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BOOK-KEEPING, &, ACCOUNTANCY, , 212.00
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The Coordination Committee formed by GR No. Abhyas - 2116/(Pra.Kra.43/16) SD - 4, Dated 25.4.2016 has given approval to prescribe this textbook in its meeting held on, 30.01.2020 and it has been decided to implement it from the educational year 2020-21., , Book - Keeping, and, Accountancy, STANDARD XII, , 2020, , Maharashtra State Bureau of Textbook Production, and Curriculum Research, Pune - 411 004, , Download DIKSHA App on your smartphone. If you scan the Q.R.Code, on this page of your textbook, you will be able to access full text and the, audio-visual study material relevant to each lesson provided as teaching, and learning aids.
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PREFACE, We are happy in introducing the text book for Std. XII based on revised syllabus, from the academic year 2020-21., The Std. XI syllabus covers topics related to Sole Proprietorship firm and basic, accounting concepts. The syllabus for Std. XII covers topics related to Partnership Firm,, Not for Profit Organization, Accounting of Company Accounts-Issue of Shares, Financial, Statement Analysis, Bills of Exchange and Computer in Accounting., Due care has been taken to present the subject matter in a simple manner so that the, students can easily understand the relating accounting concepts and contents. Similarly, the students who do not have a commerce background but are going to pursue further, education in commerce the text book will be of great help to understand the subject in, a lucid manner. Various practical problems based on skill and application are included, in the textbook. The exercises given at the end of each topic contains different types of, questions to test conceptual clarity and accuracy and encourage the students to cultivate, the skills and applications required for their future education. Also to make learning, interesting additional information and activities for the students are given at the end of, every chapter and also in QR code on the title page., We would like to bring to your notice that the illustrations and exercise problems, are designed comprehensively. While setting the question paper one is expected to, modify the questions according to the marking scheme., We are thankful to the subject committee members, study group members, translators,, reviewers, quality reviewers and all those who have taken efforts in designing this text, book., We hope the text book will be well received by the academicians and students., , Pune, Date : 21 February 2020, Bharatiya Saur : 2 Phalguna 1941, , ( Vivek Gosavi ), Director, Maharashtra State Bureau of Textbook, Production and Curriculum Research, Pune.
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Book-keeping and Accountancy, Competency Statement, Standard XIIth, Unit, No., , 1, , 2, , 3, , 4, , Topic, , Competency Statements, , Students are able to, • understand the meaning of Partnership., • know the important features of Partneship, • understand the meaning of The Indian Partnership Act, 1932., • understand the importance of Partnership Deed., • understand the provisions applicable in absence of Partnership Deed, Introduction to, • know how to maintain Capital Accounts of Partners, Partnership, • understand the meaning of Partnership Final Account, • know the need and importance of Final Accounts, • know the effects of adjustments in Final Accounts, • know the meaning of Trading Account, Profit and Loss Account and, Balancesheet, • know how to find out financial results of the business, Students are able to, • understand the meaning and features of Not for Profit Concerns, • know the meaning of Receipts and Payments Account, • understand the meaning of Income and Expenditure Account and its, Accounts of Not For, difference from Profit and Loss Account, Profit Concerns, • understand the difference between Profit and Not for profit, Organisations, • learn to acquire the skills for preparing Income and Expenditure, Account and Balancesheet of Not for profit concern, Students are able to, •• understand the meaning and different ways of reconstitution, •• to understand the meaning and need of admission of partner, •• to learn the adjustments required on admission of a Partner, Reconstitution of, •• to calculate the new profit sharing ratio and sacrifice ratio, Partnership, •• to know the methods of valuation of goodwill and treatment of, (Admission of Partner), goodwill, •• to learn the accounting treatment of accumulated profits/ losses, •• to make necessary adjustment for revaluation of assets and liabilities, •• to learn to adjust the capitals according to new profit sharing ratio, Students are able to, • understand the meaning of retirement of partners in partnership, business, • learn to calculate various ratios connected to retirement of, partnership, Reconstitution of, •, understand the treatment of goodwill, Partnership, • know the effect of reserves, accumulated profit/ loss, (Retirement of partner) • learn the effect of revaluation of assets and liabilities, • understand the adjustments to be made for remaining partners, capital, • to know the various modes of final payment to be made to retiring, partners
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5, , Students are able to, learn how to calculate various ratios, Reconstitution of, know how to calculate share of profit up to the date of death of a, Partnership (Death of a, partner, Partner), • learn how to calculate share of goodwill of deceased partner, • know how to calculate amount due to deceased partner’s executor, • understand how to settle the account of an executor, , •, •, , Dissolution of, Partnership Firm, , Students are able to, understand the meaning and reasons of dissolution of partnership, firm, • know the effects of dissolution of partnership firm, • learn various accounting treatment for settlement of accounts, • learn accounting procedure under simple dissolution and insolvency, of partner, , Bills of Exchange, , Students are able to, • know the meaning of bill of exchange, • understand the different concepts used in bills of exchange, • Prepare a draft of bill of exchange and know the various types of, bills of exchange, • understand retaining, sending bill for collection, discounting,, endorsing, honour, renewal and retiring of the bill, • learn various accounting treatment of bills of exchange, , •, 6, , 7, , 8, , Company Accounts Issue of shares, , 9, , Analysis of Financial, Statements, , 10, , Computer in, Accounting, , Students are able to, learn the types of shares and share capital, understand the concept of public subsription and private placement, know the concept of under and over valuation of shares and, accounting of shares issued at par, at premium and at discount, • know the different accounting treatment for under and over, subscription of shares as well as calls in arrears and calls in advance, , •, •, •, , Students are able to, • understand the meaning, objectives and limitations of financial, statement analysis, • learn various tools for financial statements analysis, • understand objectives and classification of Accounting ratios and, Ratio Analysis, Students are able to, • understand the computarized Accounting and its components, • understand features, importance and limitations of computarised, accounting system, • learn application of computerised accounting statements, • learn various accounting packages
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INDEX, , Sr., No., , Chapter, , Page, No., , 1., , Introduction to Partnership and Partnership Final Accounts, , 1, , 2., , Accounts of ‘Not for Profit’ Concerns, , 63, , 3., , Reconstitution of Partnership (Admission of Partner), , 125, , 4., , Reconstitution of Partnership (Retirement of Partner), , 168, , 5., , Reconstitution of Partnership (Death of Partner), , 187, , 6., , Dissolution of Partnership Firm, , 206, , 7., , Bills of Exchange, , 251, , 8., , Company Accounts - Issue of Shares, , 309, , 9., , Analysis of Financial Statements, , 344, , 10., , Computer In Accounting, , 381, , Answer-Key, , 392
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1, , Introduction to Partnership and, Partnership Final Accounts, , Content, 1.1 Meaning and Definition of Partnership, 1.2 The Indian Partnership act 1932., 1.3 Methods of Capital Account, Competency Statements, o, , The students will be able to:, , , , Understand meaning of Partnership, , , , Know the important features of Partnership, , , , Understand the meaning of "The Indian Partnership Act, 1932.", , , , Know the importance of Partnership Deed., , , , Understand the provisions applicable in absence of Partnership Deed., , , , Know how to maintain Capital Accounts of Partner., , Introduction :, The sole proprietorship has its limitations such as limited capital, limited managerial ability,, unlimited liability, no stability, absence of specialization etc. Hence when a business is to be set up, on a scale which needs more capital and involves more risk, two or more persons come together to, run it. They agree to share the capital, the management, the risk & profits of business, such mutual, relationship based on an agreement amongst these persons is termed as "Partnership". The persons, who have entered into the partnership are individually known as "Partners" and collectively as a, "Firm"., 1.1 Meaning and Definition of Partnership :, Partnership is an organization where there is an, association of two or more persons coming together, to carry on a business with a view to share Profit or, Losses of a firm., Definition :, Indian Partnership Act 1932 Section 4 defines, the partnership as, "It is the relation between persons, who have agreed to share the profits of a business carried on by all or anyone of them acting for all.", According to Prof. Handy, "Partnership is the relation existing between persons competent to, make contract, who agree to carry on a lawful business in common with a view to earn private gain., , 1
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Features of Partnership Firm, , Dissolution, Principal, & Agent, Joint, Ownership, &, Management, , Agreement, , Features of, Partnership, Firm, , Lawful, Business, , Registration, Sharing, of Profits &, Losses, , Unlimited, Liabilities, , 1), , 2), 3), , 4), , 5), , 6), , 7), , 8), , Principal, & Agent, , Agreement :- Partnership is a result of agreement between partners. It could be written or oral., A written agreement is preferred so that it can be used as a proof in the court of law & such, written agreement is known as “Partnership Deed.”, Number of Partners :- Minimum two partners are needed to start partnership firm and the, maximum number of partners are fifty according to companies Act 2013 (Amended in 2014), Lawful business :- Business undertaken by partnership should be lawful. It cannot undertake, business which is not allowed by state. The definition of Partnership also does not permit any, illegal business., Sharing of Profit and losses :- The purpose of partnership is to earn maximum profits. Partners, have to share profits & losses according to the ratio given in the agreement. If the agreement is, silent about the ratio then profit and loss sharing will be equal., Unlimited Liability :- The liability of partners is unlimited joint and several that is, partners, are liable till the last rupee in their pocket. If assets of business is not sufficient to pay liabilities,, then personal property of partners can be used. If anyone of the partner is declared in solvent, then his liability will be borne by the solvent partner., Registrations :- Registration of partnership firm is compulsory only in the state of Maharashtra, with effect from 1st April 2005. According to Indian Partnership Act, 1932, registration of, partnership firm is optional it means a firm may or may not be registered. Registration of firm, merely certifies its existence and it is a process of entering the name of Partnership Firm in the, register of Registrar., Joint Ownership & Management :- Each partner is joint owner of the property of the firm,, so no partner can use property for personal use. All partners have equal rights in managing the, firm. So all partners are jointly responsible for the management of firm., Principal and Agent :- Each partner works in two fold capacities i.e. principal and Agent. A, partner acts as a principal of the firm with outsiders and with other partners he acts as an agent., 2
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9), , Dissolution :- A partnership firm can be dissolved through agreement between the partner. If a, partner wants to close the firm he can dissolve the firm by giving fourteen days notice. The firm, can also be dissolved if a partner dies or retires, becomes insolvent or insane., , PARTNERSHIP DEED, The, document, containing, the, partnership agreement among partners is, called Partnership Deed. It contains the terms, and conditions which are agreed upon by all the, partners. An agreement may be written or oral, but when it's written, it's called a deed., The Partnership Act doesn't make it, compulsory to have a written agreement., However, in case of dispute among the, partners, it is always in the best course to have, a written agreement duly signed (by all the, respective partners) and registered under the, Act. Partnership Deed contains the rules and, regulation framed for the internal Management, of the firm. It is also an Article of Partnership., , Partnership Deed, , Contents of the Partnership Deed, 1) Name and address of the firm and its main, business., 2) Name and address of all partners and, duration of the partnership., 3) Capital contribution of all the partners, 4) Ratio in which profits (and losses) are to, be shared., 5) Rights, duties and liabilities of the partners., 6) Provisions related to admission, retirement,, death etc. of a partner., 7) Rate of interest on capital, loan, drawings, etc., 8) Salaries, commission, etc. if payable to any partners., 9) Settlement of accounts on dissolution of the firm., 10) Method of settlement of disputes among the partners., 11) Any other matter relating to the conduct of business., Importance of Partnership Deed, Partnership deed is a very important document because it is the written agreement which, contains all the terms and conditions of the partnership business. It forms the basis of mutual, relationship among the partner. Moreover, partnership deed regulates the rights, duties and liabilities, of all the partners as well as of firm. So by having partnership deed partners disputes in future may, be avoided., , 3
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Hence it is always in favour, to have a written agreement i.e. partnership deed duly signed by, all the partners and registered under the Indian Partnership Act 1932., 1.2, , Provision of the Indian Partnership act 1932:, , At the time of formation of partnership firm, a document is prepared called as partnership deed, and all terms and conditions are mentioned into the deed, but if the partnership deed is silent about, any point then this issue is solved as per the provisions in Partnership Act 1932 section no 12 and 17, are made applicable to determine the following issues., 1) Distribution of profit : If the partnership deed is silent about the profit sharing ratio,, then the profit and losses are distributed among the partners is equal ratio., 2) Interest on drawings : As per the provision of Indian Partnership Act 1932, if the date of, drawing is not given then average of six month's interest is charged on drawings., 3) Interest on partner's loan : If the partner provides additional amount to the business as, loan, but rate of interest on loan is not given then 6% p.a. interest is allowed., 4) Interest on capital : If the partnership deed is silent about interest on capital then interest, is not allowed., 5) Salary or commission to Partners : As per the provision made in the Indian Partnership, Act 1932 no salary, commission, allowance or any remuneration is to be given to any of, the partners for any extra work done for the firm, However, if any provision is made in, partnership deed, then partners are entitled to get commission or salary as per the agreement., 6) Admission of a new partner : As per the provisions of the Indian Partnership Act 1932,, no outside person can be admitted into the firm as a partner without the consent of other, partners., 1.3 Methods of Capital Accounts, Amount in cash or kind brought in by the partner to manage business activities is termed as, Capital. Partners maintain and operate some methods of the Capital Accounts. The two methods of, Capital Accounts are discussed below., , Methods of, Capital Account, , Fixed Capital, Method, , Fluctuating Capital, Method, , , , , , , , , , Capital Account, , Current Account, , 4, , Capital Account
