen’s compensation amounted to `80,000.
(d) Achla took over stock at `35,000.
(e) Land and building was to be appreciated by20%.
Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the reconstituted firm on Vihaan’s admission.
OR
Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2020.
Balance Sheet as on March 31, 2020
Liabilities Amount (`) Assets Amount (`)
Sundry Creditors 19,800 Land and Building 26,000
Telephone bill Outstanding 300 Bonds 14,370
Bills Payable 8,950 Cash and Bank Balance 5,500
Profit and Loss A/c 16,750 Bills Receivable 23,450
Capitals: Sundry Debtors 26,700
Jain 40,000 Stock 18,100
Gupta 60,000 Office Furniture 18,250
Malik 20,000 1,20,000 Plants and Machinery 20,230
Computers 13,200
1,65,800 1,65,800
The partners have been sharing profits in the ratio of 5 : 3 : 2. Malik decides to retire from business on April 1, 2020 and
his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities: Stock, `20,000;
Office furniture, `14,250; Plant and Machinery `23,530; Land and Building `20,000. A provision of `1,700 to be created
for doubtful debts. Telephone bill outstanding had been paid off.
The goodwill of the firm is valued at `9,000. The continuing partners agreed to pay `16,500 as cash on retirement of
Malik, to be contributed by continuing partners in the ratio of 3 : 2.
Prepare Revaluation Account, Partners’ Capital Accounts, and Balance Sheet of the reconstituted firm. (8)

Part-B
(Analysis of Financial Statements)
Q.23 State the primary objective of preparing cash flow statement. (1)
Q.24 From the following information, calculate the amount of cash flow from investing activities. (1)
Acquired machinery for `10,00,000 paying 10% immediately in cash and accepting a draft for the balance in favour of the
vendor, payable after three months.
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 279

Q.25 State giving reason, whether issue of shares for consideration other than cash will result into inflow, outflow or no flow of cash. (1)
Q.26 Which of the following is not a tool of financial analysis? (1)
(a) Comparative income statement (b) Comparative position statement
(c) Statement of profit and loss (d) Cash flow statement
Q.27 Which of the following is a limitation of financial analysis? (1)
(a) It is just a study of reports of the company.
(b) It judges the ability of the firm to repay its debts.
(c) It identifies the reasons for change in financial position.
(d) It ascertains the relative importance of different components of the financial position of the firm.
Q.28 As per Schedule III, Part I of the companies Act. 2013 ‘calls-in-arrears’ will be presented under which of the following head/
sub-head, in the Balance Sheet of a company? (1)
(a) Reserves and Surplus (b) Current Liabilities
(c) Contingent Liabilities (d) Shareholders Funds
Q.29 ‘Interest accrued but not due on loans’ is shown in the companies balance sheet under the sub head__________. (1)
Q.30 A company had a liquid ratio of 1.5:1 and a current ratio of 2:1. Its inventory turnover ratio was 6 times. It had total
current assets of `2,00,000.
Find out revenue from operations if the goods are sold at 25% profit on cost. (3)
OR
Calculate the amount of opening trade receivables and closing trade receivables from the following information :
Trade receivables turnover ratio 8 times
Cost of revenue from operations `4,80,000
The amount of credit revenue from operations is ` 2,00,000 more than cash revenue from operations. Gross profit ratio is
20%. Opening trade receivables are 1/4th of Closing trade receivables.
Q.31 Prepare common size statement of profit and loss from the following information: (4)
Particulars Note No. 2019-20 (`) 2018-19 (`)
Revenue from operations `16,00,000 `8,00,000
Cost of material consumed 60% 50%
(% of revenue from operations)
Operating expenses `80,000 `40,000
Income tax rate 40% 30%
OR
From the following Balance Sheets of Vinayak Ltd. as at 31st March, 2020, prepare a comparative Balance Sheet.
Particulars Note No. 31.3.2020 (`) 31.3.2019 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 21,00,000 20,00,000
(b) Reserves and Surplus 2,30,000 2,00,000
2. Non-Current Liabilities
Long- term borrowings 5,60,000 2,00,000
3. Current Liabilities
Trade Payables 2,80,000 1,00,000
Total 31,70,000 25,00,000
II. ASSETS:
1. Non-Current Assets
Fixed Assets
(i) Tangible Assets 21,00,000 20,00,000
(ii) Intangible Assets 3,00,000 2,00,000
2. Current Assets
(a) Inventories 5,60,000 2,00,000
(b) Cash and Cash Equivalents 2,10,000 1,00,000
Total 31,70,000 25,00,000
280 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Q.32 Net Cash outflow from operating activities of Starline Ltd. for the year ended 31.03.2020 was `18,000. The Balance Sheet
along with notes to accounts of Starline Ltd. as at 31.03.2020 is given below:
Balance Sheet of Starline limited as at 31st March 2020
Particulars Note No. 31.3.2020 (`) 31.3.2019 (`)
I. EQUITY AND LIABILITIES
1. Shareholder’s Funds
(a) Share Capital 18,00,000 10,00,000
(b) Reserves and Surplus 1 50,000 40,000
2. Non-Current Liabilities
Long- term borrowings 2 1,00,000 4,00,000
3. Current Liabilities
Short- term provision 3 2,50,000 3,60,000
Total 22,00,000 18,00,000
II. ASSETS
1. Non-Current Assets
Fixed Assets:
(i) Tangible Assets 4. 14,00,000 10,00,000
(ii) Intangible Assets 5. 1,80,000 70,000
2. Current Assets
(a) Current Investments 30,000 1,90,000
(b) Trade Receivables 2,90,000 3,10,000
(c) Cash and Cash equivalents 3,00,000 2,30,000
Total 22,00,000 18,00,000

