QUES BANK ANSWERS OF ACCTS

Q1) Draw up a format of the profit and loss account as per companies act 2013.
2. Draw up a format of the balance sheet as per companies act 2013.
3. What are the scheme of entries for issue of equity shares ?

ANS)

particulars Amount
Bank a/c…….dr. Xx
To share application a/c…..cr. xx
(being the share applications received)
Share application a/c…..dr. Xx
To share capital a/c……cr. xx
(being the shares allotted to the applicants)
Allotment a/c……dr. Xx
To share allotment a/c……cr. Xx
(being the allotment money received from the shareholders)
Share first call a/c……dr. Xx
To share capital a/c……cr. Xx
(being the first call made for the payment of remaining amount of shares)
Bank a/c …..dr. Xx
To share first call a/c…..cr. Xx
(being the first call money received from shareholders)
Share final call a/c……dr. Xx
To share capital a/c……cr. Xx
(being the final call made )
Bank a/c……dr. Xx
To share final call a/c…….cr. xx
(being the final call money received from shareholders)
4. Differentiate between shares and debentures
5. Differentiate between equity and preference shares.
basis Preference share capital Equity share capital
1) Definition Preference share capital is the funds that a company has Equity shares capital is the funds that a
generated by issuing preference shares. company has generated by issuing equity
shares.
2) Dividend rate The dividend rate is not changeable. The dividend rate is changeable.
3) Voting rights Preference shareholders don not have any voting rights. Equity shareholders have voting rights.

4) Participation in Preference shareholders do not have the right to Equity shareholders have the right to
management participate in the management decisions. participate in the management decisions.

5) Types of shares The different types of Preference Shares are as follows: The different types of Equity Shares are
as follows:
1) Cumulative Preference Shares
2) Participating Preference Shares 1) Authorized Share Capital
3) Redeemable Preference Shares 2) Issued Share Capital
4) Convertible Preference Shares 3)Subscribed Share Capital
5) Non-Cumulative Preference Shares 4) Paid-up Share Capital
6) Non-Participating Preference Shares 5) Rights Share
7) Non-Redeemable Preference Shares 6) Bonus Share
8) Non-Convertible Preference Shares 7) Sweat Equity Share

6) Convertibility Preference share can be converted into equity shares. Equity shares cannot be converted into
preference shares.
7) Risk Preference shareholders are at low risk. Equity shareholders are at high risk.

6. What is goodwill?

Ans) a. Goodwill is an intangible asset that represents the reputation, brand value, customer loyalty, and other intangible qualities
of a business.
b. Goodwill is a valuable asset that a business has, but it's not physical like buildings or equipment.
c. It represents the positive reputation, customer loyalty, and intangible qualities that make a business more valuable.
d. Goodwill is built over time through factors like excellent customer service, a trusted brand name, and strong relationships with
customers.
e. It helps a business attract more customers, charge higher prices, and maintain a competitive edge.
f. When a business is sold, the value of its goodwill is often considered in addition to its tangible assets.
g. Goodwill is recorded as an intangible asset on the company's balance sheet.
h. It can be difficult to measure and quantify precisely because it's subjective and depends on the perception of customers and the
market.

7. How many methods of goodwill are there ? Explain briefly each .

Ans) There are three types of goodwill:-
1. Average Profits Method
i] Simple Average: Under this method, the goodwill is valued at the agreed number of years’ of purchase of the average profits of
the past years.
Goodwill = Average Profit x No. of years’ of purchase
ii] Weighted Average: Under this method, the goodwill is valued at an agreed number of years’ of purchase of the weighted
average profits of the past years.

Goodwill = Weighted Average Profit x No. of years’ of purchase

Weighted Average Profit = Sum of Profits multiplied by weights/ Sum of weights

2. Super Profits Method

(i) The Number of Years Purchase Method: Under this method, the goodwill is valued at the agreed number of years’ of purchase
of the super profits of the firm.

Goodwill = Super Profit x No. of years’ of purchase

# Super Profit = Actual or Average profit – Normal Profit
# Normal Profit = Capital Employed x (Normal Rate of Return/100)

(ii) Annuity Method: This method considers the time value of money. Here, we consider the discounted value of the super profit.

Goodwill = Super Profit x Discounting Factor

3. Capitalization Method
(i) Capitalization of Average Profits: Under this method, the value of goodwill is calculated by deducting the actual capital
employed from the capitalized value of the average profits on the basis of the normal rate of return.

Goodwill = Normal Capital – Actual Capital Employed

# Normal Capital or Capitalized Average profits = Average Profits x (100/Normal Rate of Return)
# Actual Capital Employed = Total Assets (excluding goodwill) – Outside Liabilities

(ii) Capitalization of Super Profits: Under this method, Goodwill is calculated by capitalizing the super profits directly.

Goodwill = Super Profits x (100/ Normal Rate of Return)

