Q.1
When a liability is to be discharged by a partner, why is
his capital account credited?
Solution
Because the discharge of liability by a partner increases
the claim of partner against the firm.
Q.2
At the time of retirement of a partner, a Bill of Exchange
for Rs.
5,000
which was previously discounted with the banker was dishonored as the Drawee
had become insolvent and nothing could be realised from his estate. The
accountant seeks your advice on its treatment.
Solution
The
discounted Bill of Exchange which is dishonored is a liability that will have
to be met by the firm. This amount will be debited to Revaluation A/c at the
time of retirement of a partner.
Q.3
State
any two items of deduction that may have to be made from the amount payable to
retiring partner.
Solution
(i)
Loss on revaluation.
(ii)
Drawings
Q.4
Why is sacrifice ratio calculated?
Solution
The share of premium for goodwill of the new partner is
divided among old partners in their sacrificing ratio. For this purpose, calculation
of sacrificing ratio becomes necessary.
Q.5
Where
would you record 'Interest on Drawings' when capitals are fixed?
Solution
When
capitals are fixed, we would record "Interest on Drawings" in Partners'
Current Accounts.
Q.6
D Ltd. invited applications for issuing 10,00,000 equity
share of Rs. 10 each. The public applied for 8,55,000 shares. Can the company
proceed for the allotment of shares ? Give reason in support of your answer.
Solution
The company cannot proceeds for the allotment of shares
because subscription of the capital is less than 90% of the issued amount of
capital i.e., the minimum subscription is not received.
Q.7
ABCLtd,
forfeited 1,000 equity shares of Rs. 100 each for the non-payment of first call Rs. 20 per share and second
and final call of Rs.
25 per
share. State: .
- Can
these shares be re-issued?
- If
yes, state the minimum amount at which these shares can be re-issued ?
- If
these shares were re-issued at Rs. 50
per share fully paid-up, what will be the amount of Capital Reserve?.
Solution
(i) Yes, forfeited shares can be re-issued.
(ii) Amount collected on forfeited shares may
be the maximum discount which may be offered at the time of re-issue of
forfeited shares i.e., Rs. 55,000 (1,000 x 55).
Minimum amount at which shares can be re-issued = Face Value of Shares -
Maximum Discount
= 1,000 x 100 - 55,000 = 1,00,000 - 55,000
= Rs. 45,000.
(iii) Transfer to Capital Reserve
= Amount Forfeited - Discount allowed on reissue
=55,000 - (1,000 x 50) = 55,000 - 50,000
=Rs. 5,000.
Q.8
Aradhana
Ltd. issued 50,000 Equity shares of Rs. 10 each payable Rs. 4 on Application
and Allotment, Rs. 3 on First Call and Rs. 3 on Second and Final Call.
- All
shares were subscribed for by the public and duly allotted.
- When
the first call was made one shareholder holding 250 shares failed to pay the
call money whereas, another shareholder holding 1,200 shares paid the entire
balance along with the first call. .
The
Company maintains Calls-in Arrears and Calls-in-Advance A/c.Pass necessary
journal entries for both the calls.
Solution
Q.9
X,
Y and Z are partners sharing profits and losses in the ratio of 3:2:1. After
the final accounts have been prepared, it was discovered that interest on
drawings @ 5% p.a. had not been taken into consideration. The drawings of the
Partners were : X Rs. 15,000; Y Rs. 12,600; Z Rs. 12,000.Give the necessary
adjusting journal entry.
Solution
Working Notes : (Interest is to be calculated for six months only.)
Q.10
The
combined capital of Arun and Varun is Rs. 2,00,000 and the market rate of interest is 12%.
Annual salary to partners is Rs. 5,000
each. The profits for the last three years were Rs. 32,000; Rs. 45,000 and Rs. 55,000. Goodwill is to be valued at 2 years
purchase of the last three years' average super profits. calculate the goodwill
of the firm.
Solution
Normal Profit = Capital employed X Rate of return / 100
=
2,00,000 X 12 % = Rs. 24,000.
Average
profit = 32,000 + 45,000 + 55,000 / 3 = 1,32,000 / 3 = Rs. 44,000.
Salary
for Arun and Varun is Rs. 5,000 each.
Profit
after salary =44,000 - 10,000 =Rs. 34,000.
Super
Profit = Average Profit - Normal Profit=Rs. 34,000 - Rs. 24,000 =Rs. 10,000.
Goodwill
=Super Profit x No. of years purchase=10,000 x 2 =Rs. 20,000.
Goodwill
= Rs. 20,000.