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Fixed Capital Method:, In this method amount of capital of a partner remains the same at the end of that financial year., There is no addition or subtraction from capital during the year. When this method is adopted partner's, open a new account in name of partner's Current Account and all the related to capital adjustments, are solved through Partner's Current Account. For example, Drawings. Interest on Drawings, Interest, on Capital, Partner's Salary, Commission, Brokerage, Share of Profit and Losses are recorded in to, Current Account., Proforma of Fixed Capital Method, Partner's Capital Account, Dr., Cr., Particulars, , To Balance c/d, , Total, , X, Y, Amount Amount, (`), (`), XXX, , XXX, , Particulars, , XXX, , By Balance b/d, By Cash/Bank A/c, [Additional capital], By Assets A/c, [Capital in kind], , XXX, By Balance b/d, , X, Y, Amount Amount, (`), (`), XXX, XXX, , XXX, XXX, , XXX, , XXX, , XXX, XXX, , XXX, XXX, , Journal Entries, 1) When additional capital is introduced by a partners, Cash / Bank A/c ..................... Dr., , To Partners Capital A/c, (Being additional capital introduced into the business), 2), , When capital amount is brought in by a Partner in form of Assets, Assets A/c .................. Dr., , To Partners Capital A/c, (Being additional capital brought in kind), Partner's Current Accounts:, When fixed capital method is adopted by the partnership firm, a new separate account is, opened i.e. 'Partner's Current Account'. In this account all adjustments related to capital are recorded., Partner's Current Account may show debit or credit balance., 1) Drawings made by the partner in the current accounting year, 2) Goods or any assets taken over by the partner., 3) Interest on partners capital allowed by the firm., 4) Interest on partners drawings charged by the firm., 5) Salary, Commission etc. payable to the partner., 6) Distribution of Profit or Loss of the firm., , 5
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Partner's Current Account:, Dr. , , Cr., , Particulars, , X, Y, Particulars, X, Y, Amount Amount, Amount Amount, (`), (`), (`), ( `), To Balance b/d (Dr. Bal), XXX, XXX By Balance b/d (Cr. Bal), XXX, XXX, To Drawing A/c, XXX, XXX By Interest on Capital A/c, XXX, XXX, To Interest on Drawing, XXX, XXX By Salaries A/c, XXX, XXX, To Profit and Loss A/c, XXX, XXX By Commission A/c, XXX, XXX, (Share in loss), By Profit and Loss A/c, XXX, XXX, To Balance c/d, XXX, XXX (Share in Net profit), By Balance c/d, XXX, XXX, XXX, XXX, XXX, XXX, To Balance b/d, XXX, XXX By Balance b/d, XXX, XXX, 1) Interest allowed on partner's capital, a) Interest on Capital A/c.............................................................Dr., XXX, To Partners Capital A/c/ Current Account , XXX, , (Being interest due on capital), b) Profit and Loss A/C.................................................................Dr, XXX , , To interest on Capital A/C XXX, , (Being interest on Capital transferred to profit and loss account), 2), , Salary or Commission allowed to partners, a) Salary or Commission in Partner A/c......................................Dr., XXX, , To Partners Current A/c / Capital Account ..................... XXX, , (Being Salary or Commission due for payment), b) Profit and Loss A/C.................................................................Dr, XXX, , To Salaries/ Commission A/C.......................................... ./ZXXX, , (Being Salary/ Commission transferred to Profit and Loss A/C), 3), , Cash or Goods taken over by the partners for their personal use., a) Drawing A/c.............................................................................Dr., XXX, , To Cash or Goods A/C XXX, , (Being cash or goods withdrawn for personal use), b) Partners Current A/c / Capital A/c...........................................Dr, XXX, , To Drawing A/c XXX, , (Being balance on account transferred to current A/c), 4), , Interest charged on drawing of the partners, a) Partners Current A/c / Capital A/c...........................................Dr., XXX, , To Interest on Drawing account XXX, , (Being interest charged on Drawing), b) Interest on Drawings A/C........................................................ Dr, XXX, , To Profit and Loss A/C XXX, , (Being interest on Drawings transferred to profit and loss account), 6
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5), , Transfer of Net Profit, Profit and loss A/c ...........................................................................Dr., XXX, , To Partners Current A/c / Capital A/c , XXX, (Being profit transferred to Partner's Current / Capital Account), 6), , Distribution of Net loss :, Partners Current A/c / Capital A/c...................................................Dr., XXX, , To Profit and Loss A/c , XXX, (Being loss adjusted to Partners Current / Capital Account), Effects in Profit and Loss Account, Dr., , Cr., Particulars, , Amount Amount, Particulars, Amount Amount, (`), (`), (`), ( `), To Interest on Capital, XXX By Interest on Drawings, XXX, To Salary to Partner, XXX, To Commission to Partner, XXX, XXX, XXX, Fluctuating capital method :, In this method, amount of capital balance changes every year. It is called as fluctuating capital, method. In this method the partner's current account is not opened. Hence all adjustments are solved, through Capital Account. Following are the general adjustment related to capital., 1) Initial or Opening Balance of capital, 2) Additional Capital brought in by the partners in Cash or in kind., 3) Salary / Commission payable to partner, 4) Interest payable on capital balance to partner, 5) Drawings made during the year and interest payable on drawings by the partner, 6) Withdrawal of part of the capital by the partner, 7) Division and transfer of net disposable profit or net adjustable loss of the firm., Proforma of Fluctuating Capital Method., Capital Account, Dr. , Cr., Particulars, , To Balance b/d (Dr. Bal), To Drawing A/c, To Interest on Drawing, To Profit and Loss A/c, (Share in loss), To Balance c/d, , X, X, Particulars, Amount Amount, (`), (`), XXX, XXX By Balance b/d (Cr.Bal), XXX, XXX By Cash A/c, XXX, XXX [Addition made], XXX, XXX By Interest on capital A/c, By Salaries A/c, XXX, XXX By Profit and Loss, (Net Profit), XXX, XXX, By Balance b/d, 7, , X, X, Amount Amount, (`), ( `), XXX, XXX, XXX, XXX, XXX, XXX, XXX, , XXX, XXX, XXX, , XXX, XXX, , XXX, XXX
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Examples, 1), , Anand and Bharat are partners sharing profits and losses in the ratio 2 : 3. On 1.4.2019 the, capital balance are Anand ` 60,000 and Bharat ` 30,000 their drawings are ` 12,000 and, ` 10,000 respectively. As per the agreement partners are allowed 10% interest on capital and, interest on Drawings is to be charged at 12% p.a. Anand gets salary of ` 2,500 per month and, Bharat is entitled to get commission @ 3% on net sales which is ` 5,00,000. The firm's profit is, ` 60,000. Prepare partners capital account for the year ended 31st March 2019 under :, 1) Fixed Capital Method 2) Fluctuating Capital Method, , Solution : 1) Fixed Capital Method, Dr. , Particulars, To Balance c/d, , Partner's Capital A/cs , , Amount Amount, Particulars, (`), (`), 60,000, 30,000 By Balance b/d, 60,000, , 30,000, , Dr. Partner's Current A/cs, Particulars, To Drawing A/c, To Interest in Drawing, To Balance c/d, , Amount Amount, (`), (`), 60,000, 30,000, 60,000, 60,000, , By Balance b/d, , , , Amount Amount Particulars, (`), (`), 12,000, 10,000 By Interest on capital A/c, 720, 600 By Salaries A/c, 47,280, 43,400 By Commission A/c, By Profit and Loss A/c, 60,000, 54,000, , Cr., , 30,000, 30,000, Cr., , Amount Amount, (`), (`), 6,000, 3,000, 30,000, 15,000, 24,000, 36,000, 60,000, 54,000, , 2) Fluctuating Capital Method, Dr. , Partner's Capital A/cs , , Cr., , Particulars, , Amount Amount, Particulars, Amount Amount, (`), (`), (`), (`), To Drawing A/c, 12,000, 10,000 By Balance b/d, 60,000, 30,000, To Interest in Drawing A/c, 720, 600 By Interest on capital A/c, 6,000, 3,000, To Balance c/d, 1,07,280, 73,400 By Salaries A/c, 30,000, By Commission A/c, 15,000, By Profit and Loss A/c, 24,000, 36,000, 1,20,000, 1), , Interest on Capital, Anand 60,000 ×, , Bharat, , 30,000 ×, , 84,000, , 1,20,000, , 10, 100, , = ` 6,000, , 10, 100, , = ` 3,000, 8, , 84,000
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2), , Interest on Drawings, , 3), , Anand = 2500 x 12 = ` 30,000, , 4), , Commission to Anand = 5,00,000 ×, , 5), , Distribution of Profit ` 60,000 2:3, 2, Anand = 60,000 × = ` 24,000 , 5, 3, Bharat = 60,000 × = ` 36,000 , 5, Karan and Kiran are partners in M/s Mehta Enterprises. They have started business of ready, made garments on 1st April 2019 on which date they contribute ` 5,00,000 each as their initial, capitals. Karan has withdrawn ` 20,000 and Kiran has withdrawn ` 15,000 for their personal, use. Interest on capital is allowed @ 12% and interest on drawing is charged @ 3% p.a. Karan, is entitled to get salary, ` 1800 per month, Kiran is allowed to get commission @ 5% on net, sales. During the year net sales is ` 2,50,000 and net profit earned during the year is ` 60,000., Prepare partners capital accounts under i) Fixed capital Method ii) Fluctuating Capital Method, , 6, 12, Anand 12,000, × 100 × 12 = ` 720, , 6, 12, Bharat 10,000, × 100 × 12 = ` 600, , (Interest on Drawing always to be taken for 6 months In case date on Drawings in not mentioned), , 2), , 3, = `15,000 , 100, , Solution :, In the books of M/s Mehta Enterprises, 1), Fixed Capital Method, Dr. , Particulars, To Balance c/d, , Partner's Capital A/cs , , Kiran, Kiran, Particulars, (`), (`), 5,00,000 5,00,000 By Cash/Bank A/c, , Kiran, Kiran, (`), (`), 5,00,000 5,00,000, , 5,00,000 5,00,000, , 5,00,000 5,00,000, , Dr. Partner's Current Accounts , Particulars, To Drawing A/c, To Interest on Drawing, To Balance c/d, , Cr., , Kiran, (`), 20,000, 300, 91,300, , Kiran, Particulars, (`), 15,000 By Interest on Capital A/c, 225 By Salaries A/c, 87,275 By Commission A/c, By Profit and Loss A/c, , 1,11,600 1,02,500, , Kiran, (`), 60,000, 21,600, 30,000, , Cr., Kiran, 60,000, 12,500, 30,000, , 1,11,600 1,02,500, , 9
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2) Fluctuating Capital Method, Dr. , Partner's Capital Accounts , Particulars, To Drawing A/c, To Interest on Drawing, To Balance c/d, , Kiran, (`), 20,000, 300, , Kiran, Particulars, (`), 15,000 By Cash/Bank A/c, 225 By Interest on capital A/c, By Salaries A/c, 5,91,300 5,87,275 By Commission A/c, By Profit and Loss A/c, , Kiran, Kiran, (`), (`), 5,00,000 5,00,000, 60,000, 60,000, 21,600, 12,500, 30,000, 30,000, , 6,11,600 6,02,500, , 6,11,600 6,02,500, 5,91,300 5,87,275, , By Balance b/d, 1), , Interest on capital is calculated as follows :, Karan :, , , Kiran :, , 2), , Cr., , On Opening balance i.e. ` 5,00,000 for 1 year , 12, = ` 60,000, 100, On Opening balance i.e. ` 5,00,000 for 1 year , , 12% p.a. interest = ` 5,00,000 ×1years, , 12% p.a. interest = 5,00,000 ×1years ×, , 12, = ` 60,000, 100, , Interest on Drawing is charged @3% , , 3, 2, ×, = ` 300, Karan : 20,000% ×, 12 100, , 3, 2, Kiran :, 15,000 ×, ×, = ` 225 , 12 100, 5, 3) Commission paid to Karan = 2,50,000 ×, = ` 12,500, 100, 4), , Profit of ` 60,000 is distributed equally between Karan and Kiran, , , , 1, Karan = 60,000 × 2 = ` 30,000, , 1, Kiran = 60,000, × 2 = ` 30,000, 3), , Mr. Amey and Mr. Ashish are partners in a partnership firm titled as M/s. Anand Enterprises, sharing profit and losses in the ratio 3 : 2 respectively. On 1st April 2018 their capital balance, were: Mr. Amey ` 1,00,000 and Mr. Ashish ` 50,000. Their drawing during the year were :, Mr. Amey : ` 20,000 and Mr. Ashish ` 25,000. As per partnership deed 10% p.a. interest is, allowed on capital and 12% p.a. interest is charged on drawing Mr. Amey gets salary ` 3000, p.m. and Mr. Ashish is entitled to get commission @ 5% on net sales which is ` 4,00,000. The, divisible profit is ` 90,000. Prepare partners capital Accounts for the year ending 31st March, 2019 under, 1) Fixed capital method 2) Fluctuating Capital Method., , 10
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1), , In the books of M/s. Anand Enterprises, Under Fixed Capital Method, , Dr. Partner's Capital Accounts, , , , Cr., , Particulars, , Amey, Ashish, Particulars, Raj, Ravi, Amt. (`) Amt. (`), Amt. (`) Amt. (`), To Balance c/d, 1,00,000, 50,000 By Balance b/d, 1,00,000, 50,000, 1,00,000, 50,000, 1,00,000, 50,000, Dr. , Partner's Current Accounts , Cr., Particulars, , Amey, Ravi, Particulars, Amey, Ashish, Amt. (`) Amt. (`), Amt. (`) Amt. (`), To Drawing A/c, 20,000, 25,000 By Interest on Capital A/c, 10,000, 5,000, To Interest on Drawing A/c, 1,200, 1,500 By Salaries A/c, 36,000, To Balance c/d, 78,800, 34,500 By Commission A/c, 20,000, By Profit and Loss A/c, 54,000, 36,000, 1,00,000, , 61,000, By Balance b/d, , 1,00,000, 78,800, , 2) Under Fluctuating Capital Method, Dr. , Partner's Capital Accounts , Particulars, , Amey, Ashish, Particulars, Amt. (`) Amt. (`), To Drawing A/c, 20,000, 25,000 By Cash/Bank A/c, To Interest on Drawing A/c, 1,200, 1,500 By Interest on capital A/c, By Salaries A/c, To Balance c/d, 1,78,800, 84,500 By Commission A/c, By Profit and Loss A/c, 2,00,000 1,11,000, By Balance b/d, 1), , Cr., , Amey, Ashish, Amt. (`) Amt. (`), 1,00,000, 50,000, 10,000, 5,000, 36,000, --------------20,000, 54,000, 36,000, 2,00,000 1,11,000, 1,78,800, 84,500, , Interest on capital : , 10, Mr. Amey = 1,00,000 ×1 Year × 100 = ` 10,000 , Mr. Ashish, , 2), , 61,000, 34,500, , 10, = 50000 ×1 Year × 100, , = ` 5,000, , Interest on Drawings :, , Interest on Drawing is calculated for the average. Period of 6 months as date of drawing is not, given. , 12, 6, Mr. Amey = 20,000 × 12 × 100 = ` 1200, , 12, 6, Mr. Ashish = 25,000 × 12 × 100 = ` 1500, , 11
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3), , Distribution of profit , Mr. Amey, Mr. Ashish, , 4), , 3, = 5 × 90,000, 2, = 5 × 90,000, , = ` 54,000 , = ` 36,000, , Sun and Moon were partners with capital of ` 10,00,000 and ` 5,00,000 respectively. They, agree to share profits in the ratio 3 : 2. Show how the following transactions will be recorded, in the capital accounts of the partners in both the cases when i) Capitals are fluctuatin and, ii) Capitals are fixed. They also introduced additional capital of ` 2,25,000 and ` 1,50,000, Particulars, , Sun, (`), 5%, 22,500, 1,350, 15,000, 7,500, 45,000, , Interest on Capital, Drawing A/c (during 2016), Interest on Drawings, Salaries, Commission, Share in Loss for the year 2016, Solution :, Dr. , Particulars, To Drawing A/c, To Interest on Drawing, To Profit & Loss A/c, (Loss), To Balance c/d, , Moon, (`), 5%, 15,000, 900, 5,250, 30,000, , Partner's Capital Accounts , , Sun, (`), 22,500, 1350, 45,000, , Moon, Particulars, (`), 15,000 By Balance b/d, 900 By Cash/Bank A/c, 30,000 By Interest on Capital A/c, , By Salaries A/c, 12,34,275 6,38,050 By Commission A/c, 13,03,125 6,83,950, , Cr., Sun, Moon, (`), (`), 10,00,000 5,00,000, 2,25,000 1,50,000, 55,625 28,750, 15,000, 7,500, , 5,200, , 13,03,125 6,83,950, , Dr. , Partner's Capital Accounts , Particulars, Sun, Moon, Particulars, (`), (`), To Balance c/d, 12,25,000 6,50,000 By Balance b/d, By Bank, (Additional Capital), 12,25,000 6,50,000, , 12, , Cr., Sun, Moon, (`), (`), 10,00,000 5,00,000, 2,25,000 1,50,000, 12,25,000 6,50,000
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Partner's Current Accounts, Dr. , C r., Particulars, Son, Moon, Particulars, Son, Moon, (`), (`), (`), (`), To Drawing, 22,500, 15,000 By Interest on capital, 55,625, 28,750, To Interest on Drawing, 1350, 900 By Partner's Salaries A/c, 15,000, To Profit & Loss A/c, 45,000, 30,000 By Commission A/c, 7,500, 5,250, To Balance c/d, 9,275, By Balance b/d, 11,900, 78,125, 45,900, 78,125, 45,900, Calculation of Interest on Capitals, Sun: 5% on ` 10,00,000 for one year will be, 10,00,000 × 5, = ` 50,000, =, 100, , 5% of ` 2,25,000 for 6 months will be, 2,25,000 × 5, 5, 6, =, 100 × 12 × 100 × 12 = ` 5,625, , Total will be 50,000 + 5,625 = 55,625, Moon: 5% on 5,00,000 for one year will be, 5,00,000 × 5, = ` 25,000, 100, , 5% of ` 1,50,000 for 6 months will be, 1,50,000 × 5 × 6, =, = ` 3,750, 100 × 12, , Total will be 25,000 + 3,750 = ` 28,750, Note :, 1. Current Account balance may appear in either side i.e. Debit or Credit side, 2. In the absence of any instruction the Capital Account should be prepared by Fluctuating, capital methods, 3. Interest on loan of partners is treated as liability so it is credited to partners current account. But when there is no current account and partners are maintaining Fluctuating, capital method than interest on loan of partner is credited to Pratners Capital A/c, , 13
