Nios Clas

s 12th Accountancy (320)

1. What is depreciation? Write the various objectives of providing depreciation.
Ans : Depreciation can be defined as a continuing, permanent and gradual decrease in the
book value of fixed assets. This type of shrinkage is based on the cost of assets utilised in a
firm and not on its market value.
     Objectives of providing depreciation can be studied as follows:
a. To Replace Fixed Assets : The main objective of charging depreciation is to
accumulate adequate fund to replace old asset with the new one after the useful life.
b. To Reveal True Financial Position : Depreciation is charged to fixed assets which
helps to show the current value of the asset. Therefore it helps to show true financial
position (assets and liabilities position) of the business.
c. To Reduce Tax Liability : Amount of depreciation is deducted from the operational
profit of the business which reduces taxable liability of the firm.
d. To Determine True Profit : Depreciation (the decline in the book value of fixed assets)
is charged to revenue like other operating expenses. So, it helps to determine true profit
of the firm.
e. To Determine Cost Of Production : Depreciation should be charged to fixed assets
like machinery and plants in order to determine true or actual cost of production.

i.
ii. Distinguish between Straight Line Method and Diminishing Balance Method of
Depreciation.
Ans :
Straight line Method Diminishing balance Method
1. A Fixed amount is deducted 1. The amount of depreciation goes
from the value of an asset. on reducing year after year.
2. Depreciation is computed on the 2. Depreciation is calculated on the
original cost of the asset. written down value of the asset.
3. The value of the asset is reduced 3. The value of the asset will not
to zero at the end of effective become zero after its effective
working life. working life.
4. The method is also known as 4. This method is also known as
Fixed Instalment method or reducing balance method or written
original cost method. down value method.
   
  What is meant by Reserve Fund?
Ans : A reserve fund is a savings account or other highly liquid asset set aside by an
individual or business to meet any future costs or financial obligations, especially those
arising unexpectedly. If the fund is set up to meet the costs of scheduled upgrades, less liquid
assets may be used. For example, a homeowner’s association often manages a reserve fund to
help maintain the community and its amenities using the dues paid by homeowners.

What is meant by a provision?
Ans : A provision can be a liability of uncertain timing or amount. A liability, in turn, is a
present obligation of the entity arising from past events, the settlement of which is expected
to result in an outflow from the entity of resources embodying economic benefits.
Though it is often thought to be a form of savings, a provision should not be considered as
such. Examples of common provisions are: income tax liability, product warranty,
environment restoration, etc.
5.  Distinguish between provision and reserve.
Ans :
Reserves Provision
1.  The reserves in the business
1. The provisions are created by debiting
are created by debiting profit
profit or loss account
and loss appropriation account
2. The creation of reserves 2. The creation of provision is used as it
depends upon the financial depends upon the financial emergency of
policy of business a business.
3. A reserve is a total of known 3. A provision is a total of unknown
liability liability 
4. Provisions are created to meet a
4. It strengthens the financial
specific loss on realization of assets or an
position of the business.
accrued liability. It is also used for
Reserves are added to the
meeting out an unanticipated loss or
amount of working capital. 
liability.
 5. The amount of provision cannot be
5. The amount of reserve
accurately determined at the date of the
depends upon the management
balance sheet, though the liability is
policy and judgments.
known.
6. Distinguish between capital receipts and revenue receipts.
Ans :
Capital Receipts Revenue Receipts
1. The amount received in form of
1. The amount received mainly by
capital introduced, loans taken and
selling of goods and services is
sale proceeds of the fixed assets is
known as revenue receipts.
known as capital receipts.
2. Capital receipts are capital in 2. Revenue receipts are revenue
nature. (i.e., day-to-day activities) in nature.
3. Revenue receipts are shown at the
3. Capital receipts are shown on the
credit of either trading account or
liabilities side of balance sheet.
profit and loss account.
4. Sale of fixed assets, capital 4. Profit on sale of assets, sale of
contribution and loans taken, etc., goods. Interest received on loans
are some example of capital (advanced), royalty, etc., are some
receipts. examples of revenue receipts.
7. State the meaning of Balance Sheet.
Ans : Balance Sheet is the financial statement of a company which includes assets, liabilities,
equity capital, total debt, etc. at a point in time. Balance sheet includes assets on one side, and
liabilities on the other. For the balance sheet to reflect the true picture, both heads (liabilities
& assets) should tally (Assets = Liabilities + Equity).