Notes to Accounts:
Note No. Particulars 31.3.2020 (`) 31.3.2019 (`)
1. Reserves and Surplus
Surplus (balance in statement of profit & loss) 50,000 40,000
50,000 40,000
2. Long term borrowing 8% debentures 1,00,000 4,00,000
1,00,000 4,00,000
3. Short term provision for tax 2,50,000 3,60,000
2,50,000 3,60,000
4. Tangible Assets:
Plant and Machinery 15,20,000 10,90,000
Less Accumulated depreciation (1,20,000) (90,000)
14,00,000 10,00,000
5. Intangible Assets:
Goodwill 1,80,000 70,00,000
1,80,000 70,00,000
You are given the following additional information:
(a) A machinery of the book value of `40,000 (depreciation provided thereon `12,000) was sold at a loss of `6,000.
(b) 8% debentures were redeemed on 1st July 2019.
Prepare Cash Flow Statement. (6)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 281

Answers
SAMPLE QUESTION PAPER 1
1. Balance Sheet of ____ NPO. as on ___________ Date
Liabilities Amount (`) Assets Amount (`)
Tournament Fund 80,000
Less: Tournament expense 14,000 66,000
2. (c) 3. (iii), (i), (ii) 4. (b) 5.
7½ months
6. Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2020 Ankit’s capital A/c Dr. 30,250
April,1 Unnati Capital A/c Dr. 18,150
Aryan’s Capital A/c Dr. 12,100
To Profit and Loss A/c 60,500
(Being Profit and Loss debit balance distributed at time of change in profit sharing ratio)
7. Value of firm’s Goodwill = Total Capital as per C’s Share (4,00,000 × 5/1) – Actual capital of A,B,C (10,00,000 + 4,00,000) = `6,00,000
C’s share of Goodwill = `6,00,000 × 1/5 = `1,20,000
8. Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2020 Profit and Loss Suspense A/c Dr. 9,375
Nov. 2 To Kavleen’s Capital A/c 9,375
(Kavleen’s share of profit up to the date of her death tr. to her capital account)