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Partnership Final Accounts, Contents 2.1 Introduction and necessity of preparation of Final Accounts. 2.2 Preparation of Trading Account,, Profit and Loss Account and Balance Sheet with following adjustments., a) Closing Stock, b) Outstanding expenses, c) Prepaid expenses, d) Income received in advance, e) Income receivable, f) Bad debts, g) Provision for doubtful debts, h), Reserve for discount on Debtors and Creditors, i), Depreciation, j), Interest on capital, drawings and loan., k) Interest on Investments and loans given, 1) Goods destroyed by fire/accident (Insured & Uninsured), m) Goods stolen, n) Goods distributed as free samples, o) Goods withdrawn by partners, p) Unrecorded purchases and sales, q) Capital expenditure included in revenue expenses and vice versa, r) Bills Receivable dishonoured, s) Bills Payable dishonoured, t), Deferred expenses, u) Capital receipts included in revenue receipts and vice versa, v) Commission to working partners on the basis of Gross Profit, Net Profit/Sales etc., Competency Statements The students will be able to :, •, Understand the meaning of Final Accounts., •, Know the need and importance of Final Accounts., •, Know the effects of adjustments in Final Accounts., •, Know the meaning of Trading Account, Profit and Loss Account and Balance Sheet., •, Know how to find out financial results of the business., 2.1 Introduction :, As per the sole proprietary concern we will also prepare the Final Account of partnership firm,, the income statement and position statement. Final Account is the last stage of accounting procedure., Generally following steps are followed in the accounting., , 14
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Various Steps in Accounting :, Preparation of Journal/Subsidiary Books., Preparation of Ledger., Preparation of Trial Balance considering adjustments., Preparation of Final Accounts which consist of, , a) Trading A/c b) Profit and Loss A/c c) Balance Sheet, As per Income Tax Act, 1961 financial year starts on 1st April and ends on 31st March every, year., Necessity of Preparation of Final Accounts :, Final account is prepared for the following various purposes., 1. To find out the Gross Profit or Gross Loss incurred during the year., 2. To find out the Net Profit or Net Loss of the business., 3. To know the financial position of the business at the end of every year., 4. To find out the amount of debtors and creditors., 5. To prepare various accounts for future planning., 6. To find the sources and application of fund., 7. To find out the value of goodwill for the purpose of reconstruction of firm., 8. To calculate various taxes of firm like income tax, etc., 2.2 Preparation of Partnership Final Accounts:, Trial Balance and adjustments are important in preparation of Final Account. The list of debit, and credit balances of all ledger account is called as "Trial Balance". The Final Account is prepared, at the end of every financial year., Trading Account shows the Gross Profit or Gross Loss and Profit and Loss Account shows the, Net Profit or Net Loss of the firm. The Balance Sheet shows the financial position of the business in, the form of assets and liabilities at the end of year., Trading Account :, Trading Account is a Nominal Account. Trading Account is opened in the trading organization, for the purpose to find out the Gross Profit or Gross Loss incurred during the year. In the debit side, of this account all direct expenses are recorded and in the credit side of account all direct incomes of, the firm's are recorded. If the trading account's credit side is more than debit side then account shows, the Gross Profit and vice versa. The Gross Profit or Loss is transferred to Profit and Loss Account., J. R. Batliboi :, “The Trading Account indicates the results of buying and selling of goods while preparing this, account, the general establishment charges are ignored and only the transactions related to goods, are included.”, 15
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Trading Account for the year ended..., Dr. , Particulars, To Opening Stock, To Purchases, Less : Return Outward, To Carriage Inward, To Freight, To Dock Charges, To Custom Duty, To Wages Productive, Manufacturing Wages, To Wages & Salaries, To Import Duty, To Coal/Coke/Gas/, Motive Power/Oil/, Water /Grease, To Royalty on, Purchase/Production, To Primary Packing, Charges, To Factory Lighting &, Heating, To Factory Rent & Rates, To Factory Insurance, To Works Manager's Salary, To Gross Profit c/d, , Particulars, Amt. (`) Amt. (`), xxx, By Sales, xxx, Less : Return Inward, xxx, xxx, xxx, By Goods lost by fire, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , By Goods lost by theft, By Goods distributed, as free samples, By Goods lost in Accident, By Goods withdrawn by, Partners, By Closing Stock, By Gross Loss c/d, , Cr., Amt. (`) Amt. (`), xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, In the case of combined term of wages and salaries following treatment should be given :, a) When the item Wages and Salaries is given in which Wages are appearing first, it should be, transferred to Trading A/c debit side., b) When the item Salaries and Wages is given in which Salaries appear first, it should be transferred, to Profit and Loss A/c – Debit side., Profit and Loss Account :, Profit and Loss Account is the type of Nominal Account. Profit and Loss account is a main, account of income statement. It is prepared to ascertain the Net Profit earned or Net Loss suffered by, a business concern during the accounting year. All indirect expenses are to be recorded to the debit, side where as all indirect incomes are to be recorded to the credit side of this account. The credit, balance on this account shows Net Profit which is to be transferred to Capital Accounts credit side, or added in capital. The debit balance of this account shows, Net Loss which is to be transferred to, Capital Account debit side or deducted from Capital., , 16
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R.N. Carter, "A Profit and Loss Account is an Account into which all gains and losses, are considered in order to ascertain the excess of gain over the losses or vice versa.”, Pro-forma of Profit and Loss Account for year ended, Dr. , Cr., Particulars, Amt. Amt., Particulars, Amt. Amt., `, , To Salaries, To Salaries & Wages, To Rent & Rates, To Insurance, To Electricity/Lighting, To Telephone, Postage, To Printing & Stationery, To Travelling Expenses of Salesman, To Depreciation on Assets, To Loading Charges, To Audit Fees, To Entertainmen Exp., To Repairs / Renewals / Maintenance, To Interest on Loan, To Sundry/Miscellaneous Expenses, To Conveyance, To Loss by Fire, To Loss by Theft, To Loss in Accident, To Goods distributed as free sample, To Commission Allowed/ Given, To Discount allowed, To Allowances, To Advertisement, To Carriage Outward, To Sale Charges, To Bad Debts, To Export Duty, To Taxes, To General Expenses, To Trade Expenses, To Legal Charges, To Professional Charges, To Bank Charges, To Solicitor's Fees, To Secondary Packing Charges, To Loss on sale of Fixed Assets, To Net Profit transferred to, Partners' Capital A/c/ Current A/c, , `, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, 17, , `, , By Gross Profit b/d, By Commission Received, By Discount Received/ Earned, By Interest Received, By Dividend Received, By Rent Received, By Sundry/Miscellaneous Receipts, By Profit on Sale of Asset, By Net Loss transferred, to Partners' Capital A/c /, Current A/c, , `, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx
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Balance Sheet :, Balance Sheet is a statement showing financial position of the firm on a particular day. All, liabilities are recorded to its left hand side where as all Assets are recorded to its right hand side. The, Balance Sheet is not an account but a statement showing the financial position of a firms, as on a, given date in the form of Assets and liabilities., A., , Palmer defines Balance Sheet as :, "The Balance Sheet is, a statement on a particular date showing on one side the traders property, and possessions and on the other side the liabilities"., Proforma of Balance Sheet is given below, Balance Sheet as on ......., , Liabilities, Capital Accounts :, A, B, C, Partners Current A/c, (Credit Balance), General Reserve, Profit & Loss A/c, Loan on Mortgage, Bank Loan, Loan from Partners, Bills Payable, Bank Overdraft, Sundry Creditors, Add/Less : Any other, adjustment, Less : Provision for, Discount on Creditors, Outstanding Expenses, Income received in, Advance, Provision for Taxes, , Amt. `, xxx, xxx, xxx, xxx, , Amt. `, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, , xxx, xxx, xxx, xxx, xxx, , Assets, Goodwill, Land and Building, Less : Depreciation, Plant & Machinery, Less : Depreciation, Furniture & Fixtures, Less : Depreciation, Equipment, Less : Depreciation, Delivery/Motor Van, Less : Depreciation, Leasehold / Freehold, Premises, Less : Depreciation, Patents, Less : Depreciation, Loose Tools, Less : Depreciation, Investments, Stores & Spare Parts, Less : Depreciation, Prepaid Expenses, Outstanding Incomes, Loans and Advances, Closing Stock, Sundry Debtors, + Any adjustments, Less : Bad Debts(New), Less : Provision for Discount, on Debtors, Insurance Claim Receivable, Bills Receivable, Cash in Hand, Cash at Bank, Partners Current A/c, (Credit Balance), 18, , Amt. `, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , Amt. `, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, , xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, , xxx, xxx, xxx, xxx, xxx, xxx
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Notes :, 1), 2), 3), , Every item in the Trial Balance must be shown only one time and in just one part of the, Final Accounts, excluding silent/ hidden adjustments., Every adjustment must have two effects in Final Accounts i.e. debit and credit., We have already studied this topic in XI standard as “Final Account of Proprietary, Concern.” Most of the theory part, explanation of journal entries, and effects of journal, entries are similar. To avoid repetition common explanation is not given in the XII standard. But explanation and Journal Entries of new adjustments are given. For common, references / explanation teachers and students can refer textbook of standard XI. First, topic in this book i.e Introduction to Partnership is also correlated with Partnership Final, Account. Students can refer topic no.1., , Adjustments :, 1., 2., , 3., 4., 5., 6., , 7., , 8., , 9., , Adjustment, Closing Stock, Outstanding Expenses, , 1st Effect, Balance Sheet Asset side, Add to the particular, Expenses on the debit side of, Trading/Profit and Loss A/c, Prepaid Expenses, Deduct from the particular, expenses on the debit side of, Trading/Profit and Loss A/c, Income received in advance Deduct from the particular, (Pre-received Income), income on the credit side of, Profit and Loss A/c, Income receivable, Add to the particular income, on the credit side of Profit and, Loss A/c, Bad debts (Additional or Show to the debit side of Profit, New Bad debts), and Loss A/c (add to old bad, debts if any), Provision for Doubtful, Debts (Reserve for Doubtful, debts, new R.D.D.), Reserve for discount on, Debtors, Depreciation, , 10. i) Interest on capital, , Show to the debit side of, Profit and Loss A/c, , 2nd Effect, Trading A/c credit side, Balance Sheet Liability, Side, Balance Sheet Asset Side, Balance, Side, , Sheet, , Liability, , Balance Sheet Asset Side, Deduct, from, Sundry, Debtors in Balance Sheet, Asset Side, , Deduct, from, Sundry, Debtors in Balance Sheet, Asset Side, Show to the debit side of, Deduct, from, Sundry, Profit and Loss A/c (Add to Debtors, discount allowed), Balance Sheet Asset Side, Show on the debit side of the Less from the particular, Profit and Loss A/c, asset in Balance Sheet, Asset Side, Show to the Debit Side of Profit Partners, Capital/Current, and Loss A/c, A/c Credit Side or add to, Capitals/ Current Account, , 19
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ii) Interest on Drawings, , iii) Interest on loan taken, , 11., 12., , 13., 14., 15., 16., , 17., , 18., , 19., 20., , Show to the Debit Side of, partners Capital/Current A/c, or less from Capital/ Current, Account, Show to the Debit Side of, Profit and Loss A/c, , Show to the Credit Side of, Profit and Loss A/c, , Add to loan taken in the, Balance Sheet Liability, Side, Interest on investment, Show to the Credit Side of Balance Sheet Asset Side, Profit and Loss A/c, and on loan given, i) Insured goods destroyed Trading A/c Credit Side (gross 1. Balance Sheet Asset, by fire/accident, amount), Side (Claim amount), 2. Profit and Loss A/c Debit, side (Amount of Loss), ii) Uninsured goods, Profit and Loss A/c Debit Side Show to the Credit Side of, destroyed by fire/, Trading A/c, accident, Goods stolen, Profit and Loss A/c Debit Side Show to the Credit Side of, Trading A/c, Goods distributed as free, Profit and Loss A/c Debit Side Show to the Credit Side of, samples, (Add in Advertisement if any) Trading A/c, Goods withdrawn by, Show to the Credit Side of Partners Capital/Current, Trading A/c or deduct from A/c Debit Side, Partners for personal use, Purchases A/c, i) Unrecorded Purchases, Add to Purchases on the Debit Add to Creditors on the, Side of Trading A/c, Liability Side of Balance, Sheet, ii) Unrecorded Sales, Add to Debtors on the Asset, Add to Sales on the credit, Side of Trading A/c, Side of the Balance Sheet, i) Capital, Expenditure Deduct from that particular, Add to that particular asset, included in Revenue Revenue Expenses on the Debit in Balance Sheet Asset Side, Expenditure, Side of Trading or Profit and, Loss A/c, ii) Revenue, Expenditure Add to that particular Revenue Deducted, from, that, included, in, Capital Expenditure, particular Asset in Balance, Expenditure, Sheet, Bills Receivable dishonored Add the amount of bill Deduct the amount of bill, dishonored to Sundry Debtors dishonored from Bills, in the Balance Sheet Asset Side Receivable., Bills Payable Dishonored, Add the amount of bill Deduct the amount of bill, dishonored to Sundry Creditors dishonored from Bills, in the Balance Sheet, Payable, Deferred, Expenses, of Advertisement Expenses, Remaining amount of, Advertisement paid for 5 related to current year debited Advertisement is shown, on asset side of the, years, to Profit and Loss A/c, Balance Sheet as prepaid, Advertisement, 20
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21. Revenue Receipts included, in Capital Receipts e.g. sale, of goods included in sale of, Furniture, 22. Commission to partners, as percentage of Gross, Profit/sales., , Add to sales on the credit side Less to Furniture on the, of Trading A/c., Asset Side of the Balance, Sheet, Show to the Debit Side of, Profit and Loss A/c, , Show to the Credit Side of, Partners Capital/Current, A/c or Add to Partners, Capital A/c., , Hidden Adjustment Given in Trial Balance, Sr., No., 1., , Adjustment Given in, Trial Balance, Salaries/Rent Paid, (For 10 months), , 2., , Insurance premium paid, for 1 year ending 30th, June, 2019 (Accounting, year ends on 31st March, 2019), Advertisement expenses, (for 4 years), , 3., , 4., , Rent received, (for 11 months), , 5., , 10% Loan (Borrowed on, 1st Jan. 2018)(Accounting, year ends on 31st March, 2018), 16% Investment, (Purchased on 1st Jan., 2019) (Accounting year, ends on 31st March 2019), 10% Government Bonds, , 6., , 7., , Trading and Profit and, Balance Sheet, Loss A/c, Add the amount of Salaries/ Show separately the amount, Rent for 2 months to Salaries/ of Salaries/Rent for 2 months, Rent respectively, on the Liabilities Side of the, Balance Sheet, Deduct the proportionate Show separately the amount, amount of Insurance Premium of prepaid insurance on the, for 3 months from insurance Assets Side of the Balance, on the Debit Side of Profit Sheet, and Loss A/c, Show 1/4th amount of Show the remaining i.e. 3/4th, Advertisement expenses on of Advertisement expenses, the Debit Side of Profit and (not written off) on the Assets, Loss A/c, Side of the Balance Sheet, Add the proportionate amount Show the same amount on the, of Rent for one month to Rent Assets Side of the Balance, received on Credit Side of Sheet, Profit and Loss A/c, Show the amount of Interest Add the amount of Interest, Receivable on investment for Receivable on investment on, 3 months on the Credit Side of the Assets Side of the Balance, the Profit and Loss A/c, Sheet, Show the amount of Interest Add the amount of Interest, Receivable on Investment for Receivable on Investment on, 3 months on the Credit Side the Assets Side of the Balance, of the Profit and Loss A/c, Sheet, Show the amount of Interest Add the amount of Interest, Receivable on the Credit Side Receivable to Government, of Profit and Loss Account, Bonds on the Assets Side of, the Balance Sheet or show, seperately in Balance Sheet, Asset Side., , 21