8. What are owners’ funds ?
Ans : Owners’ funds consist of equity share capital, preference share capital and reserves,
and surpluses or retained earnings. These are called owners’ funds as they are provided by or
belong to the shareholders of the company which is, in fact, its owners.
9. What do you mean by Abnormal loss?
Ans : Abnormal loss is referred to as the loss that is faced by a company which is beyond the
normal loss threshold. In other words, it is a loss that is experienced by a company and is
beyond the normal loss that is expected to happen.
Companies suffering from abnormal loss have the situation that the total revenue earned is
not sufficient to cover the total losses incurred. If the company experiences a similar loss
situation for sustained periods, it will result in serious consequences and threaten the survival
of the company.
10. Distinguish between Receipts and Payaments Account and Cash Book.
Ans :
Receipts and Payments
Cash book
Account
1. On the basis of receipts and payments
1. On the basis of Cash Book.
for the period.
2. At the end of the accounting
2. On a dialy basis.
year.
 3. Not a part of double entry
3. Part of double entry system.
system.
4. It has receipts and payments
4. It has debit and credit sides.
sides.
5. No ledger folio column. 5. It has ledger folio column.
6. Prepared by Not for Profit 6. Prepared by all Profit Seeking
Organizations Organizations
11. State the meaning of Receipts and Payments Account.
Ans : Receipt and payment account functions as a summary of cash payments and receipts of
an organisation during an accounting period. It provides a picture of the cash position of a
Not-for-Profit organisation. It does not differentiate between the receipts and payments,
whether they are of capital or revenue in nature and records all cash and bank transactions of
both capital and revenue nature.
Receipt and payment account does not include any non-cash transactions such as
depreciation. The Receipt and payment account is prepared at the end of an accounting
period.
12. What is an Income and Expenditure Account?
Ans : The income and expenditure account is prepared by the non-trading entities to
determine surplus or deficit of income over expenditures for a particular time frame. The
accumulated or accrual concept of accounting is rigidly pursued while preparing income and
expenditure a/c of non-trading concerns. It is prepared as a portion of final accounts of non-
trading entities and is equal to the profit and loss account outlined by for-profit business
entities.
13. List the various items of income and expenditure of a Not for Profit Organisations
(NPOs).
Ans : Income and Expenditure Account is a nominal account prepared by not for profit
organisations to ascertain the surplus or deficit of the organisation for the current accounting
year. It is prepared at the end of the accounting year by debiting all the expenses and losses
and crediting all incomes and gains of the concerned year in this account to ascertain the
result of either surplus or deficit.
The Income and Expenditure Account is similar to the Profit & Loss Account of a business
organisation, which ascertains profit or loss of the business for the concerned year. Profit and
Loss a/c ascertain profit or loss and since Not-for-Profit-organisation is established for the
welfare and service motive of the society, it prepares an Income and Expenditure Account to
know the surplus or deficit of the organisation.
14. Distinguish between fixed and fluctuating capital accounts.
Ans :
Fluctuating Capital
Fixed Capital Account
Account
1. Fixed capital account is that form of 1. Fluctuating capital
capital account where the business account is that form of
maintains two different accounts which are capital account where the
related to the different kinds of transactions capital of the partners keep
that take place in the capital of the partners on fluctuating
2. Fixed capital account has two accounts 2. Only one account that is
which are capital account and current capital account
 account
3. This type of capital account remains 3. This type of capital
constant account fluctuates
4. Needs to be mentioned specifically in 4. No need to be mentioned
partnership deed in partnership deed
15. Explain the characteristics of a partnership.
Ans : Following are the essential features or characteristics of partnership:
i. Two or more persons: To form a partnership : there must be at least 2 partners who
are competent to contract and who are not minor, persons of unsound mind and persons
disqualified by any law.
ii. Agreement : It is a legal document signed by all the partners. A written agreement
containing the terms and conditions of partnership and because of which the partnership
comes into existence is known as Partnership Deed.
iii. Lawful Business : A partnership is formed to do a lawful business which includes trade,
vocation and profession.
iv. Profit-Sharing : A partnership agreement specifies how the profits and losses of the
firm will be shared by the partners.
v. No separate Entity : partnership does not have a separate entity from its partners.
vi. Unlimited LIABILITY : The liability of all the partners of a firm are unlimited like the
sole proprietorship.
vii. No Transfer of interest without consent : A partner cannot transfer his interest in the
firm without the consent of all other partners.
