Q.1
Why are assets revalued at the time of admission of a
partner?
Solution
Assets
are revalued at the time of admission of a partner because any profit or loss
on revaluation of assets belong to old partners and not to the new partner.
Q.2
The
Accountant of the firm has debited the Profit and Loss Appropriation A/cfor rent paid to a
Partner. Is the treatment given by the Accountant correct? Give reason in
support of your answer.
Solution
The
accounting treatment given by the Accountant for rent paid to a partner is
incorrect. It is an expense/charge incurred for use of property and hence
should be debited to the Profit and Loss Account.
Q.3
What are calls-in-arrear?
Solution
When
a shareholder fails to pay called-up allotment and/or call money, money not so
paid is known as calls-in-arrear.
Q.4
What is meant by ‘issue of shares at par’ ?
Solution
When shares are issued for an amount equal to the face value
of a share, they are said to be issued at par.
Q.5
State
the meaning of "secured debentures".
Solution
Secured
debentures refer to the debentures which are secured either on a particular
asset of the issuer company (called fixed charge) or on all the assets of the
company in general (called floating charge).
Q.6
Give any two points of distinction between a share and a
debenture.
Solution
- A share is a part of the capital of the company whereas a
debenture is a part of loan of the company.
- Shares cannot be converted into debentures whereas debenture
can be converted into shares.
Q.7
State
the exceptions to the creation of Debenture Redemption Reserve as per SEBI
Guidelines.
Solution
SEBI
guidelines would not apply :
- To
Infrastructure companies.
- A
company issuing debentures with a maturity period of not more than 18 months.
- For
debentures issued by All India Financial Institutions regulated by RBI.
- For
debentures issued by Banking companies.
- For
Privately placed debentures
Q.8
A,
B and C are partners. They have omitted interest on capital @ 10% p.a. forthree
years ended 31st March, 2009. Their fixed capitals on which interest was to be calculated
throughout were:.
Give
the necessary adjusting journal entry with working notes.
Solution
Working
Notes
(A)
10/100
X 1,00,000 = 10,000 X 3 years = 30,000
(B)
10/100
X 80,000 = 8,000 X 3 years = 24,000
(C)
10/100
X 70,000 = 7,000 X 3 years = 21,000
Total
= 75,000
(ii)
Statement showing Adjustment to be made :
Q.9
Sweera,
Rishabh and Sumedha were three partners sharing profits equally. On 1st April,
2015, Sweera retired and Arushi was admitted for 1/4th share in the profits
contributing a capital of Rs. 2,00,000. On that date the assets and liabilities
of the firm were Rs. 6,60,000 and Rs. 3,00,000 respectively. The firm decided
to donate 10% of their profits to the charitable hospitals in order to improve
the medical facilities of the country. Pass the necessary journal entry for
goodwill and identify the value involved.
Solution
Working
Notes:
1.
2.
CA/culation
of hidden goodwill
Total
Capital of firm as per Arushi's capital = 4 x 2,00,000 = Rs. 8,00,000.
Actual
Capital of the firm = Net Assets + Arushi's Capital
=
(6,60,000 - 3,00,000) + 2,00,000
=
Rs. 5,60,000.
Firm's Goodwill = Total Capital - Actual Capital
=
8,00,000 5,60/000
=
Rs. 2,40,OOO.
Sweera's share of Goodwill = 1/3 x 2,40,000
=
80,000
Values
highlighted
Social
Responsibility.
Care towards the society
Q.10
X, Y and Z were sharing profits and losses in the ratio of
5: 3 : 2. They decided to share future profits and losses in the ratio of 2 : 3
: 5 with effect from 1.4.2014. They decided to record the effect of the
following without affecting their book values :.
(i) Profit and Loss Account =Rs. 24,000.
(ii) Advertisement Suspense Account = Rs. 12,000.
Solution
Old
ratio of X, Yand 2 = 5 : 3 : 2
New
ratio of X, Yand Z 2: 3 : 5
Sacrifice (or Gain) =Old ratio - New ratio
X = 5/10 – 2/10
= 3/10 (sacrifice)
Y = 3/10 – 3/10
= Nil (neither gain or sacrifice)
Z = 2/10 -5/10
= (-3/10) (gain)
Balance in Profit and Loss A/c =Rs. 24,000.
Balance in Advertisement Suspense A/c =Rs. 12,000.
Total Profit to be adjusted = Rs. 12,000.
Amount payable by 2 to X = Rs. 12,000
X 3/10.
= Rs. 3,600.
Q.11
A business has earned average profits of Rs. 1,00,000during
the last few years and the normalRate of return in similar business is 10%.
Find out the value of goodwill by.
(i) capitalisation of super profit method and
(ii) super profit method if the goodwill is valued at 3
years purchase of super profit.
The assets of the business were Rs. 10,00,000and its
external liabilities Rs. 1,80,000.
Solution
Assets
of the business = Rs.
10,00,000.
Liabilities
of the business = Rs.