Q.11
Nanda, Johan and Rosa are Partners sharing profits in the
ratio of 4:3:2. On 1st April 2014, Johan gave a notice to retire
from the firm. Nandan and Rosa decided to share future profits in the ratio of
1 : 1. The capital accounts of Nandan and Rosa after all adjustments showed a
balance of Rs. 43,000 and Rs. 80,500 respectively. The total amount to be paid
to John was Rs. 95,500. This amount was to be paid by Nandan and Rosa in such a
way that their capitals become proportionate to their new profit sharing ratio.
Pass necessary Journal entries in the books of the firm for the above transactions.
Show your working clearly.
Solution
Working Notes:
Desired capital of Nandan = 1/2 X Rs. 2,19,000 = 1,09,500.
Desired capital of Rosa = 1/2 X Rs. 2,19,000 = 1,09,500.
Amount
to be brought in by Nandan
=Rs. 1,09,500 - Rs. 43,000 =Rs. 66,500.
Amount to be brought in by Rosa = Rs. 1,09,500
- Rs.
80,500
= Rs.
29,000.
Q.12
'Panipat
Blankets Limited' are the manufacturers and exporters of blankets. The company
Decided to distribute 1,000 blankets free of cost to five of Kashmir which had
been damaged by the floods. It also decided to employ 100 young persons from
these villages in their newly established factory at Ludhiana in Punjab. To
meet the requirements of funds for its new factory, the company issued 1,00,000
equity shares of Rs.
10 each and
2,000, 9% debentures of Rs.
100 each to
the vendors of machinery purchased for Rs. 12,00,000.
Pass
necessary journal entries for the above transactions in the books of the
company. Also identify anyone value which the company wants to communicate to
the society.
Solution
(a)
(b) Values which the company wants to communicate to the society:
- Discharging
social responsibility.
- Generation
of employment opportunities in rural areas.
Q.13
Charu
and Harsha were partners in a firm sharing profits in the ratio of 3 : 2. On
1·4·2014 their Balance Sheet was as follows:.
On
the above date Vaishali was admitted for 1/4th share in the profits
of the firm on the following terms:
- (a)
Vaishali will bring Rs.
20,000 for
her capital and Rs.
4,000 for
her share of goodwill premium,.
- (b)
All debtors were considered good.
- (c)
The market value of investments was Rs. 15,000.
- (d)
There was a liability of Rs.
6,000 for
workmen compensation.
- (e)
Capital accounts of Charu and Harsha are to be adjusted on the basis of Vaishali's
capital by opening current accounts.
Prepare
Revaluation Account and Partners' Capital Accounts.
Solution
Working Notes :
(1)
Since
all the debtors have been considered good, there is no possibility of bad debt.
Henceprovision for bad debts is not required and provision for bad debts
(existing in the books) be written off through Revaluation Account.
(2) Investment fluctuation fund is maintained to cover the fall in market
value of investments.
3.
(4) Vaishali's share =1/4
Remaining
share= 1-1/4 =3/4
Cham's
share = 3/4 X 3/5 = 9/20
Harsha's
share = 3/4 X 2/5 = 6/20
New
profit sharing ratio of Cham, Harsha and Vaishali = 9/20 : 6/20 : 5/20 (1/4) =
9: 6 : 5
(5) Vaishali's capital for 1/4th share =Rs. 20,000
Desired
total capital of the firm =Rs. 20,000
x 4 =Rs. 80,000.
Charu's
capital = Rs.
80,000 X
9/20 = Rs. 36,000.
Harsha's
capital =Rs.
80,000 X
6/20 = Rs. 24,000.
(6)
Since
the existing total capitals of Cham and Harsha are more than the desired
capitals, the
difference
has been transferred to their current accounts (as required in the question).
Q.14
Punam
and Puja were partners sharing profits and losses in the ratio of 3:2. Inspite
of repeated losses they kept running the firm. The court ordered for the
dissolution of their partnership firm on 31St March, 2015. Puja took the responsibility of
realization. She was paid Rs.1,000
as commission for this service. Their Balance Sheet as on that date stood as
follows:.
Following
was agreed upon:
- Punamagreed
to take over furniture at 90% of the book value.
- Rs.
5,000 of debtors proved bad.
- Puja
took over Rs.30,000 worth of the
stock at Rs.22,800. The remaining
stock was sold at a loss of 10% Machinery was taken over by creditors in full
settlement of their claim.
- The
Bank Loan was paid along with interest of Rs.3,000.
- Other
liabilities were paid in full.
- The
expenses on realisation amounted to Rs.800.
Prepare
Realisation account, Partners' Capital accounts and Bank account, to close the
books of the firm. .
Solution
Q.15
(a) Sunrise Company Ltd.
has an equity of Rs. 10,00,000. The company earns aReturn investment of 15% on its
capital. The company needed funds for diversification. The finance manager had
the following options :.
- Borrow
Rs. 5,00,000 @ 15% p.a. from
a bank payable in four equal quarterly installments starting from the end of
the fifth year (ii) Issue Rs. 5,00,000,9%
Debentures of Rs.