9. Journal
Date Particulars L.F. Dr. (`) Cr. (`)
2020 Investment Fluctuation Reserve A/c Dr. 60,000
April 1 To Investment A/c 20,000
To A’s capital A/c 24,000
To B’s Capital A/c 16,000
(Transfer of excess Investment Fluctuation reserve to partner’s capitals in old ratio)
10. because the claim of the partner against the firm is increased by the amount of liability assumed.
11. C’s Share acquired from A and B each = 1/5 × 1/2= 1/10. A’s Share = 3/5 – 1/10 = 5/10; B’s Share = 2/5 – 1/10 = 3/10. New Profit Sharing
ratio of A: B: C is 5 : 3 : 2. Yes, the accountant is correct.
12. (b) 5% 13. Reserve Capital
14. (a) Statement Showing Expenditure on Medicine consumed during the year ending 31 March, 2020:-
Particulars Amount (`)
Amount paid for medicines during the year 2,00,000
Less: Opening Creditors (20,000)
Add: Closing creditors 10,000
Add: Opening Stock of medicines 50,000
Less: Closing stock of medicines (95,000)
Medicine consumed during the year 1,45,000
OR
Dr. Income And Expenditure Account Cr.
Particulars Amount (`) Particulars Amount (`)
To Salaries (Notes) 3,30,000
Balance Sheet as on 31.12.2020

Assets Amount (`) Liabilities Amount (`)


Salaries Outstanding 45,000 Salaries Prepaid 18,000


Working Notes: Salary expense to be debited to Income and Expenditure A/c = Salaries paid during the year (as per Receipts and Payments
A/c – Opening outstanding salaries + Closing outstanding salaries + Opening salaries prepaid – Closing salaries prepaid = `3,18,000 –
`25,000 + `45,000 + `10,000 – `18,000 = `3,30,000
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 329

SAMPLE QUESTION PAPER 8


1. (b) 2. (d) 3. Authorised Capital is the maximum amount of capital which a company is authorized to have.
4. (a) 5. (c) 6. old ; old 7. (b) 8. Private Placement
9. 8% Debentures A/c 10. (a) 11. (d) 12. (a) 13. Reserve Capital
14. Average Profits = (`90,000 + `1,30,000 + `86,000)/3 =`1,02,000;Goodwill = `1,02,000 × 2 = `2,04,000
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Cash A/c Dr. 51,000
To Premium for goodwill A/c 51,000
(Goodwill brought in cash by Manik)
Premium for goodwill A/c Dr. 51,000
To Kabir’s Capital A/c. 38,250
To Farid’s Capital A/c 12,750
(Goodwill credited to the capital accounts of old partners in the sacrificing ratio)
OR
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2020 Seema’s Capital A/c Dr. 7,000
Apr.1 To Raka’s Capital A/c 7,000
(Adjustment entry made for goodwill)
Workmen’s Compensation Fund Dr. 90,000
To Workmen’s Compensation Claim A/c 40,000
To Raka’s Capital A/c 25,000
To Seema’s Capital A/c 15,000
To Mahesh’s Capital A/c 10,000
(Workmen’s Compensation Fund distributed after meeting the claim)
Revaluation A/c Dr. 40,000
To Raka’s Capital A/c 20,000
To Seema’s Capital A/c 12,000
To Mahesh’s Capital A/c 8,000
(Revaluation profit transferred to Partners’ Capital Accounts)
15. Dr. Income and Expenditure A/c for the year ended March 31, 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Sports materials consumed during the year 5,35,000
Balance Sheet as on 31st March 2020
Liabilities Amount (`) Assets Amount (`)
Creditors for Sports materials 41,000 Stock of Sports Materials 38,000
Credit Purchases= Payment made to creditors+ closing Creditors – Opening Creditors = `5,23,000 + `41,000 – `18,000 = `5,46,000
Sports Materials consumed = Opening stock of Sports Materials + Purchases – Closing Stock of Sports Materials
= `27,000 + `5,46,000 – `38,000 = `5,35,000
OR
Dr. Receipts and Payments Account of Glorious Club for the year ending 31st March 2020 Cr.
Receipts Amount (`) Payments Amount (`)
To Balance b/d 16,000 By Investments 35,000
To subscriptions (Including `13,000 for 2018- 19) 93,000 By Insurance premium 6,000
To Locker rent 40,000 By Maintenance expenses 15,000
To Life membership fees 85,000 By balance c/d 1,78,000
2,34,000 2,34,000

16. Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt (`)
Puneet’s capital A/c Dr. 1,000
To Akshara’s capital A/c 1,000
(Omission of interest on capital and commission, now rectified)
330 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Working Notes: Calculation of Opening Capitals:


Puneet (`) Akshara(`)
Closing Capitals 90,000 1,10,000
Add Drawings 30,000 40,000
Less Profits (16,000) (24,000)
Opening Capitals 1,04,000 1,26,000
Interest on Capital@5% p.a. 5,200 6,300
Adjustments Table
Partners Interest on capital Commission Profits Net Effect
Cr. (`) Cr. (`) Dr. (`) Dr. (`) Cr. (`)
Puneet 5,200 – 6,200 1,000 –
Akshara 6,300 4,000 9,300 – 1,000
11,500 4,000 15,500 1,000 1,000
OR
Adjustment Entry
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2020 E’s Capital A/c Dr. 3,850
31 Mar. To M’s Capital A/c 2,950
To I’s Capital A/c 900
(Being interest on capital and interest on drawings omitted, now adjusted)
Working Notes: (i) Calculation of Interest on Drawings: E and M each = 24,000 × 5/100 × 6.5/12 = `650 and I = 48,000× 5/100 ×

5.5/12 = `1,100 (ii) Calculation of Opening Capitals:
Details E (`) M (`) I (`)
Closing Capitals 1,60,000 1,20,000 80,000
Less: Profits distributed (20,000) (10,000) (10,000)
Add: Drawings 24,000 24,000 48,000
Opening Capitals 1,64,000 1,34,000 1,18,000
(iii) Adjustment Table
Particulars E (`) M (`) I (`) Total (`)
Profit already distributed Dr. 20,000 10,000 10,000 40,000
Omission of interest on drawings Dr. 650 650 1,100 2,400
Total Dr. 20,650 10,650 11,100 42,400
Omission of interest on capital Cr. 16,400 13,400 11,800 41,600
Share of profit Cr. 400 200 200 800
Total Cr. 16,800 13,600 12,000 42,400
Net Effect Dr. 3,850 Cr. 2,950 Cr. 900 –
17. Settlement of the dispute between Harshad and Dhiman as per the provisions of Partnership Act, 1932:
(i) Interest on capital will not be provided since there is no partnership agreement.
(ii) Interest on Harshad’s loan will be given @ 6% p.a., i.e. `1,00,000 ×6/100 × 6/12 = `3,000.
(iii) No remuneration shall be allowed to Dhiman for taking part in the conduct of the business of the firm.
(iv) Net profit after charging interest on Harshad’s loan `1,77,000 (i.e. `1,80,000 – `3,000) will be distributed equally between the
partners, irrespective of the capital contribution by them, i.e. `88,500 each.
18. Dr. Income & Expenditure Account for the year ended 31st Dec. 2020 Cr.
Expenditure Amount (`) Income Amount (`)
To Salary 15,000 By Subscription 52,000
Add: Outstanding Salary 1,500 16,500 Add: Subscription outstanding
To Office expenses 6,000 at the end 2,000
To Tournament Expenses 5,000 Less: Subscription outstanding
To Depreciation on Building 7,500 in the beginning (3,000) 51,000
To Depreciation on Furniture 1,800 By Entrance Fees 5,000
To Depreciation on Sports Equipment 7,000 By Sale of old Newspapers 1,000
To Depreciation on Billiards Table 2,000 By Accrued Interest on 12% Investment 3,600
To Surplus (Bal. Fig.) 14,800
60,600 60,600
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 331