1,80,000.
Capital
employed =Assets - Liabilities
=Rs. 10,00,000 - Rs. 1,80,000.
=
Rs. 8,20,000.
Normal
rate of return = 10%
Normal Profit = Capital Employed X Normal Rate of Return/100
= 82,000 X 10/100
Average Profits = Rs. 1,00,000
Super Profit = Average Profit - Normal Profit
=
Rs. 1,00,000 - Rs. 82,000.
=
Rs. 18,000.
Goodwill as per capitalisation method
Goodwill = Super Profits X 100/Normal Rate of Return
= 18,000 X 100/10
= Rs. 1,80,000.
Goodwill as per super profit method
Goodwill
= Super Profits X Number of Years of Purchase
=
18,000 x 3
=Rs. 54,000.
Q.12
What is meant by debenture? State any two characteristics of
debenture.
Solution
Debenture is an acknowledgement of a debt given under the
seal of the company and containing a contract for the repayment of the
principal sum at a specified date and for the payment of interest (usually half
yearly) at a fixed rate per cent until the principal sum is repaid. Following
are the characteristics of a debenture:.
(i) Loan -
Debenture represents loan to the company. It implies that a debentureholder is
a lender or creditor of the company and not the owner.
(ii) Interest - A
debentureholder receives interest at a given (fixed) rate of interest
regularly. Such interest is a charge to profit.
Q.13
A,
Band C were
partners sharing profits in the ratio of 6 : 4 : 5. Their capitals were A Rs. 1,00,000/-, B - Rs. 80,000 and C - Rs. 60,000. On 1st April
2014, B retired from the firm and the new profit sharing ratio between A and C
was decided as 11 : 4. On B's retirement the goodwill of the firm was valued at
Rs. 1,80,000. Showing your calculations
clearly pass necessary journal entry for the treatment of goodwill on B's retirement.
Solution
Existing
profit sharing ratio of A, Band C = 6 : 4 : 5
New
profit sharing ratio of A and C = 11 : 4
Gaining Ratio = New Ratio - Existing Ratio
A's Gain = 11/15-6/15 = 5/15
C's Gain = 4/15-5/15 = -1/15
Since C's gain is (- )1/15, it implies that C is sacrificing 1/15 portion
in favour of A.
C's sacrifice = 1/15
B's sacrifice = 4/15
Sacrificing Ratio of Band C = 4 : 1
Goodwill of the firm Rs. 1,80,000.
Goodwill to be paid by A = Rs. 1,80,000 X 5/15 = Rs. 60,000.
Goodwill to be claimed by B =Rs. 60,000 X 4/5 =Rs. 48,000.
Goodwill to be claimed by C = Rs. 60,000
X 1/5 = Rs. 12,000.
Q.14
Kushal,
Kumar and Kavita were partners in a firm sharing profits in the ratio of 3 : 1
: 1. On1st April, 2014 their Balance Sheet was as follows:.
On
the above date, Kavita retired and the following was agreed:
- Goodwill
of the firm was valued at Rs. 40,000. I .
- Land
was to be appreciated by 30% and building was to be depreciated by Rs.
1,00,000.
- Value
of furniture was to be reduced by Rs. 20,000.
- Bad
debts reserve is to be increased to Rs. 15,000.
- 10%
of the amount payable to Kavita was paid in cash and the balance was
transferred to herLoan Account.
- Capitals
of Kushal and Kumar will be in proportion to their new profit sharing ratio.
Thesurplus/deficit, if any in their Capital Account will be adjusted through
Current Accounts.
Prepare
Revaluation Account, Partners' Capital Accounts and Balance Sheet of Kushal
andKumar after Kavita's retirement. .
Solution
Working Note:
Capital
of Kushal before adjustment = Rs. 3,63,000.
Capital
of Kumar before adjustment =Rs. 3,01,000.
Total
Capital = Rs. 6,64,000.
Kushal's
adjusted capital = 3/4 X 6,64,000 = Rs. 4,98,000.
Kumar's
adjusted capital = 1/4 X 6,64,000 = Rs. 1,66,000.
Q.15
Krishan
ltd. on 30th June, 2013 took over the Assets of Rs. 10,00,000 and liabilities
of Rs. 1,00,000 from Mohan Enterprises at an agreed consideration of Rs.
11,00,000. Krishan limited issued 11% Debentures of Rs. 100 each at a premium
of 10% in full satisfaction of purchase consideration. The Debentures were
redeemable on 31st March, 2015. The Company decided to create a DRR on 31st
March, 2014 and also decided to invest in 10% Government Securities to meet the
legal requirement. Give the journal entries for the issue and redemption of
debentures in the books of Krishan ltd. (Ignore TDS).
Solution
No
entry has been made for payment to Creditors as they have accepted Machinery in
full settlement of their claim.
Q.16
A,
Band C were
partners sharing profits in the ratio of 3 : 1 : 1. Their Balance Sheet as on
March 31st 2014, the date on which they dissolved their firm, was as follows:.