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Important Points :, 1) Each item from Trial Balance will be included only once in the Final Accounts i.e. either in, Trading or in Profit & Loss A/c or in Balance Sheet or in working section., 2) Each adjustment has two effects for the similar amount., 3) Debit balances of Trial Balance will appear on the debit side of Trading Account or Profit &, Loss A/c or on the asset side of the Balance Sheet., 4) Credit balances of Trial Balance will appear on the credit side of Trading Account or Profit &, Loss A/c or Capital Account or on the Liabilities Side of the Balance Sheet., 5) If Salaries and Wages are given as separate items, Wages are shown on the debit side of Trading, Account while salaries are shown on the debit side of Profit and Loss A/c. If the item is “Wages, and Salaries”, it is shown on the debit side of Trading A/c and if the items is “Salaries &, Wages”, it is shown on the debit side of Profit & Loss A/c., 6) If the Trial Balance contains only “Trade Expenses”, the item will be shown on the debit side, of Profit & Loss A/c. If the Trial Balance contains “Trade Expenses” and also other items like, “Sundry Expenses” or “Office Expenses” or “General Expenses” or “Miscellaneous Expenses”,, the item “Trade Expenses” is shown on the debit side of Trading A/c while the other items of, expenses are shown on the debit side of Profit &Loss A/c., 7) The adjustment for Bad Debts and Provision for Bad and Doubtful Debts should be effected, after other adjustments for Debtors are given effect to. Such adjustments can be unrecorded, sales, drawings included in Debtors, drawings treated as sales, etc., 8) Reserve for Discount on Debtors should be given effect after the adjustments for Bad Debts and, Provision for Bad and Doubtful Debts., 9) Reserve for Discount on Creditors should be given effect after making all the other adjustments, concerning Creditors., 10) Hidden / Self-explanatory adjustments are to be given effect even if there is no special instruction, in the problem in this respect., 11) Closing Stock should be taken at “Cost or Market Price, whichever is less.", 12) If a manager or a partner is allowed commission at a certain percentage on Net Profit, such, commission should be calculated in the following manner depending upon how the commission, is quoted :, a) If it is on Net Profit before charging such commission : , Commission Amount =, , Rate of Commission × Net Profit, 100, , b), , If it is on Net Profit after charging such commission : , Rate of Commission × Net Profit, Commission Amount =, 100+ Rate of Commission, 13) When the date of drawings are not given Interest on drawings should be calculated on average, basis or for six months , Drawings × Rate × 6, 100 12, 14) If a partner introduces capital in the middle of the accounting year, then interest on capital, should be calculated on proportionate time period only. (This complication is not expected at, your Std. XII level)., 22
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Treatment of some important Items appearing in Trial Balance only :, i) Any outstanding expenses, , Liability Side of Balance Sheet, , ii) Any Prepaid Expenses, , Asset Side of Balance Sheet, , iii) Any outstanding income, , Asset Side of Balance Sheet, , iv) Income Received in Advance, , Liability Side of Balance Sheet, , v) Depreciation, , Debit Side of Profit & Loss A/c, , vi) Loss on Sale of any Asset, , Debit Side of Profit & Loss A/c, , vii) Goods withdrawn by partner, , Debit Side of Capital/Current A/c, , viii) General Reserve / Reserve Fund, , Liability Side of Balance Sheet, , ix) Deposit from Public, , Liability Side of Balance Sheet, , x) Goods distributed as free samples, , Debit side of Profit & Loss A/C, , xi) Suspense Account:, a) If it is on Debit Side, , Show the same figure on Asset Side, , b) If it is on Credit Side, , Show the same figure on Liability Side, , xii) Bank for Collection of Bills, , Asset Side of Balance Sheet, , Steps for solving problem :, 1) Prepare the necessary accounts, including the working notes., 2) Place some mark on Trial Balance items for external as well as internal adjustments., 3) Go through Trial Balance items and give only one accounting effect sequentially., 4) Go through Adjustments and give two accounting effects., 5) Close Ledgers in the working notes, except capital., 6) Find Gross Profit, Net Profit and transfer it to individual capital accounts., 7) Find the closing balance in capital and transfer it to Balance Sheet., 8) Tally the Balance Sheet., , 23
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Illustrations, 1., , Daya and Kshama are Partners sharing Profits and Losses in the ratio of 1:1 from the, following Trial Balance and additional information prepare Trading and Profit and Loss, account for the year ended 31st March 2019 and Balance Sheet as on that date., Trial Balance as on 31st March, 2019, , Debit Balance, Stock (1/4/2018), Bills Receivable, Wages and salaries, Sundry Debtors, Bad debts, Purchases, Motor car, Machinery, Audit Fees, Sales Return, Discount, Building, Cash at Bank, 10% Investment, Advertisement(Paid for 9 months), Royalties, , Amt. `, 65,000, 28,000, 9,000, 1,32,500, 1,000, 1,48,000, 68,000, 1,14,800, 1,200, 2,000, 2,300, 75,000, 12,000, 20,000, 4,500, 3,000, 6,86.300, , Credit Balance, General Reserve, Capital:, Daya, Kshama, Creditors, R.D.D., Sales, Outstanding Wages, Purchases Returns, Discount, , Amt. `, 14,500, 1,60,000, 1,20,000, 98,000, 1,800, 2,85,500, 700, 4,000, 1800, , 6,86.300, , Adjustment and Additional Information :, (1) Closing Stock ` 40,000., (2) Depreciate Building and Machinery @ 5% and 3% respectively., (3) Bills Receivable included dishonoured bill of ` 3000., (4) Goods worth ` 1000 taken by Daya for personal use was not entered in the books of accounts., (5) Write off ` 1800 as Bad debts and maintain R.D.D. at 5% on Sundry Debtors., (6) Goods of ` 6000 were sold but no entry was made in the books of accounts., , 24
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IN THE BOOKS OF DAYA AND KSHAMA, , Trading, Profit and Loss Account for the year Ended 31st March 2019, Dr. , Particulars, To Opening Stock, To Purchases, Less - Purchases Return, To Royalties, To wages and Salaries, To Gross Profit c/d, , Amt, , Amt, , `, , `, , Particulars, , 65,000 By Sales, 1,48,000, Add :Unrecorded Sales, 4,000 1,44,000, 3,000 Less : Sales Return, 9,000 By Goods take over by, Daya for Personal Use, 1,09,500 By Closing Stock, 3,30,500, , To Advertisement, Add : o/s for 3 months, To Audit fees, To Depreciation on :, Building, Machinery, To Bad debts (old), Add : New Bad Debts, Add : New R.D.D., Less : R.D.D.(old), To Discount, To Net Profit, (Transferred to Capital A/c's), Daya, Kshama, , 4,500, 1,500, , 3,750, 3,444, 1,000, 1,800, 6,985, 9,785, 1,800, , 44,311, 44,310, , 6,000 By Gross Profit b/d, 1,200 By Interest Accrued on, Investment, By Discount, 7,194, , Cr., , Amt, , Amt, , `, , `, , 2,85,500, 6,000, 2,91,500, 2,000 2,89,500, 1,000, 40,000, 3,30,500, 1,09,500, 2,000, 1,800, , 7,985, 2,300, , 88,621, 1,13,300, , 25, , 1,13,300
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Balance Sheet as on 31st March, 2019, Liabilities, , Amt., , Amt., , `, , `, , Assets, , Capital : Daya, 1,60,000, Building, Add : Net Profit, 44,311, Less : Depreciation 5%, Less: (Goods taken over by, 1,000 2,03,311 Machinery, Daya for personal use), Capital Kshama, Add : Net Profit, General Reserve, O/s Advertisement Exp., (3 months), Creditors, Outstanding Wages, , 1,20,000, 44,310 1,64,310, 14,500, 1,500, 98,000, 700, , Less : Depreciation 3%, Bills Receivable, Less : Bills Receivable, Dishonoured, Motor Car, Cash at Bank, Closing Stock, Sundry Debtors, Add : Bills Receivable, Dishonoured, Add : Unrecorded Sales, Less : Bad debts (New), Less : R.D.D. 5% (New), 10% Investment, Add : Interest Accrued, , 4,82,321, , Amt., , Amt., , `, , `, , 75,000, 3,750, 1,14,800, , 71,250, , 3,444 1,11,356, 28,000, 3,000, 25,000, 68,000, 12,000, 40,000, 1,32,500, 3,000, 1,35,500, 6,000, 1,41,500, 1,800, 1,39,700, 6,985 1,32,715, 20,000, 2,000, 22,000, 4,82,321, , Working Notes :, (1) Adjustment No. 3, 5 and 6 are co-related with sundry Debtors. So, while calculating R.D.D., 5% on sundry Debtors, Amount of dishonour of Bills ` 3,000) and goods sold but not recorded, (` 6000) will be added into the sundry Debtors, then new Bad Debts will be deducted and then, Less R.D.D (New) 5% 6985 after 5% R.D.D should be calculated., 1st effect Sundry Debtors, , Add : Bills dishonoured, , Add : Unrecorded sales, , , Less Bad debts (New), , , Less R.D.D (New) 5%, , , `, , 1,32,500, 3,000, 6,000, 1,41,500, 1,800, 1,39,700, 6,985, 1,32,715, 26, , (Shown on Assets side of Balance Sheet)
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`, 2nd Effect To Bad debts (Old) , 1,000, Add Bad debts (New) , 1,800, Add New R.D.D , 6,985, , , 9,785, Less R.D.D. (Old) , 1,800, , ` 7,985, , 2., , - (Shown on Debit side of Profit and, Loss A/C), , From the following Trial Balance and Adjustments given below you are required to prepare, Trading and Profit and Loss Account for the year ended 31st March, 2019 and Balance, Sheet as on that date in the books of Shilpa and Katrina., Trial Balance as on 31st March, 2019, , Particulars, Land and Building, Furniture, Sundry Debtors, Stock (1/4/2018), Bad Debts, Printing and Stationary, Wages, Salaries, Carriage Inward, Sales Return, Drawings :, Shilpa, Katrina, Discount, Advance Given to Shaharukh, Cash in hand, Cash at Bank, Interest, Commision, Royalties, Purchases, , Debit `, 37,800, 17,250, 40,000, 65,000, 400, 4,000, 3,000, 5,000, 4,000, 2,000, , Particulars, Capital, Shilpa, Katrina, Bills payable, Bank Over draft, Purchases Return, Sundry Creditors, Bank Loan, Interest received, R.D.D, Sales, , 2,000, 3,000, 2,030, 10,000, 20,000, 8,000, 1,000, 2,000, 2,000, 50,000, 2,78,480, , Credit `, 45,000, 45,000, 17,500, 10,000, 1,480, 22,000, 15,000, 1,500, 1,000, 1,20,000, , 2,78,480, , Adjustments, (1) The Stock in Hand was valued at ` 58,000 on 31st March, 2019., (2) Outstanding Expenses : Royalties ` 1,500 and Wages ` 800., , 27
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(3) Salaries paid in advance to staff ` 2,000., (4) Create a provision for Bad Debts ` 1,000 and Reserve for Doubtful Debts 3% on Sundry, Debtors., (5) Depreciate Land and Building by 5% and Furniture by 10%., , Dr. , , IN THE BOOKS OF SHILPA AND KATRINA, Trading and Profit and Loss Account for the year ended 31st March 2019, , Particulars, , Cr., Amount Amount, `, , To Opening Stock, To Purchase, Less : Purchases Return, To Wages, Add : O/s Wages, To Royalties, Add : O/s Royalties, To Carriage Inward, To Gross Profit c/d, , To Salaries, Less : Advance Salary, To Bad debts (Old), Add : Bad Debts (New), Add : R.D.D. (New), Less - R.D.D. (Old), To Depreciation :, Land and Building, Furniture, To Printing And Stationary, To Discount, To Interest, To Commission, To Net Profit, (Transfered to Capital A/c), Shilpa, Katrina, , Particulars, , `, , `, , 65,000 By Sales, 50,000, Less : Sales Return, 1,480 4,88,520 By Closing Stock, 3,000, 800, 3,800, 2,000, 1,500, 3,500, 4,000, 51,180, 1,76,000, 5,000, 2,000, 400, 1,000, 1,170, 2,570, 1,000, 1,890, 1,725, , 17,732, 17,733, , Amount Amount, , By Gross Profit b/d, 3,000 By Interest Received, , `, , 1,20,000, 2,000 1,18,000, 58,000, , 1,76,000, 51,180, 1,500, , 1,570, , 3,615, 4,000, 2,030, 1,000, 2,000, , 35,465, 52,680, 28, , 52,680
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Balance Sheet as on 31st March, 2019, Liabilities, Capital :, Shilpa, Add : Net Profit, Less : Drawings, Katrina, Add : Net Profit, Less : Drawings, Bills Payable, Outstanding Expenses :, Wages, Royalties, Bank Overdraft, Sundry Creditors, Bank Loan, , Assets, , Amount Amount, `, , `, , 45,000, 17,732, 62,732, 2,000, 45,000, 17,733, 62,733, 3,000, , 800, 1500, , Land and Building, Less : 5%Depreciation, Furniture, Less :10% Depreciation, 60,732 Sundry Debtors, Less : Bad debts, Less : R.D.D. 3%, 59,733 Cash in Hand, 17,500 Cash at Bank, Closing Stock, Advance Salary, 2,300 Advance to Shaharukh, 10,000, 22,000, 15,000, 1,87,265, , 3., , Amount Amount, `, , `, , 37,800, 1,890, 17,250, 1,725, 40,000, 1,000, 39,000, 1,170, , 35,910, 15,525, , 37,830, 20,000, 8,000, 58,000, 2,000, 10,000, , 1,87,265, , Rucha and Juili are partners sharing Profits and Losses in their Capital Ratio. From the, following Trial Balance and adjustments you are required to prepare Final Accounts., Trial Balance as on 31st March, 2019, , Particulars, Purchases, Trade Expenses, Salaries, Wages and Salaries, Advertisement (2 Years), Sales Returns, Freehold Property, Office Rent, Motor Van, Stock (1/4/2018), General Expenses, Sundry Debtors, Coal, Gas, Fuel, Carriage Inward, Carriage Outward, Plant and Machinery, , Debit `, 48,000, 3,000, 4,500, 2,800, 4,000, 8,000, 23,000, 5,000, 40,000, 89,500, 2,500, 62,000, 1,000, 800, 1,300, 13,800, , Particulars, Capital A/c, Rucha, Juili, Sundry Creditors, Sales, R.D.D., Bills Payable, Purchases Return, , 3,09,200, , Credit `, 80,000, 40,000, 22,000, 1,48,000, 1,200, 12,000, 6,000, , 3,09,200, 29
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Adjustments :, (1) Closing Stock is valued at ` 88,000 (Cost Price) and ` 90,000 (Market Price), (2) Rucha and Juili withdrawn from business ` 3000 and ` 2000 respectively for their personal use., (3) Depreciate Motor Van by 5% and Plant and Machinery by 7%., (4) Reserve for Doubtful Debts on Debtors @ 5% is to be created., (5) Outstanding Wages ` 800., (6) Goods of ` 6000 were purchased on credit but no entry was found in the Books of Account., IN THE BOOKS OF RUCHA AND JUILI, Trading and Profit and Loss Account for the year ended 31st March 2019, , Balance Sheet as on 31st March, 2019, Dr. , Cr., Particulars, Particulars, Amount Amount, Amount Amount, `, , To Opening Stock, To Purchases, Add : Unrecorded, Purchases, Less : Purchases Return, To Wages and Salaries, Add : Outstanding Wages, To Trade Expenses, To Coal, Gas Fuel, To Carriage Inward, To Gross Profit c/d, , To Salaries, To Depreciation, Motor Van, Plant and Machinery, To R.D.D. (New), Less : R.D.D. (Old), To Advertisement, Less : Prepaid Advt., To Office Rent, To General Expenses, To Carriage Outword, To Net Profit (Transferred, to Capital A/c's), Rucha, Juili, , 48,000, 6,000, 54,000, 6,000, 2,800, 800, , `, , `, , 89,500 By Sales, Add : Unrecorded, Sales, , 48,000, 3,600, 3,000, 1,000, 800, 93,100, 2,39,000, , Less : Sales Return, By Closing Stock, By Goods withdrawn, by Partners :, Rucha, Juili, , 4,500 By Gross Profit b/d, 2,000, 966, 3,400, 1,200, 4,000, 2,000, , 48,423, 24,211, , `, , 1,48,000, 6,000, 1,54,000, 8,000 1,46,000, 88,000, , 3,000, 2,000, , 5,000, , 2,39,000, 93,100, , 2,966, 2,200, 2,000, 5,000, 2,500, 1,300, , 72,634, 93,100, 30, , 93,100
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Balance Sheet as on 31st March, 2019, Liabilities, Capitals :, Rucha, Juili, Outstanding Wages, Sundry Creditors, Add : Unrecorded, Purchases, Bills Payable, , Amount Amount, `, , To Drawings, To Balance c/d, , Assets, , Motor Van, 1,25,423, Less : Depreciation 5%, 62,211 1,87,634 Plant and Machinery, 800 Less : Depreciation 7%, 22,000, Debtors, 6,000 28,000 Add: Unrecorded Sales, 12,000 Less : R.D.D. 5%, Closing Stock, Prepaid Advertisement, Freehold Property, 2,28,434, Partners Capital Account, , Dr., Particulars, , `, , Rucha, , Juili, , `, , `, , 3,000, 1,25,423, 1,28,423, , Particulars, , 2,000 By Balance b/d, 62,211 By Profit and Loss A/c, 64,211, By Balance b/d, , Amount Amount, `, , 40,000, 2,000, 13,800, 966, 62,000, 6,000, 68,000, 3,400, , `, , 38,000, 12,834, , 64,500, 88,000, 2,000, 23,000, 2,28,434, Cr., , Rucha, , Juili, , `, , `, , 80,000, 48,423, 1,28,423, 1,25,423, , 40,000, 24,211, 64,211, 62,211, , Working Notes :, (2) Advertisement Expenses are paid for 2 Years , so expenses of one year ` 2000 are prepaid., Prepaid Expenses (Advertisement) is treated as an Asset. The amount of prepaid should be, deducted from total amount of Advertisement in Profit and Loss Account., , 31
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4., , From the following Trial Balance of Mr. Piyush and Mr. Arun. You are required to prepare, Trading and Profit and Loss Account and Balance Sheet as on the date:, Trial Balance as on 31st March, 2019, , Particulars, Stock (1/4/2018), Purchases Salaries, Salaries, Wages, Carriage, Royalties, Freight, Printing and Stationery, Sundry Debtors, Furniture, Lease hold property, Investment, Travelling Expenses, Advertisement (For 3 years), Bad Debts, Discount Allowed, Cash in Hand, Cash at Bank, Fixed Deposits, , Debit `, 30,800, 80,000, 5,000, 7,500, 3,000, 2,500, 700, 1,050, 43,000, 20,200, 25,000, 15,000, 3,450, 30,000, 500, 1,800, 7,000, 20,000, 15,000, , Particulars, Capital Account, Piyush, Arun, Sundry Creditors, Interest received on Fixed Deposit, Bank Overdraft, Sales, , 3,11,500, , Credit `, 80,000, 80,000, 20500, 1000, 10,000, 1,20,000, , 3,11,500, , Adjustments :, (1) Stock on hand on 31st March, 2019 was Cost Price ` 40,000 and Market price ` 35,000., (2) Interest on Fixed Deposit ` 1200 is still receivable., (3) Provide R.D.D. at 2.5% on Sundry Debtors., (4) Depreciate Furniture by 5%., (5) Goods of ` 8000 destroyed by fire and insurance company admited a claim of 6000 only., , 32
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IN THE BOOKS OF MR. PIYUSH AND MR. ARUN., Trading and Profit and Loss Account for the year Ended 31st March 2019, Dr. , , Particulars, , Amount Amount, `, , To Opening Stock, To Purchases, To Wages, To Carriage, To Royalties, To Freight, To Gross Profit c/d, , Particulars, , `, , Amount Amount, `, , 30,800 By Sales, 80,000 By Goods destroyed by Fire, 7,500, 3,000 By Closing Stock, 2,500, 700, 38,500, , 500, 1,075, , 1,800 By Gross Profit b/d, 5,000 By Interest on Fixed Deposit, 1,050, Add : Interest Receivable, 1,575, 2,000, 1,010, , `, , 1,20,000, 8000, 35,000, , 1,63,000, To Discount, To Salaries, To Printing and Stationery, To Bad Debts, Add : R.D.D. (New), To Loss by Fire, To Depreciation on, Furniture, To Travelling Expenses, To Advertisement, Less : Prepaid Advt., To Net Profit, (Transfered to Capital A/c's), Piyush, Arun, , Cr., , 1,63,000, 38,500, 1,000, 1,200, , 2200, , 3,450, 30,000, 20,000, , 7,408, 7,407, , 10,000, , 14,815, 40,700, , 33, , 40,700