19. Dr. Realisation Account Cr.


Particulars Amount (`) Particulars Amount (`)
To Debtors A/c 25,000 By Creditors A/c 20,000
To Stock A/c 35,000 By Bank overdraft A/c 5,000
To Furniture A/c 40,000 By Bank A/c (assets realised)
To Machinery A/c 60,000 Investment 25,000
To Bank A/c (liabilities paid)
Furniture 30,000
Creditors 20,000
Bank overdraft 5,000 Machinery 50,000
Outstanding bill 2,000 Debtors (90%) 31,500
To Profit transferred to: 27,000 Stock 20,125
Nayana’s Current A/c 5,788 Bad debts recovered 1,200 1,57,825
Arushi’s Current A/c 5,787 11,575 By Nayana’s Current A/c (stock) 15,750
1,98,575 1,98,575
Dr. Partners’ Current Accounts Cr.
Particulars Nayana (`) Arushi (`) Particulars Nayana (`) Arushi (`)
To Balance b/d 10,000 – By Balance b/d – 10,000
To Realisation A/c (stock) 15,750 – By Workmen’s
To Arushi’s Capital A/c – 23,287 Compensation Fund 7,500 7,500
(Bal. Fig.) By Realisation A/c (profit) 5,788 5,787
By Nayana’s Capital A/c 12,462 –
(Bal. Fig.)
25,750 23,287 25,750 23,287
Dr. Partner’s Capital Accounts Cr.
Particulars Nayana (`) Arushi (`) Particulars Nayana (`) Arushi (`)
To Nayana’s Current A/c 12,462 – By Balance b/d 1,00,000 50,000
To Bank A/c (Bal. Fig.) 87,538 73,287 By Arushi’s Current A/c – 23,287

1,00,000 73,287 1,00,000 73,287

Dr. Bank Account Cr.


Particulars Amount (`) Particulars Amount (`)
To Balance b/d 30,000 By Realisation A/c (liabilities paid) 27,000
To Realisation A/c (assets realised) 1,57,825 By Nayana’s Capital A/c 87,538
By Arushi’s Capital A/c 73,287
1,87,825 1,87,825
OR
Journal
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2020 Realisation A/c Dr. 65,500
31 Mar. To Stock A/c 7,500
To Sundry Debtors A/c 21,500
To Fixed Assets A/c 36,500
(Being assets transferred to Realisation A/c)
Provision for Doubtful Debts Dr. 500
Sundry Creditors Dr. 48,000
To Realisation A/c 48,500
(Being external liability, including provision transferred)
Cash/Bank A/c Dr. 69,425
To Realisation A/c 69,425
(Assets realised: Debtors `20,425; Stock `7,000; Fixed Assets `42,000)
Realisaton A/c Dr. 48,000
To Cash/Bank A/c 48,000
(Being liabilities paid)
332 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Realisation A/c Dr. 1,500


To Cash/Bank A/c 1,500
(Being realisation expenses paid by firm)
Realisation A/c Dr. 2,925
To Supriya’s Capital A/c 1,755
To Monika’s Capital A/c 1,170
(Being profit on realisation distributed)
Reserve Fund A/c Dr. 13,500
To Supriya’s Capital A/c 8,100
To Monika’s Capital A/c 5,400
(Being reserves distributed)
Supriya’s Capital A/c Dr. 42,355
Monika’s Capital A/c Dr. 18,070
To Cash/BankA/c 60,425
(For settlement of capital accounts)

20. (a) Journal of Hero Ltd.
Date Particulars L.F. Dr. Amt (`) Cr. Amt (`)
Plant and Machinery A/c Dr. 18,00,000
To Pearl Machinery Ltd. A/c 18,00,000
(Plant and Machinery purchased from Pearl Machinery Ltd.)
Pearl Machinery Ltd. A/c Dr. 3,00,000
To Bills Payable A/c 3,00,000
(Promissory note drawn)
Pearl Machinery Ltd. A/c Dr. 15,00,000
To 9% Debentures A/c 12,50,000
To Securities Premium Reserve A/c 2,50,000
(9% Debentures issued at a premium for the balance Purchase consideration)
(b) Journal of BGP Ltd.
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr. 37,50,000
To Debenture Application and Allotment A/c 37,50,000
(Application money received on 25,000 debentures)
Debenture Application and Allotment A/c Dr. 37,50,000
To 11% Debentures A/c 15,00,000
To Securities Premium Reserve A/c 7,50,000
To Bank A/c 15,00,000
(Debentures issued at a premium, excess refunded)
(c) Journal of Agam Ltd.
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
2020 Debenture Interest A/c Dr. 1,80,000
Mar. 31 To Debenture holders A/c 1,62,000
To TDS Payable A/c 18,000
(Interest on debentures payable to debenture holders, TDS deducted @10%)
Debenture holders A/c Dr. 1,62,000
TDS Payable A/c Dr. 18,000
To Bank A/c 1,80,000
(Payment made to Debenture holders, tax deposited)
Statement of Profit and Loss Dr. 3,60,000
To Debenture Interest A/c 3,60,000
(Debenture Interest transferred to Statement of Profit and Loss)
21. Journal of Premier Tools Ltd.
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr. 12,50,000
To Equity Share Application A/c 12,50,000
(Application money received on 2,50,000 shares)
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 333