100 each
redeemable at a premium of 10% after five years. To increase the return to the
shareholders, the company opted for option.
- Pass
the necessary journal entries for issue of debentures.
(b) Walter Ltd. issued Rs. 6,00,000, 8% Debentures of Rs. 100 each redeemable
after 3 years either by draw of lots or by purchase in the open market. At the
end of three years, finding the market price of debentures at Rs. 95 per debenture, it
purchased all its debentures for immediate cancellation. .
Pass
necessary journal entries for cancellation of debentures assuming the company
has sufficient balance in Debenture Redemption Reserve.
Solution
Q.16
L
and M share profits of a business in the ratio of 5:3. They admit N into the
firm for afourth share in the profits to be contributed equally by L&M. On
the date of admission,the Balance Sheet of L&M is as follows :.
Terms
of N‘s admission were as follows :
- N
will bring Rs. 25,000 as his capital.
- Goodwill
of the firm is to be valued at 4 years’ purchase of the average super profits
of the last three years. Average profits of the last three years are Rs.
20,000; while the normal profits that can be earned on the capital employed are
Rs. 12,000.
- Furniture
is to be revalued at Rs. 24,000 and the value of stock to be reduced by 20%.
Prepare
Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of the
firm after admission of N.
Solution
Working Note:
Q.17
Tanishq
Ltd. invited application for issuing 80,000 equity shares of Rs.10 each at a premium of Rs.2.50 each. The amount
was payable as follows:.
On
Application Rs.3 per share.
On
Allotment Rs.4.50 per share (including
premium).
On
First and Final Call balance amount.
Applications
for 1,70,000 shares were received. Applications for 10,000 shares were rejected
and money received from them was refunded. Shares were allotted on pro-rata
basis to the remaining applicants. Excess money received with applications was
adjusted towards sum due on allotment. Seema who had applied for 2,400 shares
failed to pay the allotment and call money and Ruchi who was allotted 2,000
shares failed to the money due on call. All the shares on which money was due
were forfeited. 2,400 forfeited shares were reissued @ Rs.8 per share fully paid
up, including all shares of Seema.
Pass the necessary journal entries in the books of the
company for the above transactions.
Solution
Q.18
State
with reason, whether "payment of cash to trade payables" will result
into inflow, outflow or no flow of cash.
Solution
Outflow of cash because cash is moving out of the company.
Q.19
While preparing cash flow statement what type of activity is
payment of cash to acquire shared of another company by a trading company.
Solution
Payment of cash to acquire share of another company by a
trading company is an investing activity.
Q.20
Prepare
the Common Size Income Statement from the following information :
Solution
COMMON
SIZE INCOME STATEMENT
FOR
THE YEAR ENDED 31ST MARCH 2006 & 2007
Q.21
Prepare
the comparative Income Statement from the following information:
Solution
Q.22
From
the following information related to Naveen Ltd. calculate .
- Return
on investment and
- Total
Assets to Debt Ratio.
Information :
- Fixed
Assets Rs. 75,00,000; .
- Current
Assets Rs. 40,00,000; .
- Current
Liabilities Rs.
27,00,000; .
- 12%
Debentures Rs.
80,00,000
and Net Profit before Interest, Tax and Dividend Rs. 14,50,000.
Solution
(a) Return on
Investment
=
Profit before Interest, Tax and Dividend / Capital Employed X 100
Here,
Capital Employed=Fixed Assets + Current Assets Current Liabilities
=
Rs. 75,00,000 + Rs. 40,00,000 - Rs. 27,00,000.
=
Rs. 88,00,000.
Return
on Investment = 14,50,000/88,00,000 X 100
=
16.47%.
(b) Total Assets to Debt Ratio
=
Total Assets/ Debt
Here,
Total Assets = Fixed Assets + Current Assets
=
Rs. 75,00,000 + Rs. 40,00,000= Rs. 1,15,00,000.
Debt
=12% Debentures =Rs. 80,00,000.
Total
Assets to Debt Ratio = 1,15,00,000/80,00,000= 1.44 : 1.
Q.23
Following
is the Balance Sheet of Wind Power Ltd. as at 31.3.2014:.
Notes to Accounts
Additional Information :
During
the year a piece of machinery costing Rs. 96,000 on which accumulated
depreciation was Rs. 64,000 was sold for Rs. 24,000.Prepare Cash Flow
Statement.
Solution
Working
Notes :
(1)
(2)
(3) The above solution is
based on the assumption that current investment is a part of cash and cash
equivalents. If current investments is taken as current assets.
- Cash
from operating activities Rs. 1,32,000.
- Opening
balance of cash & cash equivalentsRs. 16,20,000.
- Closing
balance of cash & cash equivalentsRs. 12,80,000.
- Net
decrease in cash and cash equivalentsRs. 3,40,000.