16. State the meaning of Goodwill.
Ans : Goodwill is an intangible asset associated with the purchase of one company by
another. Specifically, goodwill is recorded in a situation in which the purchase price is higher
than the sum of the fair value of all visible solid assets and intangible assets purchased in the
acquisition and the liabilities assumed in the process. The value of a company’s brand name,
solid customer base, good customer relations, good employee relations, and any patents or
proprietary technology represent some examples of goodwill.
17. State the meaning of Sacrificing Ratio
Ans : The meaning of sacrifice ratio in accounting can be explained as the proportion in
which existing partners surrender their share of profit in favour of newly admitted partners.
The share thus sacrificed is usually given to new partners by either some existing partners or
all of them. It must also be noted that existing partners may opt to forego shares for the new
admission in an agreed proportion.
So, in simple words, it can be said that sacrifice ratio is simply the difference between their
old ratio and their new ratio.
18. Explain the meaning of gaining Ratio.
Ans : The Gaining Ratio is calculated when a partner quit or retire from the business, and the
other continues to do the business in that company. The gain ratio is also known as the
retirement of a partner. In other words, when a partner leaves or retires from the firm due to
some reasons like bad health, old age, etc., the existing agreement and partnership come to an
end. However, the current individual’s formats a new partnership agreement with new fresh
terms and conditions.
When a partner leaves a company, the profit ratio of the existing partner’s changes after they
acquire the retiring partner’s share and distribute amongst each other.
19. What is meant by retirement of a partner?
Ans : Retirement of a partner refers to a process in which a partner leaves the firm or serves
his old  age, continued ill health, loss of interest in the firm, misunderstanding amongst the
partners, etc.
20. Distinguish between dissolution of partnership firm and dissolution of partnership.
Ans :
Dissolution of Partnership Dissolution of Firm
1. Dissolution of a partnership – to the 1. When all the existing
adjournment of the association between partnership of an organisation is
a partner and the rest of the partners of dissolved, it is known as
an enterprise dissolution of a firm
2. In event of dissolution of partnership,
2. In event of dissolution of firm,
business continues as usual, but the
business stops 
partnership is reconstituted
3. No requirement for court 3. Firms can be dissolved by
intervention court intervention
4. Not closed 4. Closed for firm
5. Assets and liabilities are revalued 5. Assets and liabilities are
after winding up of existing partnership settled on winding up of a firm
6. Dissolution occurs between
6. Does not result in dissolution of firm
partners of the firm
21. Under what circumstances can the court dissolve the partnership firm?
Ans : We always assume that the dissolution of partnership is a mutual decision between
partners. But that is not the case in all scenarios. At times only one of the partner wishes for a
dissolution, and if it is a partnership for a fixed period he has to approach the courts for the
same. Let us see how the dissolution of a partnership occurs in such cases.
22. What is meant by over subscription of shares? What accounting treatment is given
to the amount over subscribed?
Ans : When a company receives applications for a large number of shares than offered to
public for subscription, it is said that the issue has been over-subscribed.
Accounting Treatment of Over Subscription :
i. Rejection of applications : Sometimes the applications of shares are not allotted even a
single share. In such a situation the application money received from such applicants is
returned to them.
ii. Acceptance of application partially : Sometimes the applicants are not allotted the
number of shares they have applied for and directors accept the application partially. In
such a situation, the applicants are allotted lesser number of shares than they have
applied for. In such a situation, the surplus money on application partially accepted will
be transferred to share allotment account.
23. What is meant by issue of shares at discount? State the conditions to be fulfilled for
the issue of shares at discount under the Companies Act.
Ans : The issue of shares at a discount means the issue of the shares at a price less than the
face value of the share. For example, if a company issues share of Rs.100 at Rs.90, then
Rs.10 (i.e. Rs 100—90) is the amount of discount.
the issue of shares at discount under the Companies Act.
As per section 53 of the Companies Act, 2013, no company shall issue shares at a discount
except as provided in section 54 (i.e. issue of sweat equity shares). Any share issued by a
company at a discounted price will be void.
24. What is meant by ‘Shares Issued at Premium?
Ans : When the company allots shares for the first time these shares can be issued at their
nominal price or above or below such a nominal price. The accounting for shares issued at
premium and shares issued at discount varies a little. So let us see these accounting
treatments and also look at the securities premium account in some detail.
25. State the meaning of forfeiture of shares. When can shares be forfeited?
Ans : Forfeiture of shares is referred to as the situation when the allotted shares are cancelled
by the issuing company due to non-payment of the subscription amount as requested by the
issuing company from the shareholder.