Equity Share Application A/c Dr. 12,50,000


To Equity Share Capital A/c 6,00,000
To Securities Premium Reserve A/c 4,00,000
To Equity Share Allotment A/c 2,00,000
To Bank A/c 50,000
(Application money transferred to share capital, securities premium reserve,
share allotment and the balance refunded)
Equity Share Allotment A/c Dr. 6,00,000
To Equity Share Capital A/c 6,00,000
(Allotment money due)
Bank A/c Dr. 3,88,000
Calls in arrears A/c Dr. 12,000
To Equity Share Allotment A/c 4,00,000
(Allotment money received)
Equity Share First and final call A/c Dr. 8,00,000
To Equity Share Capital A/c 8,00,000
(First and final call money due)
Bank A/c Dr. 7,76,000
Calls in arrears A/c Dr. 24,000
To Equity Share First and final call A/c 8,00,000
(First and final call money received)
Equity Share Capital A/c Dr. 60,000
To Share Forfeiture A/c 24,000
To Calls in arrears A/c 36,000
(6,000 shares forfeited)
Bank A/c Dr. 48,000
To Equity Share Capital A/c 30,000
To Securities Premium Reserve A/c 18,000
(3,000 shares reissued)
Share Forfeiture A/c Dr. 12,000
To Capital Reserve A/c 12,000
(Gain on reissue of shares transferred to capital reserve)
OR
Journal of Concept Stationery Ltd.
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Bank A/c Dr. 28,00,000
To Share Application and Allotment A/c 28,00,000
(Application and allotment money received on 4,00,000 shares)
Share Application and Allotment A/c Dr. 28,00,000
To Share Capital A/c 21,000
To Calls in Advance A/c 4,20,000
To Bank A/c 2,80,000
(Application and allotment money transferred to share capital, call and the
balance refunded)
Share First and final call A/c Dr. 18,00,000
To Share Capital A/c 9,00,000
To Securities Premium Reserve A/c 9,00,000
(First and final call due including premium)
Bank A/c Dr. 13,38,000
Calls in arrears A/c Dr. 42,000
Calls in Advance A/c Dr. 4,20,000
To Share First call A/c 18,00,000
(First and final call received)
Share Capital A/c Dr. 84,000
Securities Premium Reserve A/c Dr. 25,200
To Share Forfeiture A/c 67,200
To Calls-in-arrears A/c 42,000
(8,400 shares forfeited)
334 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

Bank A/c Dr. 58,800


Share Forfeiture A/c 25,200
To Equity Share Capital A/c 84,000
(Shares reissued for `7 per share fully paid)
Share Forfeiture A/c Dr. 42,000
To Capital Reserve A/c 42,000
(Gain on reissue of shares transferred to capital reserve)
22. Dr. Revaluation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Stock 10,000 By Land and Building 1,00,000
To Workmen’s compensation claim 30,000
To Profit transferred to:
Achla’s Capital A/c 45,000
Bobby’s Capital A/c 15,000 60,000
1,00,000 1,00,000
Dr. Partners’ Capital Accounts Cr.