8. What are the factors that generate a goodwill?

Ans) The factors that contribute to the generation of goodwill are as follows
1) Excellent Customer Service: Providing exceptional customer service, going above and beyond to meet customer needs, and
building positive relationships with customers.
2) High-Quality Products or Services: Offering products or services that are reliable, superior in quality, and meet or exceed
customer expectations.
3) Strong Branding and Marketing: Establishing a recognizable and trusted brand through effective marketing efforts, creating
positive associations with the company's products or services.
4) Customer Loyalty and Satisfaction: Building a base of loyal customers who repeatedly choose the company's offerings and
recommend them to others due to their satisfaction and positive experiences.
5) Positive Reputation: Developing a good reputation in the industry and among customers by consistently delivering on promises,
maintaining ethical practices, and being known for reliability and trustworthiness.
6) Innovation and Differentiation: Introducing new and unique products, services, or features that set the company apart from
competitors and provide added value to customers.
7) Strong Relationships with Stakeholders: Building and nurturing positive relationships with employees, suppliers, partners, and
the community, leading to mutual trust and support.
9. Purchased goodwill is recorded in books but not self-generated goodwill – why?
 Ans) Purchased Goodwill: Purchased goodwill refers to the excess amount paid when acquiring a business, which is higher
than the fair value of its identifiable assets.
 Recognizing Financial Transaction: Purchased goodwill is recorded in the books because it represents a financial
transaction where a specific amount was paid to acquire the intangible asset.
 Identifiable Value: Purchased goodwill can be quantified and identified separately from other assets since it relates to a
specific acquisition or business combination.
 Objective Value Determination: The value of purchased goodwill is determined based on the purchase price and the
difference between the fair value of net assets acquired and the total purchase consideration.
 Legal Requirement: Accounting standards and regulations often require the recording of purchased goodwill to provide
transparency and accurate representation of the financial position and transactions of the company.
 Self-Generated Goodwill: Self-generated goodwill, on the other hand, is not recorded in the books because it is internally
generated and not acquired through a specific transaction.
 Subjective and Non-Measurable: Self-generated goodwill is challenging to quantify objectively as it arises from factors
such as reputation, customer loyalty, and market perception, which are difficult to attribute a specific value to.

In summary, purchased goodwill is recorded in the books due to its objective and measurable nature, representing a specific
financial transaction, while self-generated goodwill is not recorded because it is subjective and internally generated over time.

10. What do you understand by EPS – diluted and basic .

 Earnings Per Share (EPS): EPS is a measure of how much profit a company has made for each share of its stock.
 Basic EPS: Basic EPS calculates the profit per share by dividing the total earnings available to common shareholders by
the average number of shares outstanding.
 Diluted EPS: Diluted EPS takes into account the potential impact of securities that could increase the number of shares,
such as stock options or convertible bonds.
 Dilutive Securities: Dilutive securities are financial instruments that can potentially increase the number of outstanding
shares if they are converted into common shares.
 Calculation of Diluted EPS: Diluted EPS adjusts the number of outstanding shares to include the additional shares that
could be issued from dilutive securities, giving a more conservative measure of earnings per share.
 Importance: Diluted EPS provides a more cautious measure of a company's earnings, considering the potential impact of
securities that could dilute existing shareholders' ownership.
 Comparison: Basic EPS gives a simpler measure of earnings per share, while diluted EPS provides a more comprehensive
view by including the potential dilution from convertible securities or other potential share issuances.

11. What is dog , cat and rat goodwill?

Ans)

Cat goodwill- cat goodwill is considered as the best goodwill. In cat goodwill the customers are progressively loyal and to the
brand or the organization. The board or authority don’t concern them.

12. The profits for the five years is Rs 10,000 , Rs 20,000 , Rs 30,000 , Rs 40,000 and Rs
50,000- calculate the goodwill via the average profit method

ANS) average annual profit=sum of profits/no. of years=rs10000+ rs20000+ rs30000+ rs40000+ rs50000/5=30000
Therefore, goodwill= average annual profit*no of purchase years= rs30000*3= rs90000
13. To the above problem weights are attached 1,2, 3, 4 and 5 – calculate the weighed average
profit for goodwill.

profits weight Product

10000 1 10000*1=10000
20000 2 20000*2=40000
30000 3 30000*3=90000
40000 4 40000*4=160000
50000 5 50000*5=250000
total 15 55000

Therefore, weighted average profit= product/ total weight= 55000/15= 36,666.67

14. What is the meaning of super profits – how does it diffwe from normal profits ?

Ans) Super Profits: Super profits refer to the excess profits earned by a company above the normal or expected level of
profitability.
The key differences between super profit and normal profit are:

1. Normal profit is the minimum amount of profit required to keep the entrepreneur in business, while super profit is the excess
profit earned by the entrepreneur over and above the normal profit.

2. Normal profit is the cost of the entrepreneur's own time and capital, while super profit is the reward for the entrepreneur’s
risk-taking and efforts.

3. Normal profit is necessary to keep the entrepreneur in business, while super profit is the incentive for the entrepreneur to
take risks and implement innovative ideas.

15. In a certain year the stocks of a company were destroyed by floods woth Rs 2 lakhs- will
you consider the above figure for calculation of good will- why ?

ANS) The destruction of stocks due to floods would generally not be considered. The reasons are mentioned below-
 Definition of Goodwill: Goodwill represents the intangible value of a business that goes beyond its tangible assets, such
as brand reputation, customer loyalty, and market position.
 Exclusion of Extraordinary Events: Goodwill calculations typically exclude one-time or extraordinary events that are not
reflective of the normal operations and profitability of the business.
 Nature of the Event: The destruction of stocks by floods is an exceptional event caused by external factors, and it does
not directly relate to the inherent value or reputation of the company.
 Temporary Impact: The destruction of stocks is a temporary setback that affects the company's financials in a specific
year but does not significantly impact its long-term value or potential.
 Distortion of Financial Performance: Including the flood-related losses in the calculation of goodwill would distort the
financial performance and potentially undervalue the company's true worth.
 Focus on Ongoing Operations: Goodwill calculations primarily focus on the company's ongoing operations, sustainable
profits, and factors that contribute to its long-term success.
 Consistency and Comparability: Excluding extraordinary events like the stock destruction from goodwill calculations
ensures consistency and comparability in assessing the company's intangible value across different periods or with other
businesses.