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Liabilities, Capital Account:, Piyush, Add : Net profit, Arun, Add : Net Profit, Sundry Creditors, Bank Overdraft, , 5., , Balance Sheet as on 31st March, 2019, Assets, Amount ` Amount `, Amount `, Leasehold Property, 80,000, Investment, 7,408, 87,408 Fixed Deposit, 15,000, 80,000, Add : Interest Receivable, 1,200, 7407, 87,407 Furniture, 20,200, 20,500 Less : Depreciation 5%, 1010, 10,000 Sundry Debtors, 43,000, Less : R.D.D. 2.5%, 1075, Insurance Claim, Prepaid Advertisement, Cash in Hand, Cash at Bank, Closing Stock, 2,05,315, , Amount `, 25,000, 15,000, 16,200, 19,190, 41,925, 600, 20,000, 7,000, 20,000, 35,000, 2,05,315, , M/s Sudarshan Traders is a Partnership Firm in which, Ram and Krushna are partners, sharing Profits and Losses in the ratio 3:2. From the following Trial Balance prepare Final, Account for the year 2018-19:, Trial Balance as on 31st March, 2019, Particulars, Debit `, Credit `, Opening Stock, 36,000, Capital A/C :, Ram, 1,60,000, Krushna, 80,000, Current A/C :, Ram, 8,000, Krushna, 4,000, Purchases, 1,00,000, Sales, 2,08,000, Sundry Debtors, 1,73,500, Sundry Creditors, 41,800, Bills Receivable, 47,000, Bills Payable, 21,000, Commission, 2,800, Wages, 1,760, Salaries, 3,000, Furniture, 25,000, Plant and Machinary, 63,000, R.D.D., 1,000, Investment, 10,500, Loans and Advances Given, 35,240, Insurance, 2,500, Bad debts, 500, 12% Govt. Bonds (Purchased on 1.1.2019), 15,000, 5,19,800, 5,19,800, 34
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Adjustments :, (1) Stock on hand on 31 March 2019 was valued at ` 38000., (2) Ram is allowed a Salary of ` 6000 and Krushna is allowed Commission at 3% on net sales., (3) Interest on Partner's Capital is to be provided @ 5% p.a., (4) Provide depreciation on Plant and Machinery 5%., (5) ` 3000 from our customer is not recoverable., (6) Prepaid Insurance ` 500., , Trading and Profit and Loss Account for the year ended 31st March 2019, Dr. , Cr., Particulars, , Amount Amount, `, , To Opening Stock, To Purchases, To Wages, To Gross Profit c/d, , To Commission, To Salaries, To Insurance, Less : Prepaid, To Ram's Salary, To Commission to Krushna, To Depreciation on :, Plant and Machinery, To Bad debts (Old), To R.D.D. (New), Less : R.D.D. (Old), To Interest on Capital, (Pratners Current A/C), Ram, Krushna, Net Profit (Transfered, Partners to Current Account), Ram, Krushna, , `, , Particulars, , 36,000 By Sales, 1,00,000 By Closing Stock, 1760, 1,08,240, 2,46,000, , 2,500, 500, , 2,800 By Gross Profit b/d, 3,000 By Interest on Govt, Bonds Receivable, 2,000, 6,000, 6,240, , Amount Amount, `, , `, , 2,08,000, 38000, , 2,46,000, 1,08,240, 450, , 3,150, 500, 3,000, 3,500, 1,000, , 2,500, , 8,000, 4,000, , 12,000, , 35,500, 35,500, , 71,000, 1,08,690, , 35, , 1,08,690
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Balance Sheet as on 31st March, 2019, Liabilities, , Amount Amount, `, , Capital :, Ram, Krushna, Current A/c :, Ram, Krushna, Creditors, Bills Payable, , Assets, , `, , Amount Amount, `, , Sundry Debtors, 1,60,000, Less-Bad debts, 80,000 2,40,000 Bills Receivable, Plant and Machinery, 57,500, Less : Depreciation, 41,740, 99,240 Furniture, 41,800 Investment, 21,000 Loan and Advances, Closing Stock, Prepaid Insurance, 12% Govt. Bonds, Add : Interest Receivable, 4,02,040, , `, , 1,73,500, 3,000 1,70,500, 47,000, 63,000, 3,150, 59,850, 25,000, 10,500, 35,240, 38,000, 500, 15,000, 450, 15,450, 4,02,040, , Dr. , Partners Current Account , Cr., Particulars, Ram Krushna, Particulars, Ram, Krushna, Amt. ` Amt. `, Amt. ` Amt. `, To Balance b/d, 4,000 By Balance b/d, 8,000, By Profit and Loss A/c, 6,000, (Ram's Salary), By Profit and Loss A/c, 6,240, (Commision), To Balance c/d, 57,500, 41,740 By Profit and Loss A/c, 8,000, 4,000, (Interest on capital), By Profit and Loss A/c, 35,500, 35,000, 57,500, 45,740, 57,500, 45,740, By Balance b/d, 57,500, 41,740, Working Notes :, (1) In this problem Current Account is given. So total Amount of fixed capital of Ram (`1,60,000), and Krishna (` 80,000) = ` 2,40,000 should be directly shown on the liability side of Balance, Sheet. Effect of adjustment related with capital. i.e. 5% interest on capital, 3% commission on, net sales, partners should be reflected on current account which is separately prepared. Closing, Balances of Current Account of partners will be shown on liability side of Balance sheet., (2) Amount of Debtor ( 3000) which is not recoverable is to be treated as Bad debts (New) and it, should be deducted from debtors on Assets side of Balance Sheet., (3) 12% Govt. Bonds - are purchased on 1.1.2019, So Interest receivable is only for 3 months (i.e., 1.1.2019 To 31.3.2019) @ 12% p.a. on 15000. Which is treated as income., 15,000, 3, 12, 100 ×, × 12 =, ` 1,800, 100, ` 1,800 is for 12 months, we have to consider Interest for 3 months only., , 36
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1,800, 3, 100 × 12 = ` 450, Interest on Govt Bonds @ 12% for 3 months is ` 450, 6., , From the following Trial Balance of Shreyas and Mrunal and adjustments you are required, to prepare Trading and Profit and Loss Account for the year ended 31st March, 2019 and, Balance Sheet as on that date:, Trial Balance as on 31st March, 2019 Particulars, Particulars, Capital Accounts :, Sheyas, Mrunal, Purchases, Sales, Bills Receivable, Bills Payable, Commission, Salaries, Insurance (9 months), Prepaid Rent, Sundry Creditors, Sundry Debtors, Postage, Freehold Premises, Furniture, Bad debts, Cash in Hand, Cash at Bank, Carriage Inward, Carriage Outward, Stock (1/4/2018), Returns, Wages, Outstanding Wages, , Debit `, , Credit `, 35,000, 20,000, , 37,800, 66,700, 8,000, 6,500, 2,400, 6,000, 9,000, 3,000, 48,900, 25,000, 1,700, 17,300, 20,000, 500, 4,500, 16,000, 800, 1,700, 22,500, 1,200, 3,100, Total, , 1,80,500, , 1800, 1600, 1,80,500, , Adjustments :, (1) Closing Stock ` 30.000, (2) Outstanding Expenses - Salary ` 1200 and Commission ` 400., (3) Depreciate Furniture @ 10%, (4) Provide for further Bad debts i ` 1200., (5) Goods of ` 5000 destroyed by fire and insurance company admited a claim of ` 2000 only., (6) Shreyas and Mrunal are sharing profits and losses in the ratio 2:1, 37
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Dr., , , THE BOOKS OF SHREYAS AND MRUNAL., Trading and Profit and Loss Account for the year ended 31st March 2019, , Particulars, To Opening Stock, To Purchases, Less : Returns, To Carriage Inward, To Wages, To Gross Profit c/d, To Insurance, Add : Outstanding, (3 months), To Salaries, Add : Outstanding, To Commission, Add : Outstanding, To Depreciation on Furniture, To Bad debts, Add : Bad Debts (New), To Loss by fire, To Postage, To Carriage Outward, To Net Profit (Transferred to, Capital Accounts), Shreyas, Mrunal, , Cr., Amount, `, , 37,800, 1,800, , 9,000, 3,000, 6,000, 1,200, 2,400, 400, , Amount, `, , Particulars, , 22,500 By Sales, Less : Returns, 36,000 By Goods destroyed, 800 by Fire, 3,100, 38,100 By Closing Stock, 1,00,500, 12,000 By Gross Profit b/d, , Amount Amount, `, , 66,700, 1200, , `, , 65,500, 5,000, , 30,000, 1,00,500, 38,100, , 7,200, 2,800, 2,000, , 500, 1,200, , 4,000, 2,000, , 1,700, 3,000, 1,700, 1,700, , 6,000, 38,100, , 38, , 38,100
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Balance Sheet as on 31st March, 2019, Liabilities, Capital Account :, Shreyas, Add : Net Profit, Mrunal, Add : Net Profit, Sundry Creditors, Bills Payable, Outstanding Expenses, Salaries, Commission, Outstanding Insurance, Outstanding Wages, 7., , Assets, , Amount Amount, `, , `, , 35,000, 4,000, 20,000, 2,000, , 1,200, 400, , 39,000, 22,000, 48,900, 6,500, , 1,600, 3,000, 1,600, 1,22,600, , Furniture, Less : Depreciation10%, Sundry Debtors, Less : Bad debts, Bills Receivable, Freehold Premises, Cash in Hand, Cash at Bank, Closing Stock, Insurance Claim, Prepaid Rent, , Amount Amount, `, , `, , 20,000, 2,000, 25,000, 1,200, , 18,000, 23,800, 8000, 17,300, 4500, 16,000, 30,000, 2,000, 3,000, 1,22,600, , Sapre and Atre are partners sharing Profits and Losses equally. From the following Trial, Balance and Adjustments, prepare Trading and Profit and Loss Account for the year ended, 31st March, 2019 and Balance Sheet as on that date., Trial Balance as on 31st March, 2019, Debit Balance, , Sundry Debtors, Purchases, Returns, Opening Stock, Land and Building, Carriage, Rent, Rates & Taxes, Drawings :, Sapre, Atre, Salaries, Bad debts, Machinery, (Additions on 1st Oct, 2018,, ` 10,000), Advertisement, Provident Fund Investment, , Credit Balance, , Amount, `, , 40,000, 65,000, 800, 18,000, 10,000, 1,200, 1,000, 3,000, 2,000, 3,200, 1,000, 25,000, , Sales, Sundry Creditors, Sundry Income, Capital :, Sapre, Atre, Provident Fund, Returns, Commission Pre Received, R.D.D, , 4,000, 18,500, 1,92,700, , Amount, `, , 85,000, 23,000, 2,000, 35,000, 35,000, 10,000, 1,500, 800, 400, , 1,92,700, 39
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Adjustments :, 1) Closing Stock is valued at ` 23,000., 2) Depreciate Land and Building @ 5% and Machinery @10%., 3) Create Provision for Bad and Doubtful Debts at 5% on Sundry debtors and write off ` 1000 for, Bad-debts., 4) Goods worth ` 3000 were sold, but no entry was found in the books of account., 5) Outstanding carriage ` 500., 6) Goods worth ` 8000 were purchased on 31st March, 2019 and included in the closing stock but, not recorded in the Books of Account., IN THE BOOKS OF SAPRE & ATRE, TRADING AND PROFIT & LOSS ACCOUNT, For the year ended 31st March, 2019, Dr. , Cr., Particulars, To Opening Stock, To Purchases, Add : Unrecorded, Purchases, Less : Returns, To Carriage, Add : Outstanding, To Gross Profit c/d, , To Salaries, To Rent, Rates & Taxes, To Depreciation, Land & Building, Plant & Machinery, To Bad debts (Old), Add : Bad-debts(New), Add : New R.D.D., Less - R.D.D (Old), To Advertisement, To Net Profit Transferred, to Capital Accounts :, Sapre, Atre, , Amt `, 65,000, 8,000, 73,000, 1,500, 1,200, 500, , Particulars, Amt `, 18,000 By Sales, Add : Unrecorded, Sales, Less : Returns, , 3,300, 3,300, , 88,000, 800, , Amt `, , 87,200, , 71,500, By Closing Stock, 1,700, 19,000, 1,10,200, 3,200 By Gross Profit b/d, 1,000, By Sundry Income, , 500, 2,000, 1,000, 1,000, 2,100, 4,100, 400, , Amt `, 85,000, 3,000, , 23,000, , 1,10,200, 19,000, 2,000, , 2,500, , 3,700, 4,000, , 6,600, 21,000, 40, , 21,000
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BALANCE SHEET, As on 31st March, 2019, Liabilities, , `, , Capital : Sapre, Add : Net Profit, Less : Drawings, Capital : Atre, Add : Net Profit, Less : Drawings, Providend Fund, Outstanding Expenses :, Carriage, Creditors, Add : Unrecorded, Purchases, Commission Received in, advance, , Assets, , Amount Amount, , Amount Amount, , `, , 35,000, 3,300, 38,300, 3,000, 35,000, 3,300, 38,300, 2,000, , `, , 35,300, , 36,300, 10,000, 500, , 23,000, 8,000, , Land & Building, Less : Depreciation5%, Plant & Machinery, Less:Depreciation10%, Sundry Debtors, Add : Unrecorded, Sales, Less : Bad debts (Now), Less : R.D.D. 5%, Closing Stock, Providend Fund, Investment, , 10,000, 500, 25,000, 2,000, 40,000, 3,000, 43,000, 1,000, 42,000, 2,100, , `, , 9,500, 23,000, , 39,900, 23,000, 18,500, , 31,000, , 800, 1,13,900, , 1,13,900, , Working Notes :, 1) While calculating Depreciation on Machinery, we have to consider the date of purchase of, additional Machine, which is purchased on 1st Oct 2018. (Additional Machine Purchased, `10,000) So 25,000, , 15,000, On ` 15,000, Dep. @ 10% for , 12 months, , , 10,000, On 10,000, Dep. @ 10% for, 6 months only, , , , 1,500 500 , 1, 1, 6, 10, = ` 1,500 , × 100 ×, = ` 500, 15,000 ×, 1,000, 12, 100, So Depreciation is 1,500 + 500 = ` 2,000, , 41
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2), , Goods worth ` 3,000 is unrecorded sales. It will be added in to the Sundry Debtors and in to, Sales also and after that Bad Debts (New) will be deducted and on that amount of Debtors 5%, R.D.D. will be calculated., , 1st effect, Debtors, Add : Unrecorded, Sales, Less : Bad-debts(New), , 2nd effect, 40,000 (i) Trading, 3,000 A/c Credit Side, 43,000 By Sales, , 85,000 Add : Bad Debts, , 1,000 +Unrecorded Sales, 42,000, , Less : R.D.D 5%(New), , (ii) Profit & Loss, A/c, To Bad debts, , 800, Less : R.D.D. (Old), , 39,900, 3), , 1,000, 1,000, , 3,000, 88,000 Add : New R.D.D., , 2,100 Less : Returns, , -, , 87,200, , 2,100, 4.100, 400, 3,700, , Unrecorded Purchases of ` 8,000, This will affects on Purchases and Creditors also - As it is, unrecorded, So ` 8,000 will be added in to the Purchases (65,000 + 8,000) and also added into, the Creditors (23,000 + 8,000), , 42
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8., , Nene and Kane are Partners, sharing Profits and Losses in the ratio 6:4. From the following, Trial Balance and adjustments given below, Prepare, Trading and Profit and Loss Account, for the year ending and Balance Sheet as on that date., Trial Balance as on 31st March, 2019, Particulars, , Debit, Amount `, , Capital :, Nene, Kane, Sundry Debtors, Sundry Creditors, Rent (10 months), Stock (1/4/2018), Premises, Salaries, Discount, Motor Vehicle, Sales, Purchases, Wages, Office Expenses, Bank Overdraft, Returns, Providend Fund Investment, Cash in Hand, Providend Fund Contribution, Providend Fund, Cash at Bank, Interest on P.F. Investment, Drawings :, Nene, Kane, Bad-debts, , Credit, Amount `, 15,00,000, 10,00,000, , 4,50,000, 3,00,000, 10,000, 5,35,500, 8,50,000, 50,000, 800, 3,70,000, , 950, 8,40,500, , 6,40,500, 10,000, 20,000, 5,500, 8,00,000, 40,000, 1,00,000, , 1,50,000, 3,500, , 2,80,000, 2,00,000, 42,000, 20,000, 15,000, 3,350, , R.D.D., , 3,700, Total, , 41,20,650, , 41,20,650, , Adjustments :, 1) Closing Stock ` 3,60,000., 2) Outstanding Wages ` 3,000 and Salaries ` 2000., 3) Depreciate Motor Vehicle @ 5% p.a., 4) Write of Bad-debts of ` 5,000 and provide for R.D.D at 5% Sundry Debtors., 5) Kane withdrew Goods of ` 6,000 for his personal use., 43
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IN THE BOOKS OF NENE AND KANE, TRADING AND PROFIT AND LOSS ACCOUNT, For the year ended 31st March, 2019, Dr Cr, Particulars, , Particulars, , Amount Amount, `, , `, , `, , To Opening Stock, 5,35,500 By Sales, To Purchases, 6,40,500, Less : Returns, Less - Returns, 3,500 6,37,000 By Goods, To Wages, 10,000, Withdraw by, Add : Outstanding Wages, 3,000, 13,000 Kane for Personal, To Gross Profit c/d, 15,500 Use, By Closing Stock, 12,01,000, To Salaries, Add : Outstanding, To Depreciation on, Motor Vehicle, To Bad debts (Old), Add : Bad-debts(New), Add :New R.D.D., Less : R.D.D. (Old), To Rent, Add : Outstanding Rent, To Discount, To Office Expenses, To Providend Fund, Contribution, , 50,000, 2,000, , 3,350, 5,000, 22,250, 30,600, 3,700, 10,000, 2,000, , Amount Amount, `, , 8,40,500, 5,500 8,35,000, 6,000, , 3,60,000, 12,01,000, , By Gross Profit b/d, 15,500, 52,000 By Discount, 950, 18,500 By Net Loss, (Transferred to Capital A/c), Nene, 1,28,250, Kane, 85,500 2,13,750, , 26,900, 12,000, 800, 20,000, 1,00,000, 2,30,200, , 2,30,200, , 44
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BALANCE SHEET as on 31st March, 2019, Liabilities, Capital : Nene, Less : Net Loss, Less : Drawings, Capital : Kane, Less - Net Loss, Less : Drawings, (15,000 + 6,000), Sundry Creditors, Outstanding Expenses, Wages, Salaries, Rent, Bank Overdraft, Providend Fund, Add : Interest on, Providend Fund, Investment, , Amt. `, , Assets, , Amt. `, , 15,00,000, Motor Vehicle, 1,28,750, Less : Depreciation5%, 13,71,750, Sundry Debtors, 20,000 13,51,750 Less : Bad-debts, 10,00,000, 85,500, Less - R.D.D 5%, 9,14,500, Premises, 21,000 8,93,500 Providend Fund, Investment, 3,00,000 Cash in Hand, Cash at Bank, 3,000, Closing Stock, 2,000, 2,000, 7,000, 1,50,000, 2,80,000, 42,000, , Amt. `, 3,70,000, 18,500, 4,50,000, 5,000, 4,45,000, 22,250, , Amt. `, 3,51,500, , 4,22,750, 8,50,000, 8,00,000, 40,000, 2,00,000, 3,60,000, , 3,22,000, 30,24,250, , 9., , 30,24,250, , Kranti & Sumangala are Partners sharing Profits and Losses in their Capital ratio. From, the Trial Balance given below and Adjustments, you are required to prepare Trading and, Profit and Loss Account for the year ended 31st March, 2019 and Balance Sheet as on that, date., Trial Balance as on 31st March, 2019, Debit Balance, Credit Balance, Amount `, Amount `, Stock (1/4/2018), 32,500, Capital :, Purchases, 40,000, Kranti, 1,20,000, Sundry Debtors, 1,00,000, Sumangala, 40,000, Bills Receivable, 8,500, Sales, 60,000, Wages, 3,000, Sundry Creditors, 30,000, Investment, 32,000, Bills Payable, 15,000, Postage, 2,700, Commission, 325, Insurance, 7,500, Purchases Returns, 1,000, Plant & Machinery, 15,000, Salaries, 4,850, Prepaid Rent, 2,000, Bad-debts, 500, Furniture, 12,500, Cash in Hand, 3,775, Sales Return, 1,500, 2,66,325, 2,66,325, 45