In the event of forfeiture of shares, the shareholders loses the rights and interests of being a
shareholder and ceases to be a member of the organisation.
A forfeited share is an equity share investment which is cancelled by the issuing company. A
share is forfeited when the shareholder fails to pay the subscription money called upon by the
issuing company.
26. What do you mean by debenture? State in brief the various types of debentures.
Ans : The term ‘debenture’ is derived from the Latin word ‘debere’ which refers to borrow.
A debenture is a written tool accepting a debt under the general authentication of the
enterprise. It comprises of an agreement for repayment of principal after a particular period or
at intermissions or at the option of the enterprise and for payment of interest at a fixed rate
due to, usually either yearly or half-yearly on fixed dates. According to the section 2(30) of
The Companies Act, 2013 ‘Debenture’ comprises of – Debenture Inventory, Bonds and any
other securities of an enterprise whether comprising a charge on the assets of the enterprise or
not.
the various types of debentures.
 Secured Debentures: Secured debentures are that kind of debentures where a charge is
being established on the properties or assets of the enterprise for the purpose of any
payment. The charge might be either floating or fixed. 
 Unsecured Debentures: They do not have a particular charge on the assets of the
enterprise. However, a floating charge may be established on these debentures by
default. Usually, these types of debentures are not circulated.
 Redeemable Debentures: These debentures are those debentures that are due on the
cessation of the time frame either in a lump-sum or in instalments during the lifetime of
the enterprise. Debentures can be reclaimed either at a premium or at par.
 Irredeemable Debentures: These debentures are also called as Perpetual Debentures as
the company doesn’t give any attempt for the repayment of money acquired or borrowed
by circulating such debentures. These debentures are repayable on the closing up of an
enterprise or on the expiry (cessation) of a long period.
 Convertible Debentures: Debentures which are changeable to equity shares or in any
other security either at the choice of the enterprise or the debenture holders are called
convertible debentures. These debentures are either entirely convertible or partly
changeable.
 Non-Convertible Debentures: The debentures which can’t be changed into shares or in
other securities are called Non-Convertible Debentures. Most debentures circulated by
enterprises fall in this class.
27. What is meant by debentures issued as collateral security?
Ans : Debentures issued as collateral security is secondary or parallel security for the original
loan taken by the company. The lender can realize the collateral security in case borrower
fails to make the payment of the original loan.
28. What are the main limitations of financial Analysis? Explain in detail.
Ans : Limitations of financial statement analysis.
       i.          Not a Substitute of Judgement
An analysis of financial statement cannot take place of sound judgement. It is only a means to
reach conclusions. Ultimately, the judgements are taken by an interested party or analyst on
his/ her intelligence and skill.
     ii.          Problem in Comparability
The size of business concern is varying according to the volume of transactions. Hence, the
figures of different financial statements lose the characteristic of comparability.
i. Reliability of Figures
Sometimes, the contents of the financial statements are manipulated by window dressing. If
so, the analysis of financial statements results in misleading or meaningless.
   iv.          Change in Accounting Methods
There must be uniform accounting policies and methods for number of years. If there are
frequent changes, the figures of different periods will be different and incomparable. In such
a case, the analysis has no value and meaning.
     v.          Changes in the Value of Money
The purchasing power of money is reduced from one year to subsequent year due to inflation.
It creates problems in comparative study of financial statements of different years.
29. What do you understand by DBMS. Give names of two commonly available DBMS
software?
Ans : Database Management System (DBMS) is a software for storing and retrieving users’
data while considering appropriate security measures. It consists of a group of programs
which manipulate the database. The DBMS accepts the request for data from an application
and instructs the operating system to provide the specific data. In large systems, a DBMS
helps users and other third-party software to store and retrieve data.
DBMS allows users to create their own databases as per their requirement. The term
“DBMS” includes the user of the database and other application programs. It provides an
interface between the data and the software application.
two commonly available DBMS software are :
i. Improvado
ii. Microsoft SQL Server
30. What do you understand by terms ‘key field’, ‘primary key’ and ‘secondary key’ in
a database?
Ans :  Key field : A field in a record that holds unique data which identifies that record from
all the other records in the file or database. Account number, product code and customer
name are typical key fields. As an identifier, each key value must be unique in each record.
Primary key : A primary keyis a field that identifies each record in a database table
admitting that the primary key must contain its UNIQUE values.
Secondary keys : A secondary keysshows the secondary value that is unique foe each record.
It can be used to identify the record and it is usually and it is usually indexed. It is also
termed as Alternate key.
accountancy 320 question paper