16. The tata brand is a very well know brand – is its value shown in the balance sheet?

Ans) The value of the Tata brand may not be directly shown on the balance sheet. Here's an explanation in very easy words and
short points:
 Balance Sheet: The balance sheet is a financial statement that provides a snapshot of a company's financial position at a
specific point in time.
 Tangible and Intangible Assets: The balance sheet primarily includes tangible assets (such as cash, property, and
equipment) and intangible assets (such as patents, trademarks, and copyrights).
 Intangible Assets: Intangible assets represent non-physical assets that have value but lack physical substance. Examples
include brand reputation, customer loyalty, intellectual property, and goodwill.
 Brand Value: The Tata brand is a well-known and valuable intangible asset that contributes to the company's success,
customer perception, and market position.
 Non-disclosure on Balance Sheet: While the Tata brand holds significant value, it may not be explicitly disclosed on the
balance sheet due to accounting regulations and reporting practices.
 Brand Valuation: Companies often conduct brand valuation exercises separately to assess the value of their brand, which
may involve financial analysts, market research, and specialized valuation techniques.
 Importance of Brand Value: Although not directly shown on the balance sheet, the value of the Tata brand can have a
substantial impact on the company's overall market value, customer preferences, competitive advantage, and future
earnings potential.

In summary, while the value of the Tata brand is crucial to the company's success, it may not be explicitly shown on the balance
sheet. Instead, brand value is typically assessed separately through brand valuation exercises, recognizing its significant impact on
the company's overall worth and market position.

17. Sachin Tendulkar joins you company ABC ltd- your sales go up by 500% during the year –
how would you record the goodwill of Sachin Tendukar in your balance sheet ?

Ans) Goodwill is an intangible asset that represents the value of a company's brand, reputation, and customer relationships. It is
recorded on the balance sheet when a company acquires another company for a price that exceeds the fair market value of its net
assets. In this scenario, Sachin Tendulkar joining ABC Ltd has resulted in a significant increase in sales, which can be attributed to
his reputation and influence as a well-known public figure.

To record the goodwill of Sachin Tendulkar in the balance sheet of ABC Ltd, the company would need to perform a valuation
analysis to determine the fair market value of his contribution to the company. This analysis would take into account factors
such as his brand value, endorsement potential, and impact on sales.

Once the fair market value has been determined, the goodwill would be recorded as an intangible asset on the balance sheet. The
amount recorded would be equal to the excess of the purchase price paid for Sachin Tendulkar's services over the fair market
value of his net assets.

It is important to note that goodwill is subject to impairment testing, which means that if there is a decline in Sachin
Tendulkar's influence or impact on sales, the value of goodwill may need to be adjusted downwards.

In conclusion, recording the goodwill of Sachin Tendulkar in ABC Ltd's balance sheet would require a valuation analysis to
determine his fair market value and would be recorded as an intangible asset equal to the excess of his purchase price over his net
assets.

18. Debenture are redeemable – explain the statement .

Ans) Yes debentures are redeemable-

 Definition of Debentures: Debentures are long-term debt instruments issued by companies or governments to raise
capital.
 Redeemable Nature: "Redeemable" means that the debentures have a specified maturity date at which they can be repaid
or redeemed by the issuer.
  Maturity Date: Debentures have a predetermined maturity period, which can range from a few years to several decades,
depending on the terms set by the issuer.
 Repayment at Maturity: When debentures are redeemable, it means that the issuer has an obligation to repay the
principal amount or face value of the debentures to the debenture holders upon reaching the maturity date.
 Fixed Repayment Schedule: The terms of the debentures usually specify the repayment schedule, including the date of
maturity and the method or installment amounts for redeeming the debentures.
 Interest Payments: In addition to the principal repayment, debenture holders may also receive periodic interest
payments throughout the life of the debentures, which are typically fixed and predetermined.
 Investor Protection: The redeemable feature of debentures provides investors with assurance that they will receive their
investment back, along with any accrued interest, at the specified maturity date, offering a level of security for their
investment.

In summary, when debentures are described as "redeemable," it means that they have a specific maturity date at which the issuer
is obligated to repay the principal amount to the debenture holders. This feature provides investors with the expectation of
receiving their investment back at the end of the debenture's term, along with any interest payments that may have been
specified.

19. What is a charge – during the process of issue of debentures ?

A charge, during the process of issue of debentures, refers to the security interest created by a company over its assets in favor
of the debenture holders. It is a type of collateral that provides assurance to the debenture holders that they will be repaid their
principal and interest in case the company defaults on its payments.

The charge can be created over various assets such as land, buildings, machinery, stocks, and other fixed assets. The charge can be
either fixed or floating. A fixed charge is created over specific assets that are identified and defined in the debenture trust deed.
On the other hand, a floating charge is created over a class of assets that are not specifically identified at the time of creation of
the charge.

In case of default by the company, the debenture holders have the right to enforce their security interest and recover their dues
from the sale proceeds of the charged assets. However, if there are multiple charges on the same asset, then the priority of
payment is determined based on the date of creation of each charge.

In conclusion, a charge is an important aspect of the process of issuing debentures as it provides security to the debenture holders
and helps in raising funds for the company.

20. What is the maximum length of time – for which a debenture can be issues?

Ans) The maximum length of time for which a debenture can be issued depends on various factors as follows:
 Debenture Time Period: A debenture is a long-term debt instrument issued by companies to raise capital.
 Maximum Time Limit: There is no specific maximum time limit set for the issuance of debentures. The length of time
for which a debenture can be issued depends on various factors, including the terms and conditions set by the company.
 Flexibility in Tenure: Companies have the flexibility to determine the maturity period or tenure of their debentures
based on their financing requirements and market conditions.
 Short to Long Term: Debentures can have varying time periods, ranging from a few years to several decades, depending
on the issuer's needs and the preferences of investors.
 Balance of Considerations: When deciding the debenture's time period, companies need to balance their capital
requirements, interest rates, and investors' expectations for returns.
 Customization: The tenure of debentures can be customized to suit the company's cash flow projections, investment
plans, and repayment abilities.
 Investor Attraction: Offering debentures with a suitable time period can attract investors with different risk appetites
and investment preferences, providing them with options for short-term or long-term investment opportunities.
21. Which is cheaper to issue – Shares or debentures and why ?

