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Exam Handbook
Accountancy-XII
Edition
Effective for CBSE Examination 2021
Accountancy-XII
2021
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Subhash Dey
Subhash Dey
Chapter
Financial Statements
of Not-for-Profit
Organizations
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
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
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
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
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
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
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
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?
SA
Short Answer Type Questions (3/4 Marks)
(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
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
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)
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
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
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
Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book
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
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
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
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
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
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)
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
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
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:
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
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
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)
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
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
Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book
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
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
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
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.
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
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.
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
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.
Top Tip: Remaining 90% of the general reserve `45,000 will be distributed among the old partners in their old profit sharing ratio.
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
Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book
Theoretical Concepts & Accounting Treatment As per Revised Syllabus for 2021 Examination
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
Changes in Accounting Treatment As per CBSE Guidelines and Latest NCERT Book
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
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
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
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
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
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.
Chapter 9
Cash Flow
Statement
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
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
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)
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
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
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
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
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
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
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
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
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
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
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
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
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