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Adjustments :, 1) Closing Stock is valued at Cost Price ` 28,000 and Market Price ` 32,000., 2) Insurance is paid up to 30th June 2019., 3) Outstanding Expenses - Wages ` 800, Salaries ` 700., 4) Book value of Plant and Machinery is reduced to ` 13,000., 5) Depreciate Furniture by 5% p.a., 6) Provide further Bad debts of ` 800., 7) Goods of ` 3,000 distributed as a free sample., IN THE BOOKS OF KRANTI AND SUMANGALA, TRADING AND PROFIT AND LOSS ACCOUNT, For the year ended 31st March, 2019, Dr. , Cr., Particulars, Amount Amount, Particulars, Amount Amount, `, , To Opening Stock, To Purchases, Less : Purchases Returns, To Wages, Add : Outstanding, To Gross Profit c/d, , 40,000, 1,000, 3,000, 800, , `, , `, , 32,500 By Sales, Less : Sales Return, 39,000 By Closing Stock, By Goods Distributed, 3,800 as Free sample, 14,200, , 60,000, 1,500, , 89,500, To Postage, To Insurance, Less : Prepaid Insurance, To Salaries, Add : Outstanding Salary, To Depreciation on :, Plant & Machinery, Furniture, To Bad-debts (Old), Add : Bad debts (New), To Advertisement, (Goods distributed), , 7,500, 1,875, 4,850, 700, 2,000, 625, 500, 800, , `, , 58,500, 28,000, 3,000, , 89,500, , 2,700 By Gross Profit b/d, By Commission, 5,625, By Net Loss, 5,550 (Transferred to Capital A/c's), Kranti, Sumangala, 2,625, , 14,200, 325, , 4,706, 1,569, , 6,275, , 1,300, 3,000, 20,800, , 20,800, , 46
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BALANCE SHEET, As on 31st March, 2019, Liabilities, Capital : Kranti, Less : Net Loss, Capital : Sumangala, Less : Net Loss, , Assets, , Amount Amount, `, , `, , 1,20,000, , Amount, `, , Plant & Machinery, , 15,000, , 4,706 1,15,294 Less : Depreciation, , 2,000, , 40,000, 1,569, , Furniture, 38,431 Less : Depreciation5%, , Outstanding Expenses, , Sundry Debtors, , Wages, , 800, , Less : Bad Debts, , Salaries, , 700, , 1,500 Bills Receivable, , Amount, `, , 13,000, , 12,500, 625, , 11,875, , 1,00,000, 800, , 99,200, 8,500, , Sundry Creditors, , 30,000 Investment, , 32,000, , Bills Payable, , 15,000 Cash in Hand, , 3,775, , Closing Stock, , 28,000, , Prepaid Insurance, , 1,875, , Prepaid Rent, , 2,000, , 2,00,225, , 47, , 2,00,225
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10. From the following Trial Balance of Riddhi and Siddhi, you are required to prepare Trading and Profit and loss Account for the year ended 31st March 2019 and Balance Sheet as, on that date after considering the additional information given below., Trial Balance as on 31st March, 2019, Particulars, , Debit (`), , Stock (1/4/2018), Capital - Riddhi, Siddhi, Purchases, Wages, Carriage Inward, Sundry Creditors, Bills Payable, Cash in hand, Insurance, Sundry Debtors, Bank Overdraft, Carriage outward, Land and Building, Furniture, Sales, Purchase Return, Sales Return, Rent, Bad-debts, R.D.D, Discount, Travelling Expenses, Advertisements, , Credit (`), , 48,000, 50,000, 30,000, 22,500, 800, 1,000, 27,600, 20,000, 2,850, 1,200, 32,000, 18,000, 900, 42,500, 38,700, 47,000, 500, 400, 1800, 300, 700, 250, 4,150, 1,96,250, , 350, 1000, , 1,96,250, , Adjustments :, 1) Closing stock ` 48,700., 2) Outstanding Expenses - Wages ` 700 and Travelling Expenses ` 200., 3) Depreciate Land and Building by 10% and Furniture by 5%., 4) Insurance paid in advance ` 300., 5) Goods of ` 3000 destroyed by fire and Insurance company rejected the claim fully., , 48
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IN THE BOOKS OF RIDDHI AND SIDDHI, TRADING AND PROFIT AND LOSS ACCOUNT, For the year ended 31st March, 2019, Dr. , Particulars, To Opening Stock, To Purchases, Less : Purchases Return, To Wages, Add : Outstanding Wages, To Carriage Inward, To Gross Profit c/d, , Amount Amount, `, , 22,500, 500, 800, 700, , Cr., , Particulars, , Amount, , 48,000 By Sales, Less : Sales Return, 22,000 By Closing Stock, By Good destroyed, 1,500 by fire, 1,000, 25,800, , 47,000, 400, , `, , `, , 98,300, To Insurance, Less : Prepaid, To Depreciation on :, Land & Building, Furniture, To Travelling Expenses, Add : Outstanding, To Loss by fire, To Carriage Outward, To Discount, To Advertisement, To Net Profit Transferred, to Capital A/c, Riddhi, Siddhi, , 1,200, 300, 4,250, 1,935, 250, 200, , By Gross Profit b/d, 900 By Rent, By R.D.D (Old), Less : Bad-debts(New), 6,185 By Discount, , Amount, `, , 46,600, 48,700, 3,000, , 98,300, 25,800, 1,800, 350, 300, , 50, 1,000, , 450, 3,000, 900, 700, 4,150, , 6,183, 6,182, , 12,365, 28,650, , 49, , 28,650
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BALANCE SHEET, As on 31st March, 2019, Liabilities, , `, , `, , Add : Net Profit, , Land & Building, 50,000, 6,183, , Less : Depreciation10%, 56,183 Furniture, , Capital, Siddhi, Add : Net Profit, , Less : Depreciation 5%, 30,000, 6,182, , Sundry Creditors, , Prepaid Insurance, 36,182 Cash in hand, 27,600 Sundry Debtors, , Outstanding Expenses, , Closing Stock, , Wages, , 700, , Travelling, , 200, , Amount Amount, `, , Capital, Riddhi, , Assets, , Amount Amount, , `, , 42,500, 4,250, , 38,250, , 28,700, 1,935, , 36,765, 300, 2,850, 32,000, 48,700, , 900, , Bill Payable, , 20,000, , Bank Overdraft, , 18,000, 1,58,865, , 1,58,865, , HHHHHHHHHHHHH EXERCISE - 1 HHHHHHHHHHHHH, Q.I Objective Questions :, A Select the most appropriate alternatives from the following & rewrite the sentences :, 1) When there is no partnership agreement between partners, the division of Profits take, place in ..................... ratio., a) Equal , b) capital ratio, c) initial contribution, d) experience and tenrue of partners., 2) To find out Net Profit or Net Loss of the business ..................... account is prepared., a) Trading b) Capital, c) Current , d) Profit & Loss, 3) A ..................... is an Intangible Asset., a) Goodwill , b) Stock, c) Cash , d) Furniture, 4) In the absence of an agreement, interest on loan advanced by the partner to the firm is, allowed at the rate of ....................., a) 5% b) 6% c) 10% d) 9%, 5) Liability of partners in a partnership business is ..................... ., , a) Limited b) Unlimited, , c) Limited and Unlimited , d) None of the above, 50
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6) The Indian Partnership act is in force since ....................., , a) 1932 b) 1881, , c) 1956 d) 1984, 7), , Maximum number of Partners in a firm are ..................... according to Companies Act, 2013., , a) 10 b) 25, , c) 20 , , d) 50, B, , Write the word/phrase/term, which can substitute each of the following sentences., 1) Persons who form the partnership firm., 2) Amount of cash or goods withdrawn by partners from the business from time to time., 3) An association of two or more persons according to Indian partnership Act 1932., 4) Act under which partnership firms are regulated., 5) Process of entering the name of partnership firm in the register of Registrar., 6) Partnership agreement in written form., 7) Under this method capital balances of partners remains constant., 8) Proportion in which partners share profits., 9) Such capital method in which only capital account is maintained for each partner., 10) The account to which all adjustment are made when capital is fixed., 11) Expenses which are paid before they are due., 12) The accounts that are prepared at the end of each accounting year., 13) An asset which can be converted into cash easily., 14) Order in which fixed assets are recorded first in Balance sheet., 15) The account in which selling expenses of business are recorded., 16) Debit balance of Trading Account., 17) Credit balance of profit & loss account. , , C, , State whether the following statements are True of False with reasons :, 1) Partnership firm is a Non Trading Concern., 2) Profit and Loss Account is a Real Account., 3) Carriage Inward is carriage on purchases., 4) Adjustments are recorded in Partners Current Account in Fixed Capital Method., 5) Prepaid expenses are treated as liabilities., 6) If Partnership Deed is silent partners share profits and losses in proportion to their capital., 7) Balance sheet is an Account., 8) Wages paid for installation of Machinery is a Revenue expenditure., 9) Income received in advance is a liability., 10) R.D.D is created on creditors., 11) Depreciation is not calculated on Current Assets., 12) Goodwill is an intangible asset., 51
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13) Indirect expenses are debited to Trading Account., 14) Bank Loan is a current liability., 15) Net profit is debit balance of Profit & Loss Account., D, , Find odd one, 1. Wages, Salary, Royalty, Import Duty. ., 2. Postage, Stationery Advertising, Purchases., 3. Capital, Bills Receivable, Reseve Fund, Bank overdraft, 4. Building, Machinery, Furniture, Bills payable., 5. Discount received, Dividend received, Interest received, Depreciation., , E, , Complete the Sentences, 1) Partners share profit & losses in .................... ratio in the absense of partnership deed., 2) Registration of Partnership is .................... in India., 3) Partnership business must be ...................., 4) Liabilities of Partners in Partnership firm is ...................., 5) The balance of Drawings Account of a partner is transferred to his .................... account, under the Fixed Capital Method., 6) The interest on capital of a partner is debited to .................... account., 7) Partners are .................... liable for the debts of the firm., 8) Partnership Deed is an .................... of Partnership., 9) The withdrawal by partner for personal use from the firm is .................... to his account., 10) Commission payable to partner is .................... to the firm., 11) When partners adopt Fixed Capital Method then they have to operate ........................., Account., 12) If partners Current Account shows .................... balance it is shown to the liability side of, Balance sheet., 13) The expenses paid for trading purpose are known as .................... expenses., 14) Cash receipts which are recurring in nature are called as .................... Receipts., 15) Return outward are deducted from ...................., 16) Expenses which are paid before due date are called as ...................., 17) Assets which are held in the business for a long period are called ...................., 18) Trading Account is prepared on the basis of is .................... expenses., 19) When commission is allowed to any partner, it is .................... of the business., 20) When goods are distributed as free samples, it is treated as .................... of the business., , F, , Answer in one sentence only :, 1) What is fluctuating capital?, 2) Why is Partnership Deed necessary?, 3) If the Partnership Deed is silent, in which ratio the partners will share the profit or loss?, 4) What is the Fixed Capital Method?, 5) How many partners are required to form a Partnership Firm?, 6) What is Partnership Deed?, 52
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7), 8), 9), 10), 11), 12), 13), 14), 15), 16), 17), 18), 19), 20), , What are the objectives of the Partnership firm?, What rate of interest is allowed on partner's loan in the absence of an agreement?, What is the minimum number of Partners in a Partnership firm according to Indian Partneship Act, 1932., What is liability of a partner?, In the absence of Partnership Deed what is the rate of interest on loan advanced by partner, to the firm is allowed?, What do you mean by pre-received income?, What is the effect of the adjustment of provision for discount on debtors in the final, accounts of partnership?, When is partners Current Account opened ?, As per which principle of accounting closing stock is valued at cost price or at market, price which ever is less?, What is the provision of Indian Partnership Act with regard to Interest on capital ?, Why is Balance Sheet prepared?, Why wages paid for installation of Machinery are not shown in Trading Account?, What do you mean by indirect incomes?, Why partners capital is treated as long term liability of business?, , G, , Do you agree/disagree with the following statements., 1) When Partnership Deed is silent, Partners share profits of the firm according to capital, ratio., 2) Current account always shows a debit balance., 3) It is compulsory to have a partnership agreement in writing., 4) Partnership Firm is a trading concern., 5) An interest on capital is an expenditure for the partnership firm., 6) Partnership is an association of two or more persons., 7) Partners are entitled to get Salary or Commission., 8) The balance of Capital Account remains constant under Fixed Capital Method., 9) The Indian Partnership Act, came into existence in the year 1945., 10) Profit and Loss Account reflects the true Financial position., 11) Amount borrowed by partner from his business will be debited to Current Account., 12) Sold but undispatched goods must be part of valuation of closing stock., 13) Carriage Inward is a selling and distribution overhead, 14) Gross profit is an operation profit, 15) All financial expenditures are debited to profit and loss account., 16) Free distribution of goods is debited to trading account., , H, , Calculate the following:, 1. Undervaluation of Closing Stock by 10%. Closing Stock was ` 30,000 find out the value, of Closing Stock, 2. Calculate 12.5% P. A.depreciation on Furniture a) on ` 220,000 for 1 year, b) on ` 10,000 for 6 months, 53
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3., 4., 5., , Insurance Premium is paid for the year ending 1st September 2019 Amounted to ` 1,500., Calculate prepaid insurance assuming that the year ending is 31st March 2019., Find out Gross profit / Gross Loss Purchases ` 30,000, Sales ` 15,000, Carriage Inward `, 2,400, Opening Stock ` 10,000, Purchase Returns `1,000, Closing Stock ` 36,000., Borrowed Loan from Bank of Maharashtra ` 2,00,000 on 1st October 2019 at rate of 15%, p.a. Calculate Interest on Bank Loan for the year 2019-20 assuming that the financial, year ends on 31st March, every year., Practical Problems, , 1., , Amitbhai and Narendrabhai are in Partnership Sharing Profits and Losses equally. From, the following Trial Balance and Adjustments given below, you are required to prepare, Trading and Profit and Loss Account for the year ended 31st March, 2019 and Balance, Sheet as on that date., Trial Balance as on 31st March, 2019, Debit Balance, , Plant & Machinery, Factory Building, Sundry Debtors, Purchases, Bad Debts, Sales Return, 10% Govt. Bond, (Purchased on 1st Oct, 2018), Import Duty, Legal Charges, Motive Power, Warehouse Rent, Cash in Hand, Cash at Bank, Advertisement, (for 2 years, w.e.f 1st Jan 2019), Salaries, Rent, Drawings :, Amitbhai, Narendrabhai, Furniture, Bills Receivable, Free hold Property, , Amount `, 2,80,000, 75,000, 28,700, 85,500, 500, 2,200, 40,000, 1,800, 2,000, 12,000, 1,800, 20,000, 70,000, 10,000, , Credit Balance, Capital A/c :, Amitbhai, Narendrabhai, Sales, Bills Payable, Discount, Creditors, R.D.D., Bank Loan, Purchases Return, , Amount `, 3,50,000, 3,00,000, 1,80,000, 8,500, 1,200, 38,500, 2,700, 15,000, 2,000, , 3,800, 1,500, 2,400, 3,200, 1,95,800, 20,700, 41,000, 8,97,900, , 8,97,900, 54
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Adjustments :, 1) Stock on hand on 31st March 2019 was valued at ` 43,000., 2) Uninsured Goods worth ` 8,000 were stolen., 3) Create R.D.D at 2% on Sundry debtors., 4) Mr. Patil, our customer become insolvent and could not pay his debts of ` 500., 5) Outstanding Expenses - Rent ` 800 and Salaries ` 300, 6) Depreciate Factory Building by ` 2,500 and Furniture by ` 1,800, (Ans : G.P. ` 1,31,500, N.P. ` 1,12,086, Balance Sheet Total ` 8,19,586), 2, , From the following Trial Balance of M/S Mitesh and Mangesh, you are required to prepare, Trading and Profit and Loss Account for the year ended 31st March, 2019 and Balance, Sheet as on that date., Trial Balance as on 31st March, 2019, , Debit Balance, Stock as on (1/4/2018), Building, Carriage, Factory Insurance, Postage, Bills Receivable, Sundry Debtors, Return Inward, Purchases, Audit fees, Loose tools, Manufacturing Expenses, Electricity Charges, General Expenses, Export duty, Cash in hand, Bank Balance, Conveyance, Furniture, Salaries, Rent, Rate & Taxes, Drawings :, Mitesh, Mangesh, , Amount `, 25,000, 48,500, 1,780, 2,700, 1,600, 13,700, 52,200, 1,600, 68,900, 1,800, 32,000, 1,820, 2,600, 3,400, 1,000, 75,000, 29,000, 4,100, 64,000, 2,000, 3,700, , Credit Balance, Sundry Creditors, Sales, Capital :, Mitesh, Mangesh, Outstanding Salaries, Bills Payable, Return outword, Current A/c :, Mitesh, Mangesh, , Amount `, 38,000, 1,75,000, 1,50,000, 50,000, 2,000, 18,000, 1,800, , 3,000, 2,000, , 1,200, 2,200, 4,39,800, , 4,39,800, , 55