It
was agreed
that:
(a)
A
to take
over Bills Receivables at Rs. 800,
debtors amounting to Rs.
20,000 at Rs. 17,200 and the creditors
of Rs. 6,000 were to be paid by
him at this figure.
(b)
B
is to take over all stock
for Rs. 7,000 and some sundry
assets at Rs.
7,200
(being 10% less thanthe book value).
(c)
C
to take over remaining sundry assets at 90% of the book value and assume the
responsibilityof discharge of loan together with accrued interest ofRs.300. .
(d)
The
expenses of realisation were Rs. 270.
The
remaining debtors were sold to a debt collecting agency at 50% of the book
value. PrepareRealisation A/c, Partners Capital A/c and Cash A/c.
Solution
Working Notes :
(i)
Book value
of Sundry Assets - 17,000
Less;
Book value
of Sundry Assets Taken over by B (7,200 X 100/90) = 8,000
Book
value of Sundry Assets taken over by C = 9,000
Agreed
value of Sundry Assets taken over by C (90/100 X 9,000) = 8,100
(ii)
Book value of Debtors = 24,200
Less:
Book value
of Debtors taken over by A
= 20,000
Book
value of Debtors to be realised for cash = 4,200
Cash
realised from Debtors = 4,200 X 50/100 = 2,100
Q.17
X
Ltd.
invited applications for issuing 80,000 equity shares of Rs. 10 each at a premium of.
Rs.
2 per
share. The amount was payable as follows:.
- On
application Rs.
6
(including premium) per share.
- On
allotment Rs.
3 per share
and the balance on first and final call.
Applications
for 90,000 shareswere received. Applications for 5,000 shares were rejected and
pro-rata allotment was made to the remaining applicants. Over payments received
on application was adjusted towards sums due on allotment. All calls were made
and were duly received except the allotment and final call on 1,600 shares
allotted to Vijay. These shares were forfeited and the forfeited shares were
re-issued for Rs.
18,400
fully paid-up.
Pass
necessary Journal Entries in the books of the company.
Solution
Working
Notes :
(i) Ratio of shares applied and shares allotted
=
85,000 : 80,000
=
17 : 16
It
means that Vijay might have applied for
=
1600 X 17/16 = 17,00 shares
Amount
received from Vijay on application
=1,700
x 6 =Rs. 10,200.
Excess
application money adjusted to allotment
=Rs. 10,200 - Rs. [1,600 x 6] =Rs. 600.
(ii) Total amount due from Vijay on allotment
=Rs. 3 x 1,600 =Rs. 4,800.
Amount
payable by Vijay on allotment
=
Rs. 4,800 - Rs. 600 = Rs. 4,200.
(iii) Amount due on allotment = 2,40,000
Less:
Application
money transferred to share allotment = 30,000
Total
= 2,10,000
Less:
Amount not
paid by Vijay = 4,200
Amount received on allotment = 2,05,800
Q.18
What is meant by common-size statement?
Solution
Common-size
statement means a statement which expresses all items of a financial statement
as a percentage of some common base.
Q.19
Explain how Financial Statements Analysis ignores
qualitative elements.
Solution
Financial statements analysis ignores qualitative elements
because qualitative elements such as human resources, sales policy, market
conditions are not shown in financial statements. .
Q.20
Briefly explain the limitations of analysis of financial
statements.
Solution
The
following are the limitations of an analysis of financial statements:
(i) Limitations of financial statements –
The
financial statement analysis suffers from such limitations as financial
statements suffer. This ignores the qualitative elements like quality of
management and labour force, public relation etc.
(ii) Different accounting policies –
Different
firms may follow different accounting policies. This may create difficulty in
comparing the results of two companies.
(iii) Not free from bias –
In
many situations, the accountant has to make a choice out of various
available
alternatives. He may choose that alternative which may beneficial to the
company. In such case, the financial statements are not free from bias.
(iv) Ignores price level changes –
The
analysis of financial statements do not disclose the current worth of the business.
The financial statements of the company are prepared on cost principle.
Q.21
- Under
which type of activity will you classify 'Proceeds from sale of patents' while
preparing Cash Flow Statement?
- Under
which type of activity will you classify 'Refund of Income Tax received' while
preparing the Cash Flow Statement?
Solution
1. Investing Activity.
2. Operating Activity.
Q.22
Classify
the following into operating activity, investing activity and financing
activity :
Solution
- Operating
activity.
- Investing
activity.
- Investing
activity.
- Financing
activity.
Q.23
State
the sub-headings and headings under which the following items will be put as
per Schedule III of the Companies Act, 2013 :
- Discount
on Issue of Shares;
- Securities
Premium; and
- Unclaimed
dividend.
- Trade
Payables;
- Provision
for Tax;
- Preliminary
Expenses.
- Shares
Forfeited Account
- cheque
- Bank
Overdraft.
- Software
- Outstanding
Salaries
- Bills
Payables
Solution