Ans) In general, debentures are cheaper to issue than shares. This is because issuing shares involves a lot more legal and
administrative work than issuing debentures. Here are some reasons why debentures are cheaper to issue:

1. No need for shareholder approval: When a company issues new shares, it usually needs to get approval from its existing
shareholders. This can be a time-consuming and expensive process, as the company needs to prepare and distribute documents, hold
meetings, and so on. With debentures, there is no need for shareholder approval, as they are simply a form of debt.

2. Lower legal fees: Issuing shares involves a lot of legal work, such as drafting prospectuses and shareholder agreements. This
can be expensive, as lawyers charge by the hour. With debentures, the legal work is generally simpler and less time-consuming, so
the fees are lower.

3. No need for underwriters: When a company issues new shares, it often needs to hire underwriters to help sell them to
investors. Underwriters charge fees for their services, which can be significant. With debentures, there is no need for
underwriters, as they are typically sold directly to investors.

Of course, there are exceptions to this general rule. In some cases, issuing shares may be cheaper than issuing debentures. For
example, if a company has a large number of existing shareholders who are willing to buy new shares, it may be able to issue
them without incurring significant costs.

Overall, however, debentures are usually cheaper to issue than shares due to the lower administrative and legal costs involved.

22. What do you understand by redemption of debentures ?

 Ans) Definition: Redemption of debentures refers to the process of repaying the principal amount or face value of the
debentures to the debenture holders by the issuer.

 Maturity Date: Debentures have a specified maturity date, which is the date on which the issuer is obligated to repay the
debenture holders.

 Repayment of Principal: Upon reaching the maturity date, the issuer is required to return the original investment
amount, also known as the principal or face value, to the debenture holders.

 Timeframe: The redemption of debentures typically occurs at the end of the debenture's term, which can range from a
few years to several decades, depending on the terms of the debenture.

 Methods of Redemption: Debentures can be redeemed in different ways, such as through a lump sum payment of the
entire principal amount or through installment payments over a specified period.

 Interest Payments: In addition to the repayment of the principal, the issuer may also make periodic interest payments
to the debenture holders throughout the life of the debenture, as per the terms of the debenture agreement.

 Investor Benefits: The redemption of debentures provides assurance to the debenture holders that their investment will
be repaid at the specified maturity date, offering a level of security and fulfilling the contractual obligation of the
issuer.

23. Explain the different ways to redeem debentures.

Ans) Redemption Reserve Methods

Debentures can be redeemed in several different ways. For bookkeeping purposes, each approach is handled differently. It is
possible to place these methods into the following buckets:

Lump-sum Method
After the maturity term, the corporation will make a single redemption payment in full to the holder of the debenture. The
principal amount and maturity date will be agreed upon during debenture issuance. Since the corporation knows the maturity date,
it can plan accordingly. In addition, this debenture amount received in lump sum includes the cash held in the debenture's
redemption reserve account.

Installment Method
In this form of debenture redemption, the borrowed funds are repaid in a series of payments, either regularly or irregularly,
depending on the rescue of the debenture above.

Purchasing Method
Market participants are eager to buy the debentures these corporations and organisations issued. They may also be terminated
instantly, allowing the corporation to extend the debenture's term until its repayment is within its means.
In addition, the corporation may increase its income by purchasing debentures on the open market at a discount, which reduces the
total redemption payment.

Conversion Method
Conversion to a different debenture or stock in the issuing firm is an additional perk of redeemable debentures. As part of the
debenture's issuing process, the holder is informed of the terms and circumstances under which the debenture may be converted.
Convertible debentures are the word used to describe this kind of debt instrument. At par, at a discount, or at a specified premium,
the company can issue new equity shares in exchange for such debentures or issue new debentures.

A company can redeem its debentures by at least 15% of its face value during the investment year if the firm is investing in
designated securities under Rule 18 (7) of the Companies Share Capital and Debenture Rules 2014. This must be completed by April
30 of the maturity year. Finally, businesses must remember that the DRR account may be established at any Indian bank
recognized by the Reserve Bank of India.

Or
Some of the different ways to redeem debentures are as follows--
 Full Redemption: Full redemption means that the company repays the entire principal amount of the debentures to the
debenture holders on the maturity date. This is the most common way of redeeming debentures.
 Call or Early Redemption: Sometimes, a company may have the option to call back or redeem debentures before the
maturity date. The company repays the debenture holders before the scheduled maturity date, according to the terms
and conditions mentioned in the debenture agreement.
 Partial Redemption: In some cases, a company may choose to redeem only a portion of the debentures issued. This means
that only a part of the principal amount is repaid to the debenture holders, while the remaining debentures continue to
exist until the maturity date.
 Conversion or Equity Redemption: Some debentures come with an option for conversion into equity shares of the issuing
company. If the debenture holders exercise this option, they can convert their debentures into shares of the company at a
predetermined conversion ratio
 Sinking Fund Redemption: A sinking fund is a provision created by the company to set aside money over time for the
purpose of redeeming debentures. The company contributes a fixed amount regularly to the sinking fund, and when the
debentures mature, the funds accumulated in the sinking fund are used to repay the debenture holders.

24. What do you understand by purchase in the open market for redemption of debentures ?

Purchase in the open market for the redemption of debentures refers to a method where the issuing company buys back its own
debentures from the open market to fulfill its redemption obligations. Here are simple and short points explaining this concept:
  Redemption Obligation: When a company issues debentures, it agrees to repay the principal amount to debenture holders
at a specified maturity date.
 Open Market Purchase: Instead of waiting for debenture holders to redeem their debentures, the company can actively
buy back its own debentures from the open market.
 Buying at Market Price: The company purchases the debentures at the prevailing market price, which may be higher or
lower than the face value of the debentures.
 Fulfilling Redemption: By purchasing debentures in the open market, the company can fulfill its redemption obligation
without relying solely on debenture holders to exercise their redemption rights.
 Flexibility: This method provides flexibility to the company as it can redeem debentures gradually or as per its financial
capacity.
 Price Considerations: The company may strategically choose to buy back debentures when the market price is lower,
allowing them to save money on the redemption process.
 Potential Benefits: Purchasing debentures in the open market can have potential benefits such as reducing the total
outstanding debentures, improving the company's financial position, and increasing the confidence of investors.