Particulars Achla (`) Bobby (`) Vihan (`) Particulars Achla (`) Bobby (`) Vihan (`)
To Bank A/c 30,000 10,000 – By Balance b/d 4,00,000 2,00,000 –
To Stock A/c 35,000 – – By Bank A/c – – 1,00,000
To Balance c/d 4,70,000 2,35,000 1,00,000 By General Reserve 30,000 10,000 –
By Premium for goodwill A/c 60,000 20,000 –
By Revaluation A/c 45,000 15,000 –
5,35,000 2,45,000 1,00,000 5,35,000 2,45,000 1,00,000
Balance Sheet of Achla, Bobby and Vihaan as on 1st April 2020

Liabilities Amount (`) Assets Amount (`)


Workmen’s compensation claim 80,000 Cash at bank 2,00,000
Creditors 1,10,000 Debtors 40,000
Capitals: Achla 4,70,000 Furniture 1,55,000
Bobby 2,35,000 Land and Building 6,00,000
Vihaan 1,00,000 8,05,000
9,95,000 9,95,000
OR
Dr. Revaluation A/c Cr.

Particulars Amount (`) Particulars Amount (`)


To Office Furniture 4,000 By Stock 1,900
To Land and Buildings 6,000 By Plant and Machinery 3,300
To Provision for Doubtful Debts 1,700 By Loss tr. to: Jain 3,250
Gupta 1,950
Malik 1,300 6,500
11,700 11,700
Dr. Partner’s capital A/c Cr.

Particulars Jain (`) Gupta (`) Malik (`) Particulars Jain (`) Gupta (`) Malik (`)
To Revaluation A/c 3,250 1,950 1,300 By Balance b/d 40,000 60,000 20,000
To Malik’s Capital A/c 1,125 675 – By Profit and Loss A/c 8,375 5,025 3,350
To Cash A/c – – 16,500 By Jain’s capital A/c – – 1,125
To Malik’s Loan A/c – – 7,350 By Gupta’s capital A/c – – 675
To Balance c/d 53,900 69,000 – By Cash A/c 9,900 6,600 _
58,275 71,625 25,150 58,275 71,625 25,150
Balance Sheet (after Malik’s retirement)
Liabilities Amount (`) Assets Amount (`)
Sundry creditors 19,800 Stock 20,000
Bills payable 8,950 Office furniture 14,250
Malik’s Loan 7,350 Plant and Machinery 23,530
New CBSE Sample Question Papers 2021 EXAM HANDBOOK Accountancy XII (2021 Edition) 335