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Adjustments :, 1) Mitesh and Mangesh are sharing Profit and losses in the ratio 3:1., 2) Partners are entitled to get Commission @ 1% each on Gross Profit., 3) The closing stock is valued at ` 23,700., 4) Outstanding Expenses - Audit fees ` 400; carriage ` 600., 5) Building is valued at ` 46,500., 6) Furniture is depreciated by 5%., 7) Provide Interest on Partner's capital at 2.5% pa., 8) Goods of ` 900 were taken by Mangesh for his personal use., 9) Write off ` 1,000 as Bad Debts and maintain R.D.D at 3% on Sundry Debtors., (Ans : G.P. ` 99,000, N.P. ` 63,684 Balance Sheet Total ` 3,30,364), 3., , From the following Trial Balance and adjustments given below of Reena and Aarti, you are, required to prepare Trading and Profit and Loss Account for the year ended 31st March,, 2019 and Balance Sheet as on that date., Trial Balance as on 31st March, 2019, , Debit Balance, Purchases, Sundry Debtors, Sales Returns, Opening Stock, Bad debts, Land & Building, Furniture, Discount, Royalties, Rent, Salaries, Wages, Insurance, Drawings :, Reena, Aarti, Cash at Bank, Cash in Hand, , Amount `, 35,500, 40,000, 1,000, 18,100, 500, 25,000, 20,000, 1,000, 700, 1,900, 3,000, 800, 1,500, , Credit Balance, Sales, Sundry Creditors, Purchases Returns, R.D.D, Discount, Commission, Capital :, Reena, Aarti, , 2,000, 1,000, 11,500, 2,000, 1,65,500, , Amount `, 58,200, 25,700, 500, 800, 50, 250, 50,000, 30,000, , 1,65,500, , Adjustments :, 1) Closing Stock valued at ` 22,000., 2) Write off ` 900 for Bad & doubtful debts and create a provision for Reserve for doubtful debts, ` 1,000., 3) Create a provision for Discount on Debtors @ 3% and creditors @ 5%., 4) Outstanding Expenses - Wages ` 700 and Salaries ` 800., 5) Insurance is paid for 15 months, w.e.f. 1st April 2018, 56
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6), 7), , Depreciate Land and Building @ 5%, Reena & Aarti are Sharing Profits & Losses in their Capital Ratio., (Ans : G.P. ` 23,900, N.P. ` 13,592 Balance Sheet Total ` 1,16,507), , 4., , From the following Trial Balance of M/S Meera and Madhav. Prepare Trading and Profit, and Loss Account for the year ended 31st March, 2019 and Balance Sheet as on that date., Trial Balance as on 31st March, 2019, , Debit Balance, Stock (1/4/2018), Debtors, Bills Receivable, Purchases, Returns, Carriage Inward, Carriage Outwards, Motor Vehicle, General Expenses, Export Duty, Advertisement, (For 3 years from 1/10/2018), Printing & Stationary, Drawings :, Meera, Madhav, Leasehold Premises, Cash at Bank, Furniture, , Credit Balance, Bank overdraft, Bills Payable, Creditors, Sales, Outstanding Rent, Unpaid Wages, Capital :, Meera, Madhav, Purchase Return, , Amount `, 25,000, 80,500, 10,000, 2,08,500, 1,000, 3,000, 4,500, 55,000, 1,800, 900, 4,800, , Amount `, 5,000, 12,500, 68,000, 3,25,000, 2,000, 1,500, 75,000, 75,000, 1000, , 1,200, 3,500, 2,000, 1,10,000, 45,000, 8,300, 5,65,000, , 5,65,000, , Adjustments :, 1) Closing Stock is valued at ` 32,000., 2) Provide Provision for Doubtful Debts ` 2,000., 3) Create reserve for Discount on Debtors @ 3%., 4) Valued of Leasehold Premises on 31st March 2019 ` 1,00,000., 5) Out standing Expenses Printing & Stationary ` 500., (Ans : G.P. ` 1,20500, N.P. ` 96,445 Balance Sheet Total ` 3,30,445), , 57
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5., , Sucheta & Gayatri are Partners sharing Profit and Losses in the ratio 3:2. From the, following Trial Balance and additional information you are required to prepare Trading, and Profit and Loss Account for the year year ended 31st March 2019 and Balance Sheet as, on that date., Trial Balance as on 31st March, 2019, Particulars, Debit `, Credit `, Purchases & Sales, 65,000, 1,85,500, Works Manager's Salary, 2,300, Capital - Sucheta, 75,000, - Gayatri, 40,000, Opening Stock, 18,700, Debtors & Creditors, 47,500, 35,000, Wages & Salaries, 4,000, Bills Receivable, 22,000, Bills Payable, 27,300, Discount, 400, Motive Power, 1,350, Custom duty, 1,500, Interest, 1,300, Unproductive Wages, 3,000, Audit fees, 2,500, Rent, 1,800, Conveyance, 2,000, Goodwill, 25,000, Copyrights, 20,000, Building, 88,000, Partner (Sucheta's) Loan, 6,150, Investments, 40,000, Cash at Bank, 26,000, 3,70,650, 3,70,650, Adjustments :, 1) Stock on 31st March 2019 was valued at ` 19,700., 2) Goods costing ` 3,000 distributed as free sample., 3) Motive Power includes ` 500 paid for deposit of Power Meter., 4) Depreciate Building @ 5%., 5) Write of ` 2,000 for Bad debts and maintain R.D.D at 3% on Debtors., 6) Bills Receivable included dishonoured of Bill of ` 4,000., (Ans : G.P. ` 1,15,850, N.P. ` 97,365 Balance Sheet Total ` 2,80,815), , 58
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6., , Archana and Prerana are partners, sharing Profits and Losses in the ratio 2:1 with the, help of following Trial Balance and Adjustments given below. You are required to prepare, Trading and Profit and Loss Account for the year ended 31st March 2019 and Balance, Sheet as on that date., Trial Balance as on 31st March, 2019, , Debit Balance, Stock (1/4/2018), Patents, Sundry Debtors, Stock of Stationary, Trade Mark, Bills Receivable, Electricity charges, Wages, Heating & Lighting, Trade Expenses, Sales Return, Land & Building, Furniture, Cash at Bank, Investments, Drawings :, Archana, Prerana, Baddebts, Purchases, , Amount `, 8,560, 2,000, 18,500, 3,000, 2,000, 6,300, 1,450, 950, 1,000, 850, 400, 22,000, 13,000, 5,000, 7,500, , Credit Balance, Capital :, Archana, Prerana, Other Loans, Reserve fund, Sundry Creditors, Bills Payable, Purchase Return, R.D.D, Sales, Interest, , 1,200, 900, 200, 23,700, 1,18,510, , Amount `, 40,000, 20,000, 3,000, 1,000, 17,500, 5,000, 1,000, 500, 30,200, 310, , 1,18,510, , Adjustments :, 1) Stock on 31st March 2019 is valued at Cost Price ` 12,000 and Markct Price ` 17,000., 2) Our customer Mr. Shekhar failed to pay his dues of ` 800., 3) 1/8th of Patents are to be written off., 4) A part of Furniture ` 5,000 is purchased on 1st Oct 2018., 5) Depreciation on Land & Building 10% and on Furniture 5%., 6) Outstanding Expenses Wages ` 300 and Electricity Charges ` 200., 7) Allow Interest on Capital 3%., (Ans : G.P. ` 8,290, N.P. ` 825 Balance Sheet Total ` 87,525), 7., , Satish and Pramod are Partners. Prepare Trading Account and Profit and Loss Account, for the year 31st March, 2019. You have to find out Gross Profit and Net Profit only., , 59
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Trial Balance as on 31st March, 2019, Debit Balance, Stock (1/4/218), Purchases, Wages, Insurance, Unproductive Wages, Warehouse Rent, Carriage Outward, Sales Return, Export Duty, Customs Duty, Sundry Debtors, Investments, Factory Rent, Postage & Telegram, , Amount `, 8,700, 18,300, 1,000, 800, 1,400, 600, 1,200, 600, 1,400, 800, 40,000, 15,700, 1,600, 400, 92,500, , Credit Balance, Sales, Dividend, Purchases Return, Sundry Creditors, 10% Bank Loan, (w.e.f. 1/7/2018), Other Receipts, , Amount `, 68,000, 2,000, 500, 13,000, 8,000, 1,000, , 92,500, , Adjustments :, 1) The Closing Stock is valued at ` 15,400., 2) Outstanding Wages ` 500., 3) Create provision for Bad debts ` 800 and maintain R.D.D 3% on Sundry Debtors., 4) Goods of ` 1,800 distributed as a free sample., 5) Goods of ` 2,000 were sold and delivered on 31st March 2019 but no entry is passed in the, Books of Account., (Ans : G.P. ` 56,200, N.P. ` 48,964 ), 8., , Nana and Nani are Partners in Partnership Firm sharing Profits and Losses equally. You, are required to give effects of Adjustments in Profit & Loss A/c and Balance Sheet with the, help of following information., Trial Balance as on 31st March, 2019, , Debit Balance, Insurance, Land and building, (Addition of ` 20,000, w.e.f 1st July 2018), Salaries, Export Duty, Interest, Furniture, Debtors, , Credit Balance, Amount `, 15,000 Capital A/c, 50,000, Nana, Nani, 10`% Bank loan taken on 1st Oct. 2018, 5,000 Interest, 2,500 Bills Payable, 1,000, 40,000, 26,000, 1,39,500, , 60, , Amount `, 50,000, 50,000, 30,000, 1,500, 8,000, , 1,39,500
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Adjustments :, 1) Gross profit amounted to ` 34,500., 2) Insurance Paid for 15 months w.e.f. 1.4.2018., 3) Depreciate Land and Building at 10% p.a. and Furniture at 5% p.a., 4) Write off ` 1,000 for Bad Debts and maintain R.D.D at 5% on Sundry Debtors., 5) Closing Stock is valued at ` 34,500., (Ans : N.P. ` 5,250 Balance Sheet Total ` 1,44,750), 9., , Sun and Moon are Partners in Partnership Firm sharing Profits and Losses equally. You, are required to give effects of Adjustments with the help of following information., Trial Balance as on 31st March, 2019, , Debit Balance, Land & Building, Furniture, Machinery, (Purchased on 1/7/18), Goodwill, Wages, Current A/c : Moon, 8% Debentures, (Purchased on 1/10/18), Providend Fund Investment, Stock of Postal stamps, , Amount `, 40,000, 18,000, 40,000, 2,000, 2,000, 4,000, 8,000, , Credit Balance, Capital A/C, Sun, Moon, Current A/c : Sun, Sundry Creditors, Bank Overdraft, Reserve Fund, Providend Fund, , 3,500, 500, 1,18,000, , Amount `, 33,500, 33,500, 6,000, 25,000, 10,000, 5,000, 5,000, , 1,18,000, , Adjustments :, 1) Partners are entitled to get salary ` 6,000 p.a. in addition to their profit & loss sharing., 2) Depreciation on Land & Building, Furniture & Machinery @ 10%, 5% and 3% respectively., 3), Interest on Capital 5% p.a., 4) Closing Stock ` 60,743., 5) Wages included ` 1,000 as advance given to workers., 6) Interest due but not paid ` 800., 7) Total Net Profit amounted to ` 38,113., You are required to prepare Balance Sheet and Partners Current A/c only., (Ans : Balance Sheet Total ` 1,68,263, Current A/c Balance Sun ` 32,731, Moon ` 22,732), 10. Kshipra and Manisha are Partners sharing Profit and Losses in their Capital Ratio. You, are required to prepare Trading Account and Profit and Loss Account for the year ended, 31st March, 2019 and Balance Sheet as on that date., , 61
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Trial Balance as on 31st March, 2019, Debit Balance, Sundry Debtors, Purchases, Furniture, Plant & Machinery, Wages, Salaries, Discount, Bills Receivable, Carriage Outward, Postage, Sales Return, Cash in Hand, Cash at Bank, Insurance, Opening Stock, Trade Expenses, Ware house Rent, Advertisement, Building, , Credit Balance, , Amount `, 28,000, 55,000, 38,500, 60,000, 800, 3,500, 800, 14,400, 1,000, 500, 500, 4,000, 47,000, 2,000, 17,800, 1,500, 2,500, 1,000, 20,000, 2,98,800, , Sales, Rent, Sundry Creditors, Purchase Return, Discount, Bills Payable, Capital A/c :, Kshipra, Manisha, Current A/c :, Kshipra, Manisha, , Amount `, 1,20,000, 1,800, 38,500, 1,000, 500, 9,000, 90,000, 30,000, 5,000, 3,000, , 2,98,800, , Adjustments :, 1) Stock on 31st March 2019 was at ` 37,000., 2) Sales includes, sale of machinery of ` 2,000, which is sold on 1st April 2018., 3) Depreciation on fixed assets @ 5%., 4) Each Partners is entitled to get Commission at 1% of Gross Profit and Interest on Capital 5%, p.a., 5) Outstanding Expenses Wages ` 200 & Salaries ` 500., 6) Create provision for doubtful debts @ 3% on Sundry Debtors., (Ans : G.P. ` 81,700, N.P. ` 56,401 Balance Sheet Total ` 2,40,235), Activity :, 1. Visit a Partnership firm and study the management of the firm and write a report on it., 2., , Write a report on procedure of Registration of Partnership firm under Indian Partnership, Act, 1932., , 3., , Visit Chartered Accountants office and understand the process of finalisation of Partnership, Accounts and filing of Income Tax Return, , bbb, 62
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2, , Accounts of ‘Not for Profit’ Concerns, , Content, 2.1.1, 2.1.2, 2.1.3, 2.1.4, 2.1.5, 2.2.1, 2.2.2, 2.2.3, 2.2.4, 2.2.5., 2.3.1, 2.3.2, 2.3.3, 2.3.4, 2.3.5, 2.3.6, 2.3.7, 2.3.8, 2.3.9, 2.3.9, 2.3.9, , B), 2.3.9, , Introduction, Meaning of Not for Profit concern., Features of Not for Profit concern., Difference between Profit organisation and Not for Profit organisation., Need for maintainng books of accounts and preparing final accounts., Meaning of Receipts and Payments Account., Features of Receipts and Payments Account., Types of Receipts i) Capital Receipts ii) Revenue Receipts, Types of Payments i) Capital Expenditure ii) Revenue Expenditure iii) Deferred Revenue, Expenditure., Specimen of Receipts and Payments Account., Meaning of Income and Expenditure Account, Features of Income and Expenditure Account, Specimen of Income and Expenditure Account, Distinction between Receipts and Payments Account and Income and Expenditure Account, Preparation of Income and Expenditure Account, Preparation of Balance Sheet, Implied Adjustments, Capital Fund, Specimen of Balance Sheet, Additional Information, 1. Outstanding and Prepaid Expenses., 2. Accrued Income and Income Received in advance., 3. Subscription received in advance and outstanding subscription., 4. Depreciation., 5. Capitalisation of Entrance fees, 6. Creation of special Funds out of donations., 7. Stock of Stationery,, 8. Opening Balance of assets and liabilities., Important Terms, 1. Entrances fees, 2. Subscription, 3. Legacy, 4. Life membership fees, 5. Sale of old assets scrap Newspapers, 6. Specific Donations, 63
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7., 8., 9., , General Donations, Specific Funds, Endowment Funds, , Competency Statement, o, , , , , , , , The students will be able to :, Understand the meaning and features of Not for Profit concerns., Know the meaning of Receipts and Payments Account., Understand the meaning of Income and Expenditure Account and its difference form Profit &, Loss Account., Understand difference between Profit and Not for Profit organisations., Learn to acquire the skills for Preparing Income and Expenditure Account and Balance Sheet, of Not for Profit Concern., , 2.1.1 Introduction :, There are two types of organisations 1) Trading organisations or Profit making organisations, and 2) Non - Trading or Not for Profit organisations, Trading organisations main object is to earn Profit. They are engaged in Trading activities., i.e. Buying and selling of goods and services, organisations like Sole Trading concern Partnership,, Co-Operative organisations, Public Limited Company etc. are set up for the purpose of making, profit. Final Accounts which consists of Trading and Profit and Loss Account and Balance Sheet are, prepared. Base of Final Accounts is Trial Balance., Not for Profit organisations main aim is to give service to its members or to the society at large., They are not formed for Profit making. They do not carry any Trading activity or manufacturing, activity. Sports club, Charitable Hospitals, Schools, Colleges, Universities, Trade Unites, Chamber, of Commerce, Professional Institutions, Trusts, Social Welfare Associations, Religious concerns,, Libraries etc. are examples of Not for Profit concern. their main object is to give services to the, members. They maintain the books of accounts in a different way., As their motive is not to earn Profit ‘Not for Profit’ concerns do not prepare Profit and Loss, Account, instead they prepare Income and Expenditure Account. Similarly they do not prepare Trial, Balance but they prepared Receipts and Payments Account. These organisations prepare Balance, Sheet to know the Net Worth of the concern on a particular date. Final Accounts of not for profit, concerned consists of Income and Expenditure Accounts and Balance Sheet., ., 2.1.2 Meaning of Not for Profit Concern :, Not for Profit Concerns are those concern which are not started to earn Profit but to give, qualitative service to its members and society at the minimum charges. Their main objective, is to, provide social service and to promote art, culture, sports, education etc. The nature of these concerns, are different from Profit organisations. Not for Profit concerns collect income through subscription,, admission fees, donations etc. given by members or non members and grants subsidies or concessions, received form the Government., 2.1.3 Features of ‘Not for Profit’ concerns :, 1. The primary objective of such concerns is to provide services to its members and not to earn, profit., 64
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2., 3., 4., 5., 6., , These concerns are formed for promotion of art, culture, education, sports, charity, health, etc., The members of this concerns can not got the dividend. It is prohibited., The management of such concerns is done by elected representatives of members. It is governed, by elected members., These concerns prepare Receipts and payments Account, Income and Expenditure Account and, Balance Sheet., Capital Fund is created by such concerns. It is made up of Entrance fees, Surplus, Legacies and, donations specially received for Capital Fund., , 2.1.4 Difference between Profit Organisations and Not for Profit Organisations :, Points of Distinction, 1. Primary objective, , 2. Preparation of Trial, Balance, 3. Accounting Statements, , 4. Net Results, 5. Owner’s Fund / Capital, Fund, , Profit Organisations, The primary objective of, such organisation is to, earn profit., Prepares Trial Balance, , i) Trading Account, ii) Profit and Loss, Account, iii) Balance Sheet, Net Profit / Net Loss, Owner’s fund includes, owners investment, i.e capital plus reserves, and surplus, , Not for Profit Organisations, The primary object of there, organisations is to provide service., Do not prepare Trial Balance, Receipts and Payments Acounts is Prepared., i) Receipts and Payments Account, ii) Income and Expenditure, Account, iii) Balance Sheet, Surplus or Deficit, Capital fund represents accumulated amount of, surplus, subscriptions,, donations and surplus as, shown by Income and, Expditure Account., , 2.1.5 Need for maintaining Books of Accounts and Preparation of Final Accounts :, ‘Not for Profit’ concerns are not engaged in Trading activities., Mostly they deal with public money. These concerns collect money such as subscriptions,, donations, grants, entrance fees etc. from public. These concerns are answerable to the society for, such money collected and spent. Hence proper Books of Accounts are to be maintained., Following are the reasons for maintaining ‘Books of Account’s by ‘Not for Profit’ concerns., 1. To maintain Proper control over monetary transactions., 2. To know the sources of incomes and heads of Expenditure., 3. To comply with the provisions of laws applicable to them. eg. ‘Not for Profit’ concern registered, as a Charitable Trust under Mumbai Public Trust Act or a Co-Operative Society registered, under the Co-Operative Society Act has to comply with the provisions of these Acts regarding, budget, audit of accounts, registers to be maintained etc., 4. To know surplus / deficit of the concern during a particular period., 5. To know the net worth of the concern as on a particular day., 6. To avoid malpractices and misappropriations of cash and assets., 65