These points summarize the concept of purchasing debentures in the open market for redemption in a simple and concise manner.

25. Equity shares were issued – Rs 10 on issue ,Rs 10 on allotment , Rs 10 on first call and Rs
10 on final call- journalise.

Particular Amount
On issue: Rs10000
Equity Share Capital Account ……Dr. Rs10000
To Share Application Account…….. Cr.
(Being the share applications received)
On allotment: Rs10000
Share application a/c….dr. Rs10000
To Share allotment a/c……cr.
(Being the shares applications amount transferred to the share allotment a/c)
On first call: Rs10000
Share allotment a/c……dr. Rs10000
To shares first call a/c.....cr.
(Being the company made the first call for the allotted shares)
On final call: Rs10000
Shares first call a/c….dr. Rs10000
To shares final call a/c……cr.
(Being the company made the final call for the payment of shares)

26. What do you understand by oversubscription of shares ?

ANS)
Oversubscription of shares occurs when the number of shares applied for by investors exceeds the number of shares available
for allotment. Here's a simple and concise explanation of oversubscription:
 Demand Exceeds Supply: When a company offers shares for subscription, investors express their interest by applying for
a certain number of shares.
 Limited Availability: The company sets a specific number of shares to be issued based on its requirements and regulatory
guidelines.
 Higher Demand: If the total number of shares applied for by investors exceeds the available shares, it results in
oversubscription.
 Allotment Ratio: In cases of oversubscription, the company needs to determine how to allocate shares among the
 applicants. This is usually done through an allotment ratio.
 Pro-Rata Allotment: The allotment ratio ensures that all investors receive a fair share based on the proportion of shares
they applied for relative to the total oversubscribed amount.
 Refunds: Investors who applied for more shares than they are allotted may receive a refund for the excess amount paid.
 Sign of Investor Confidence: Oversubscription is often considered a positive sign as it indicates strong investor interest in
the company and its shares.
These points provide a simplified understanding of oversubscription, highlighting the situation when the demand for shares
exceeds the available supply and the subsequent allocation process.

27. What is minimum subscription ?

ANS)
Minimum subscription refers to the minimum amount of shares or the minimum percentage of shares that must be subscribed to
and paid for by investors in an initial public offering (IPO) or a rights issue. A simplified explanation of minimum subscription:
 Offering Requirement: When a company decides to raise capital by issuing shares to the public, it sets a minimum
subscription requirement.
 Regulatory Compliance: Regulatory authorities often set guidelines requiring companies to ensure a minimum level of
subscription before the shares can be issued.
 Minimum Amount or Percentage: The minimum subscription can be defined as a specific monetary value (e.g., Rs 10,000)
or as a percentage of the total shares offered (e.g., 90% of the total shares).
 Investor Participation: Investors interested in purchasing shares in the offering need to meet the minimum subscription
requirement.
 Conditions for Proceeding: If the minimum subscription is not met, the company may have the right to cancel the
offering or take other necessary actions as per regulatory provisions.
 Risk Mitigation: The minimum subscription requirement acts as a safeguard for both the company and investors,
ensuring a certain level of investor participation and reducing the risk of under-subscription.
 Proceeding with the Offer: If the minimum subscription is met or exceeded, the company proceeds with the share
issuance, and the subscribed shares are allotted to the investors.

These points outline the concept of minimum subscription, emphasizing its significance in ensuring a minimum level of investor
participation and regulatory compliance in share offerings.

28. Draw up a format of the Income and expenditure account ?

ANS)
Income and Expenditure A/c for the Year Ended……
Expenditure(dr.) amount Income(cr.) Amount
To Consumable Materials Xx By Subscription Xx
To Salary And Wages Xx By Grants Received Xx
To Honarium Xx By Entrance Fees Xx
To Repairs Xx By General Donations Xx
To Entertainment Expenses Xx By Interest On Deposits Xx
To Postage Xx By Dividend Xx
To Printing And Stationery Xx By Collection For Shows And Events
To Housing Rent Xx By Profit Of Sale Of Fixed Assets Xx
To Municipal Tax Xx By Rent Received Xx
To Insurance Xx By Receipts Of Sales Xx
To Depreciation Of Fixed Assets Xx By Miscellaneous Incomes Xx
To Audit Fees Xx Xx
To Miscellaneous Xx Xx
To Surplus(Excess Of Income Over Expenditure) Xx By Deficit (Excess Of Income Over Expenditure) Xx
29. Differentiate between receipt payments and a cash book.
ANS)

Basis Receipts and Payments Cash Book

1. Basis It is prepared from cash book in summarised from It is prepared on the basis of each cash receipt
and cash payment transaction.

It has receipts and payments side. the left one is

2. Sides receipts and the right one is payment. It has debit and credit sides

It is prepared at the end of accounting as a

3. Period summarised form of the cash book. It is prepared on daily basis.

4. Ledger Folio
Column It has no Ledger Folio columns It has ledger Folio columns.

5. Part of Double It is not part of a double-entry system. It is It is prepared following double entry system
Entry System merely a summary of cash book of accounting.

It is prepared by all organizations whether

6. Institutions It is prepared by Not for profit organization (NPO)
profit or non-profit.

30. How would you treat subscription in a income and expenditure account ?

ANS)
When recording subscriptions in an Income and Expenditure Account, they are typically treated as income. Subscriptions are treated
as follows-
 Nature of Subscriptions: Subscriptions represent the funds received from individuals or entities who have subscribed to
become members or supporters of the organization.
 Categorizing as Income: Subscriptions are considered as income for the organization as they contribute to its financial
resources.
 Recording in the Income Section: In the Income and Expenditure Account, subscriptions are recorded as a separate revenue
category under the Income section.
 Amount of Subscriptions: The total amount of subscriptions received during the accounting period is recorded under the
respective revenue category.
 Subscription Revenue: Subscriptions are added to other revenue sources such as donations, grants, program fees, etc., to
calculate the Total Income.
 Impact on Surplus/(Deficit): The total subscriptions received contribute towards generating a surplus (income exceeding
expenses) or reducing a deficit (expenses exceeding income) for the accounting period.
 Reporting and Analysis: The Income and Expenditure Account provides a summary of all the income sources, including
subscriptions, allowing the organization to assess its financial performance.