Capitals: Jain 53,900 Land and Building 20,000


Gupta 69,000 S. Debtors 26,700
Less: Provision (1,700) 25,000
Bonds 14,370
Cash (`5,500 – `300 telephone bill paid) 5,200
Bills Receivables 23,450
Computers 13,200
1,59,000 1,59,000
23. The objective of Cash Flow Statement is to provide useful information about Cash Flows (Inflows & outflow) of an enterprise during a
particular period under various heads of activities.
24. Cash outflow from investing activity (`1,00,000)
25. No flow of cash; Reason: There is no change in cash and cash equivalents
26. (c) 27. (a) 28. (d) 29. Other Current Liabilities
30. Current Ratio = Current Assets/ Current Liabilities
2 = `2,00,000/ Current Liabilities ⇒ Current Liabilities = `1,00,000
Quick Ratio = Quick Assets/ Current Liabilities ⇒ 1.5 = Quick Assets/ `1,00,000 ⇒ Quick Assets = `1,50,000
Average Inventory= Current Assets – Quick assets =`2,00,000 – `1,50,000 =`50,000
Inventory Turnover Ratio = Cost of Revenue from operations/ Average Inventory
6 = Cost of Revenue from operations/ `50,000 ⇒ Cost of Revenue from operations = `3,00,000. Gross profit = ¼ × `3,00,000 =
`75,000. Revenue from operations = Cost of Revenue from operations + Gross profit = `3,00,000 + `75,000 = `3,75,000
OR
Trade Receivables Turnover Ratio = Credit Revenue from operations/ Average Trade Receivables
Cost of Revenue from operations = 4,80,000. Gross profit = ¼ × `4,80,000 = `1,20,000
Revenue from operations= Cost of Revenue from operations + Gross profit = `4,80,000 + `1,20,000 = `6,00,000
Revenue from operations = Cash Revenue from operations + Credit Revenue from operations
`6,00,000 = Cash Revenue from operations + (`2,00,000 + Cash Revenue from operations)
Cash Revenue from operations= `2,00,000 ⇒ Credit Revenue from operations=`4,00,000
Trade Receivables Turnover Ratio = Credit Revenue from operations/ Average Trade Receivables
8 = `4,00,000/ Average Trade Receivables ⇒ Average Trade Receivables = `50,000
(Opening Trade Receivables + closing Trade Receivables)/2 =`50,000 ⇒ (¼ closing Trade Receivables + closing Trade Receivables)/2 =`50,000
Closing Trade Receivables =`80,000 ⇒ Opening Trade Receivables =`20,000
31. Common Size Statement of Profit and Loss for the years ended 31st March 2019 and 31st March 2020
Particulars Note No. 2018-19 (`) 2019-20 (`) Absolute Change (`) Percentage Change (%)
Revenue from operations 8,00,000 16,00,000 100 100
Total Revenue 8,00,000 16,00,000 100 100
Less: Expenses
Cost of materials consumed 4,00,000 9,60,000 50 60
Operating expenses 40,000 80,000 5 5
Total expenses 4,40,000 10,40,000 55 65
Profit before Tax 3,60,000 5,60,000 45 35
Less Tax 1,08,000 2,24,000 13.5 14
Profit after Tax 2,52,000 3,36,000 31.5 21
OR
Comparative Balance Sheet of Vinayak Ltd. as at 31st March 2019 and 31st March 2020
Particulars Note No. 31.3.2019 (`) 31.3.2020 (`) Absolute Change (`) Percentage Change (%)
I. EQUITY AND LIABILITIES
1. Shareholders’ Funds
(a) Share capital 20,00,000 21,00,000 1,00,000 5
(b) Reserves and Surplus 2,00,000 2,30,000 30,000 15
2. Non-Current liabilities
(a) Long-term Borrowings 2,00,000 5,60,000 3,60,000 180
3. Current Liabilities
(a) Trade payables 1,00,000 2,80,000 1,80,000 180
Total 25,00,000 31,70,000 6,70,000 26.8
336 EXAM HANDBOOK Accountancy XII (2021 Edition) For CBSE Exam 2021 – by Subhash Dey

II. ASSETS
1. Non-current assets
Fixed assets
(i) Tangible Assets 20,00,000 21,00,000 1,00,000 5
(ii) Intangible Assets 2,00,000 3,00,000 1,00,000 50
2. Current assets
(a) Inventories 2,00,000 5,60,000 3,60,000 180
(b) Cash and Cash Equivalents 1,00,000 2,10,000 1,10,000 110
Total 25,00,000 31,70,000 6,70,000 26.8
32. Cash Flow Statement for the year ended 31st March 2020
Particulars Details (`) Amount (`)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash Outflow from Operating activities (18,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Goodwill (1,10,000)
Purchase of Plant and Machinery (4,82,000)
Sale of Plant and Machinery 34,000
Cash used in Investing activities (5,58,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of Share Capital 8,00,000
Redemption of Debentures (3,00,000)
Interest paid on Debentures (14,000)
Cash Inflows from Financing activities 4,86,000
Net decrease in Cash and Cash equivalents (90,000)
Add Opening balance of Cash and Cash equivalents
Current Investments 1,90,000
Cash and Cash equivalents 2,30,000 4,20,000
Closing balance of Cash and Cash equivalents
Current Investments 30,000
Cash and Cash equivalents 3,00,000 3,30,000
Dr. Plant and Machinery A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 10,90,000 By Accumulated Depreciation A/c 12,000
To Bank A/c (Purchase) 4,82,000 By Statement of Profit and Loss (loss on sale) 6,000
By Bank A/c (Sale) 4,000
By balance c/d 15,20,000
15,72,000 15,72,000
Dr. Accumulated Depreciation A/c Cr.
Particulars Amount (`) Particulars Amount (`)
To Plant and Machinery A/c 12,000 By Balance b/d 90,000
To Balance c/d 1,20,000 By Statement of P & L (depreciation provided) 42,000
1,32,000 1,32,000