31. What accounts would you draw up for a GYM .Explain the various items that would appear in
it .
ans)

Revenue Accounts:
a. Membership Fees: This account records the income received from gym members for their subscriptions.
b. Personal Training Fees: Tracks the revenue earned from providing personal training services to members.
c. Group Fitness Class Fees: Records the income generated from group fitness classes offered by the gym.
d. Retail Sales: Tracks the revenue from selling merchandise such as gym apparel, supplements, etc.
e. Other Services: This account includes any additional revenue streams such as locker rentals, towel rentals, etc.
 Expense Accounts:
a. Rent and Lease Expenses: Tracks the rental or lease payments for the gym premises.
b. Salaries and Wages: Records the expenses related to paying staff members, trainers, and instructors.
c. Utilities: Includes expenses for electricity, water, heating, and other utility bills.
d. Maintenance and Repairs: Tracks expenses related to maintaining and repairing gym equipment and facilities.
e. Insurance: Records expenses for insurance coverage to protect the gym and its assets.
f. Marketing and Advertising: Tracks expenses for promotional activities, advertisements, and marketing campaigns.
g. Administrative Expenses: Includes general administrative costs such as office supplies, software subscriptions, etc.
h. Equipment Purchases: Records the cost of purchasing new gym equipment.
i. Professional Fees: Includes expenses for hiring professionals like accountants or legal advisors.

Asset Accounts:
a. Gym Equipment: Tracks the value of gym equipment owned by the business.
b. Cash/Bank Accounts: Records the cash and bank balances of the gym.
c. Accounts Receivable: Tracks any outstanding payments due from members or clients.

Liability Accounts:
a. Accounts Payable: Records any outstanding payments owed by the gym to suppliers or vendors.

These accounts cover the various financial aspects of a gym, enabling proper tracking and management of income, expenses, assets,
and liabilities. It's important to consult with an accountant or financial professional to tailor these accounts to the specific needs
and operations of the gym.

32. . A ltd issues shares –payable Rs 25 on application , Rs 25 on allotment , Rs 25 on 1st Call

and Rs 25 of final call. Journalise.

Ans)
Particulars Amount
On Application:
Share Application Account ……Dr. Rs25000
To Share Capital Account……. Cr. Rs25000
(being share application received)
On Allotment:
Share Application Account……… Dr. Rs25000
To Share Allotment Account ……….Cr. Rs25000
(being the shares amount transferred to share allotment account)
On 1st Call:
Share Allotment Account……….. Dr. Rs25000
To share 1st Call Account ……..Cr. Rs25000
(being the first call made for the payment of allotted shares)
On Final Call:
1st Call Account ……Dr. Rs25000
To Final Call Account……. Cr. Rs25000
(being the final call made for payment on the shares)

33.
.Simmons ltd issued 12,000 12% debentures of Rs 100 each at par payable in full on
application by 12thApril 2017.Application were received for 15,000 Debentures .Debentures
were allotted on 17th April 2017.Excess money was refunded on the same date .You are
required to pass necessary journal entries( including cash transactions ) in the books of the
company and also show the ledger accounts .
date particulars Amount

12h april,2017 Bank Account (15,000 debentures x Rs100) …..Dr. Rs15,00,000

To Debenture Application Account ……Cr. Rs15,00,000
(being the applications received)
17th April 2017 Debenture Application Account…….. Dr. Rs12,00,000
To Debenture Allotment Account…….. Cr. Rs12,00,000
(being the applications allotted)
17th April 2017 Bank Account (3,000 debentures x Rs100) ……Dr. Rs3,00,000
Debenture Application Account …….Cr. Rs3,00,000
(being remaining 3,00,000 debentures refunded to the applicants)

Bank a/c
date particulars l.f Amount(Dr.) date particulars l.f amount
12/04/2017 To Debenture 15,00,000 17/04/2017 By Refund of Excess 3,00,000
Application Money
17/04/2017 By Allotment 12,00,000

Debenture Application a/c

date particulars l.f Amount(dr.) date particulars l.f Amount(cr.)
12/04/2017 To Bank 15,00,000 17/04/2017 By Allotment 12,00,000
17/04/2017 By Refund of Money 3,00,000

Debenture allotment a/c

Date particulars l.f Amount(dr.) date particulars l.f Amount(cr.)
17/04/2017 To Debenture 12,00,000
Application

34. What is meant by forfeiture of shares – explain with suitable examples .

Ans)
Forfeiture of shares refers to the cancellation or seizure of shares by a company due to the non-payment of the required amount
by shareholders. When a shareholder fails to pay the money owed on shares within the specified timeframe, the company has the
right to forfeit those shares. Here's a simplified explanation of forfeiture of shares with suitable examples:

 Non-payment of Share Calls: Shareholders are typically required to make payments in multiple installments, known as
share calls. If a shareholder fails to pay the amount due for a particular call, the company may initiate the forfeiture
process.
 Notification of Forfeiture: The company sends a notice to the shareholder informing them of the pending forfeiture of
their shares. The notice specifies the outstanding payment amount, a deadline for payment, and the consequences of non-
compliance.
 Shareholder Response: The shareholder has an opportunity to rectify the non-payment by making the required payment
within the given timeframe. If the payment is made, the forfeiture process is halted, and the shares are retained.
 Forfeiture Proceedings: If the shareholder does not comply with the notice and fails to make the payment within the
specified timeframe, the company proceeds with the forfeiture of the shares.
 Cancellation of Shares: The company cancels the forfeited shares and removes the shareholder's ownership rights. These
shares are no longer considered valid and do not hold any value or voting rights.
  Amounts Paid on Forfeited Shares: The company may have the right to retain any amounts previously paid by the
shareholder on the forfeited shares. These amounts are often referred to as "forfeiture money" and can be utilized by
the company for various purposes.
 Reissuing Forfeited Shares: The company has the option to reissue the forfeited shares to new or existing shareholders.
These shares are typically offered for sale at market value or through a new share issuance process.

Example: Let's say ABC Ltd issued 1,000 shares with a face value of Rs 10 each. The shareholders were required to pay the amount
in three installments of Rs 3 per share, with the first call due on a specified date. One of the shareholders, Mr. X, fails to pay
the first call amount of Rs 300 within the prescribed timeframe.
In this case:
 ABC Ltd sends a notice of forfeiture to Mr. X, stating that his shares will be forfeited if he fails to pay the outstanding
amount within a specific deadline.
 If Mr. X does not make the payment, ABC Ltd proceeds with the forfeiture process.
 The company cancels Mr. X's 30 shares (Rs 300/Rs 10 per share) and removes his ownership rights.
 ABC Ltd may retain any amounts previously paid by Mr. X on the forfeited shares.
 The company has the option to reissue the forfeited shares to other shareholders or offer them for sale.
 It's important to note that the specific procedures and legal requirements for forfeiture of shares may vary by
jurisdiction and the company's articles of association. Consulting legal and financial professionals is advised for accurate
guidance in such matters.

35. What are the items that appear on the asset side of the balance sheet ?

Ans)
Current Assets:
 Cash and Cash Equivalents: Physical cash, bank account balances, and short-term investments easily convertible to cash.
 Accounts Receivable: Amounts owed to the company by customers or clients for goods or services provided.
 Inventory: Value of goods held for sale or raw materials used in the production process.
 Prepaid Expenses: Payments made in advance for future services or goods, such as prepaid insurance or rent.
Investments:
 Marketable Securities: Short-term investments in stocks, bonds, or mutual funds that can be easily sold.
 Long-Term Investments: Investments held for an extended period, such as shares in other companies or properties.
Property, Plant, and Equipment (PPE):
 Land: Value of owned land.
 Buildings: Cost of owned office spaces, factories, or warehouses.
 Machinery and Equipment: Value of equipment and machinery used in the company's operations.
 Vehicles: Value of vehicles used for business purposes.
Intangible Assets:
 Goodwill: The value associated with the reputation, customer loyalty, or brand recognition of the company.
 Intellectual Property: Patents, trademarks, copyrights, or other intangible assets owned by the company.
 Software: The cost or value of computer software developed or acquired for business use.
Other Assets:
 Loans Receivable: Amounts owed to the company by individuals or other entities as loans.
 Deferred Tax Assets: Tax benefits that can be utilized in future tax periods.
 Non-Current Assets Held for Sale: Assets expected to be sold within one year.
It's important to note that the specific assets included on a balance sheet can vary based on the nature of the business or
individual. Additionally, assets are typically listed in order of liquidity, meaning the ease with which they can be converted into
cash.

36. Why do we say asset and liability side of baance sheet but not debit and credit side of the
balance sheet ?
ans)
We use the terms "asset side" and "liability side" when referring to the sections of a balance sheet to distinguish between the
different types of items listed. Here's an explanation in simple terms:
Nature of the Balance Sheet:
 A balance sheet is a financial statement that provides a snapshot of an entity's financial position at a specific point in
time.
 It consists of two main sections: the asset side and the liability side, which represent different categories of items.
Assets and Liabilities:
 Assets represent resources owned by the entity that provide future economic benefits.
 Liabilities represent the entity's obligations or debts to external parties.
Balance Sheet Structure:
 The asset side lists all the assets owned by the entity, including cash, investments, property, and other valuable
resources.
 The liability side lists all the liabilities owed by the entity, such as loans, accounts payable, and other obligations.
Classification and Organization:
 Using the terms "asset side" and "liability side" helps to organize and classify the items on the balance sheet clearly.
 It provides a logical and structured presentation of the entity's resources and obligations.
Debits and Credits:
 Debits and credits are accounting terms used to record transactions in the general ledger.
 They are used to identify increases or decreases in specific accounts, following the double-entry bookkeeping system.
 While debits and credits play a crucial role in recording transactions, they are not used to describe the sections of a
balance sheet.
Different Perspectives:
 The asset and liability sides of the balance sheet focus on the ownership of resources and obligations to external parties.
 They provide a comprehensive view of the entity's financial position from both the resource and obligation perspectives.
Accuracy and Consistency:
 Using consistent terminology, such as "asset side" and "liability side," helps to avoid confusion and ensure clear
communication in financial reporting.
In summary, we use the terms "asset side" and "liability side" to describe the sections of a balance sheet because they focus on the
ownership of resources and obligations to external parties. The terms provide a structured and organized representation of an
entity's financial position. On the other hand, "debit" and "credit" are accounting terms used to record specific transactions in the
general ledger and do not refer to the sections of the balance sheet.

37. Can fully paid up shares be forfeited ?

Ans)
No, fully paid-up shares cannot be forfeited. Here's a simple explanation in short points:
 Fully Paid-Up Shares: Fully paid-up shares are shares for which the shareholders have paid the entire face value or
subscription price.
 Completion of Payment: When shareholders have fully paid for their shares, they have fulfilled their financial
obligation to the company.
 Ownership Rights: Fully paid-up shareholders have complete ownership rights and are entitled to all the benefits
associated with their shares, such as voting rights and dividends.
 Forfeiture and Non-Payment: Forfeiture typically applies to shares that are not fully paid. It is the process of canceling
or seizing shares due to non-payment or non-compliance with payment requirements.
 Consequences of Non-Payment: If a shareholder fails to pay the required amounts on their shares, the company may
initiate the forfeiture process and cancel those shares.
  Partially Paid Shares: Shares that have not been fully paid are at risk of forfeiture if the shareholder does not make
the required payments within the specified timeframe.
 Protection of Fully Paid-Up Shares: Fully paid-up shares are protected from forfeiture because the shareholder has
fulfilled their financial obligation to the company.
 Shareholder Rights and Liabilities: Once shares are fully paid, shareholders are not liable for any further payments, and
their ownership rights are secure.
 Transferability: Fully paid-up shares can be freely transferred or sold by the shareholder to others without any
restrictions.
In summary, fully paid-up shares cannot be forfeited as shareholders have fulfilled their financial obligations to the
company. They retain their ownership rights, entitlements, and are protected from any cancellation or seizure of shares.

38. Can dividends be paid out of calls in advance ?

Ans)
No, dividends cannot be paid out of calls in advance. Here's a simplified explanation in short points:
 Dividends: Dividends are the portion of profits that a company distributes to its shareholders as a return on their
investment.
 Purpose of Dividends: Dividends are typically paid to reward shareholders for their ownership in the company and to
share the company's profits.
 Sources of Dividends: Dividends are paid out of the company's distributable profits, which are the accumulated profits
available for distribution to shareholders.
 Calls in Advance: Calls in advance are payments made by shareholders to the company before the due date for payment of
shares.
 Nature of Calls in Advance: Calls in advance are considered a liability of the company and not part of the distributable
profits.
 Legal Restrictions: Laws and regulations governing companies usually prohibit the payment of dividends out of calls in
advance.
 Protection of Creditors: The restriction on paying dividends out of calls in advance is in place to protect the interests of
the company's creditors, who have a prior claim on the company's assets.
 Priority of Payment: Creditors must be paid first, and only the remaining distributable profits can be used for dividend
payments.
 Prudent Financial Management: Paying dividends out of calls in advance could jeopardize the company's financial
stability and ability to meet its obligations.
 Shareholder Rights: Shareholders have the right to receive dividends, but only from the company's distributable profits.
In summary, dividends cannot be paid out of calls in advance as calls in advance represent a liability of the company and are not
part of the distributable profits. Dividends can only be paid from the company's accumulated profits available for distribution
after meeting all legal obligations and protecting the interests of creditors.

39. What is capital reserve and reserve capital ?

Ans)
Capital Reserve:
 Capital Reserve Definition: Capital reserve refers to a reserve created by a company out of its capital profits or non-
operating gains.
 Purpose of Capital Reserve: The primary purpose of capital reserve is to set aside funds for specific purposes, such as
future investments, acquisitions, or to meet contingencies.
 Source of Capital Reserve: Capital reserve is typically created through non-operational activities like the sale of fixed
assets, revaluation of assets, or profits generated from the sale of shares or debentures.
 Capital Nature: Capital reserve is a part of the company's capital and is not available for distribution as dividends to
shareholders.
 Utilization of Capital Reserve: Capital reserve can be used for various purposes, such as writing off capital losses,
funding share buybacks, or adjusting against future losses.
 Disclosure in Financial Statements: Capital reserve is typically disclosed separately in the company's financial statements
 to provide transparency about its creation and utilization.

Reserve Capital:
 Reserve Capital Definition: Reserve capital refers to the portion of a company's authorized share capital that is not
issued and remains unallocated for future use.
 Purpose of Reserve Capital: Reserve capital serves as a potential source of capital that the company can tap into in the
future when needed, without requiring additional authorization.
 Flexibility and Expansion: Reserve capital allows the company to expand its operations or raise additional capital without
going through the lengthy process of increasing the authorized share capital.
 Authorization and Shareholder Approval: Reserve capital is authorized by the company's memorandum of association and
requires approval from shareholders before being utilized.
 Conversion into Issued Capital: Reserve capital can be converted into issued share capital through a resolution passed by
the shareholders.
 Legal Protection: Reserve capital provides legal protection to the company, ensuring that it has the flexibility to raise
additional capital when necessary.
 Disclosure in Financial Statements: Reserve capital is typically disclosed in the company's financial statements, indicating
the amount of authorized but unissued share capital.

40. Which are the items that appear in the liability side of the balance sheet ?

Ans) The liability side of a balance sheet represents the obligations and debts of a company or individual. It includes various items
that reflect the sources of financing and claims against the entity. Some common items that appear on the liability side of a
balance sheet:

Current Liabilities:

 Accounts Payable: Amounts owed by the entity to suppliers, vendors, or creditors for goods or services received.
 Short-Term Loans: Borrowings or debts due within one year.
 Accrued Expenses: Expenses incurred but not yet paid, such as salaries, interest, or taxes.
Long-Term Liabilities:
 Long-Term Loans: Borrowings or debts due beyond one year.
 Bonds Payable: Long-term debt securities issued by the company to raise funds.
 Deferred Tax Liabilities: Future tax obligations arising from temporary differences between accounting and tax rules.
Shareholder's Equity:

 Share Capital: The amount of capital contributed by shareholders through the issuance of shares.
 Retained Earnings: Accumulated profits or losses from previous periods that have not been distributed as dividends.
 Reserves and Surplus: Funds set aside for specific purposes, such as general reserves, contingency reserves, or dividend
reserves.
Provisions:

 Provision for Taxes: Estimated tax liabilities that are set aside for future payment.
 Provision for Employee Benefits: Reserves for employee-related obligations like pensions, gratuity, or leave encashment.

Other Liabilities:
 Deferred Revenue: Payments received in advance for goods or services yet to be delivered.
 Contingent Liabilities: Potential obligations that may arise from uncertain future events, such as pending lawsuits or
guarantees.
It's important to note that the specific liabilities included on a balance sheet can vary based on the nature of the business or
individual. Additionally, liabilities are typically listed in order of maturity, with current liabilities due within one year and long-
term liabilities due beyond one year.