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2.2.1 Meaning of Receipts and Payments Account :, The day to day transactions of a ‘Not For Profit’ concern are recorded in a cash book and then, they are posted to Ledger Accounts. At the end of financial Period the cash book and ledger accounts, are balanced and from these balances, Receipts and Payments Account is prepared., The Receipts and Payments Account is a Real Account. Credit transactions are not recorded in, Receipts and Payments Account. Receipts and Payments Account is a summary of cash and bank, transactions for a particular Period. All receipts are shown to the debit side and all Payments to the, credit side., This Accounts starts with opening Cash and Bank Balance (Different Banks) and closes with, Cash and Bank Balance at the end of the year., Receipts : All receipts during a particular Period are debited to Receipts And Payments, Account irrespective of the year for which they are received and irrespective of their nature Revenue, or capital. Such receipts may be related to previous year or current year or next year. All receipts are, debited to this account. (Revenue capital), Payments : All Payments made during a particular period are credited to Receipts and Payments, Account irrespective of the period to which it related and irrespective of their nature Revenue or, Capital. Such Payments may be related to previous year a current year or next year similarly such, Payments may be Revenue or Capital expenditure. All are credited to this account., Receipts and Payments Account, for the year ended 31st March 20......, Dr. , Cr., Receipts, , Amount, , Payments, , `, , To All Receipts, (Revenue or Capital), Previous year - ............, Current year - ............, Next year ............, , ............, , Amount, `, , By All Payments, (Revenue or Capital), Previous year - ............, Current year - ............, Next year - ............, , ............, , 2.2.2 Features of Receipts and Payments Account :, 1. Receipts and Payments Account is a Real Account, 2. Receipts and Payments Account is similar to cash book (summary of cash & Bank, transactions), 3. It includes all types of Receipts and Payments (Revenue or Capital), 4. It records all receipts and payments made during a particular period i.e. Current year., (previous, current or next year), 5. Income Receivable and amounts Payable are not recorded in this account., 6. This account is a base to prepare Final Accounts of ‘Not for Profit’ concerns, 7. This account shows opening and closing balances of cash and Bank (or Bank overdraft)., 2.2.3 Types of Receipts :, i), Capital Receipts ii) Revenue Receipts, ii) Capital Receipts :- All such receipts are non - recurring in nature and not forming a, part of regular flow of income of a concern are known as capital Receipts e.g Spectific, Donations for Building, Sports Tournaments, Library, life membership fees, sales proceeds, 66
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of Fixed Asset. Capital Receipts are either added to Capital Fund or separately shown on, Liabilities side of Balance Sheet., iii) Revenue Receipts :- All such receipts which are recurring in nature and represent regular, flow of income of a concern, are known as revenue receipts., e.g Subscription Rent, Locker Rent, Interest received etc., Receipts, , , , , Revenue Capital, , , Income & Expenditure A/c, , Balance sheet, , All receipts are not income, capital receipts and considered in a different manner., 2.2.4 Types of Payments :, Payments, , Capital Expenditure , (Long Period) , e.g. Purchase of Land, , Furniture, Machinery etc., , Revenue Expenditure and, (Short Period), Salaries, Taxes, Insurance,, Premium etc., , i), , Capital Expenditure :- These expenditures are non-recurring expenditure in nature. The, benefits of such Expenditure are likely to be received for a long period. These expense’s are, shown on the Assets side the Balance Sheet and their Balances are carried forward to next, accounting period., , ii), , Revenue Expenditure :- There expenses are recurring in nature. The benefit of these expenses, are enjoyed immediately i.e. in current year., , iii) Deferred Revenue Expenditure :- Deferred revenue expenditure is actually a revenue, expenditure . Such expenditure is incurred for receiving benefits for more than a year., e.g. Advertisement expenditure paid ` 30,000 is for 3 years. In such case 1/3rd of ` 30,000 is, ` 10,000 is for current year. It should be debited to Income and Expenditure Account and 2/3rd, ` 20,000 expenditure should be shown on Asset side of Balance Sheet., Total Receipts, Revenue, , Credit side of Income & Expenditure Account, , Capital, , Liability side of Balance Sheet., , Total Payments, Revenue, , Debit side of Income & Expenditure Account, , Capital, , Balance Sheet Asset side., , 67
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2.2.5 Specimen of Receipts and Payments Account :, In the books of ......, Receipts and Payments Account, for the year ended 31st March 20......, Dr. , Receipts, Receipts, Amt ` Amt `, To Balance b/d, By Balance b/d, Cash in Hand, xxx, (Bank overdraft), Cash at Bank, xxx, xxx By Salaries, (Name of Banks), Previous year, To Subscriptions, Current year, Previous year, xxx, By Rent Rates and Taxes, Current year, xxx, Previous year, Next year, xxx, xxx, Current year, To Entrances fees, xxx, Next year, To Admission fees, xxx By Printing and Stationery, To Life membership, xxx By General Expenses, fees, By Interest on Bank Loan, To Legecies, xxx By Electricity Charges, To Govt. Grants, xxx By Audit fees, To Donations (General), xxx By Tournaments Exp., To Donations, xxx By Wages, for specific fund, By Purchase of Sports Materials, Building Fund,, xxx By Insurance, Prize Fund, Tournment, xxx By Telephone / mobile Exp., Fund, By Bank charges, To Dividend - Received, xxx By Postage, To Hire / Rent of Hall, xxx By Conveyance, received, By Expenses for Annual function, To Sundry Income, xxx By Fixed Deposit, To Sale of old materials, xxx By Purchase of fixed Assets, To Sale of old News, xxx Books, Papers / scrap, xxx Furniture, To Misc. Receipts, xxx Building, To Tournaments Receipts, xxx Investments, To Cricket Fees, xxx By News Papers, To Tution Fee, xxx By Office Exp., To Term Fees, xxx By Repairs, To Collection of fine, xxx By Balance c/d, To Locker Rent, xxx Cash in Hand, To Exam Fees, xxx Cash at Bank, To Balance c/d, xxx (Names of Bank), (Bank overdraft), xxxx, 68, , Cr., Amt ` Amt `, xxx, , xxx, xxx, xxx, xxx, xxx, , xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxxx
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2.3.1 Meaning of Income and Expenditure Account :, Meaning : Income and Expenditure Account is a summary of revenue incomes and revenue, expenses of a particular period. It is similar to Profit and Loss Account. It is a Nominal Account, ‘Not for Profit’ concerns prepare Income and Expenditure Account. All Revenue expenses / Losses of, current year are debited and all Revenue Income / Gains of Current year are credited to this account., Incomes : In Income and Expenditure Account only, revenue incomes or gains of the current, period are credited, eg. Subscriptions Received, Interest on Investments received, Sundry Receipts., General Donations received Tuition fees Received etc. Incomes received for previous year or for, next year are not taken into this account. However, all incomes pertaining to current year whether, received or not received or received during the previous year for this year, are taken into account., On the other hand outstanding - incomes and pre -received incomes of current year are considered., Expenditure : Only Revenue Expenses / Losses of current year are debited to this account., Items of expenses of ‘Not for Profit’ concern may differ from concern to concern. Expenses Paid for, previous year or for the next year are not taken into account. However, all expenses pertaining to, current year, whether actually paid or not paid during the previous year or current year, are taken, into account. In other words outstanding expenses and prepaid expenses during previous year are, considered., Income and Expenditure Account shows Surplus or Deficit of the concern. Excess of Income, over Expenditure is known as Surplus while excess of Expenditure over Income is known as Deficit., If there is a surplus, it is added to the ‘Capital Fund’ and if there is a deficit, it is deducted from, ‘Capital Fund’, 2.3.2 Features of Income and Expenditure Account :, 1) Income and Expenditure Account is a Nominal A/c., 2) This account records only revenue expenses and Income of current year only., 3) It is similar to Profit and Loss Account., 4) It is prepared to find out surplus (i.e. excess of Income are Expenditure) or Deficit i.e., excess of Expenditure over Income.), 5) Income and Expenditure Account is always accompanied with Balance Sheet., 6) It has no Opening Balance., 7) Surplus or Deficit is transferred to Capital Fund., 8) It records all cash items as well as non cash items which are related to current period eg., salaries paid, outstanding salary, Bad Debts, Depreciation on Fixed Assets etc., , 69
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2.3.3 Specimen :, In the books of ......, Income and Expenditure Account, for the year ended 31st March 20....., Dr. , , Cr., Expenditure, , To Salaries paid, Less : paid for last year, paid for next year, Add Outstanding, Add prepaid for last year, To Wages, To Printing and Stationery, To Rent, To Interest, To Conveyence, To Rates & Taxes, To Insurances Premium, To Audit fees, To Office Expenses, To Telephone / Mobile Expenses, To Medicines, To Sports Materials, consumed during the year, Opening Stock, Add : Purchases, Less : Closing Stock, To Repairs and Maintenance, To Electricity charges, To News papers and periodical, To Sundry Expenses, To Loss on sale of Asset, To Depreciation on Fixed, Assets, To Surplus (Excess of, Income over Expenditure), , Amt, , Amt, , `, , `, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx, , Income, By Subscription Received, Less :, i) received for last year, ii) received of next year, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , Add :, i) Received during last year for, current year, ii) Outstanding for current year, By Rent Received, By Interest Received, By Dividend Received, By Govt. Grants (General), By Ground Rent, By Sundry Receipts, By Entrance Receipts (Revenue), By Entrance fee (Revenue), By Admission fees, By Donations (General), By Profit on Sale of Asset, By Deficit (Excess of, expediture over Income), , Amt, , Amt, , `, , `, , xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxxx, , xxxx, 70
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2.3.4 Distinguish between :, Receipts and Payments Account and Income and Expenditure Account, Point, Receipts & Payments Account, 1) Type of Account It is a Real Account., , Income and Expenditure Account, It is a Nominal Account., , 2) Nature, 3) Object, , It is similar to cash Book., It is like a Profit and Loss Account., It is prepared to present a summary It is prepared to ascertain the net, of cash transactions, results of all Income and Expenditure, transactions, 4) Opening Balance It starts with opening cash balance It has no opening balance., and Bank balance or Bank over, draft., 5) Closing Balance The closing balance represents The closing balance represents either, cash in hand and cash of Bank at surplus or deficit., the end of the given period., 6) Receipts and, All receipts and payments during only Revenue - Receipts and Revenue, Payments, the current period are recorded in Expenses are related to current period, this account (Revenue or capital) are recorded in this account., 7) Non - cash items Non - cash items are not recorded In this account non - cash items like, in this account., bad - debts, Dep. outstanding expenses, etc. are also included., 8) All Accounts, All transections related to personal This Account contains only, Accounts, Real Accounts and transections related to Nominal, Nominal Accounts., Accounts., 9) Period, It includes amounts received or In this accounts amount related to, amount paid for any period like current year only are included., previous year, current on next year., 10) Balance Sheet, It need not be necessarily It is always accompanied by a, accompanied by a Balance Sheet. Balance Sheet., 2.3.5 Preparation of Income and Expenditure Account :, Income and Expenditure Account is a Nominal Account. All Revenue Expenses and losses, are debited to it and all Revenue income and gains are credited to it. It is similar to Profit & Loss, Account., 2.3.6 Preparation of Balance Sheet :, Balance Sheet is a statement of Assets and Liabilities of the organisation as on a particular, date. The Balance sheet of Non - Trading organisation is similar to a Balance Sheet of a sole Trading, concern / organisation., A Balance Sheet only show Capital Receipts and Capital Expenditure. Balance Sheet is, prepared with a view to measure the exact financial position of an organisation / concern on a certain, date, normaly at the end of the year., The excess of Assets over Liabilities is termed as Capital Fund. If the opening balance of, ‘Capital Fund’ is not known it can be ascertained as the balancing figure by preparing opening, Balance Sheet., 71
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2.3.7 Implied Adjustments :, In Receipts and Payments Account some additional information is given regarding certain, items. On the basis of such information some accounting adjustments are necessary. Such adjustment, are known as implied or hidden adjustments. Some implied (Hidden) adjustments are given below (These items are given in Receipts and Payments Account., 1), 2), 3), 4), , Rent (11 months) ` 11,000, 10 % Loan form Bank of India. ` 20,000 (Taken on 1st Jan 2020), Leeshold Land ` 1,00,000 (for 10 year from 1 - 4 - 2019), Sale proceeds of furniture (Book Value ` 7,500, ` 8,000), Receipts and Payments Account, for the year ended 31st March 2020, , Dr. , , Cr., Receipts, , Amt, , Payments, , `, , Amt, `, , By 10 % Fixed Deposit, (Deposited on 1 - 1- 2020), , 1,00,000, , In the above example implied adjustment is Outstanding Interest on fixed Deposit because :, i), No receipts of Interest on fixed Deposit is given., ii) Rate of interest on fixed Deposit is given along with date of deposit with Bank., , Therefore, it becomes necessary to take into account the outstanding interest on fixed , Deposit for 3 months (i.e 1 - 1 - 2020 to 31 - 3 - 2020) at 10 % p. a. ` 2,500, , Adjustment in final Accounts., i), Outstanding Interest of Fixed Deposit ` 2,500 Should be credited to Income and, Expenditure Account., ii) It is shown on Asset side of the Balance sheet. Add in Fixed Deposit or show separately, on the Asset side., 2.3.8 Capital Fund :, Capital fund is shown on the Liabilities side of Balance Sheet of ‘Not for Profit’ concern., Capital Fund is created from capital incomes and by capitalising surplus, if any., The Net Surplus is added in the Capital Fund and Deficit is deducted from Capital Fund., , 72
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2.3.9 Specimen of Balance Sheet :, Balance Sheet as on 31st March 20......, Liabilities, Capital Fund, (Opening Balance), Add :, i) Donations (Capitalised), ii) Entrances fees (Capitalised), iii) Surplus, Less : Deficit, Building Fund, Endownment Fund, Tournament Fund, Special Fund, Charity Fund, Sundry Creditors, Bank overdraft, Other Loan, Outstanding Expenses, Pre Received Income, (Subscription received in advance), Life Membership Fees, , Amt, , Amt, , `, , `, , xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxxx, , Assets, , Amt, , Amt, , `, , `, , Cash in Hand, Cash at Bank, Fixed Deposit, Investments, Sundry Debtors, Land and Buildings, Furniture and Fixtures, Plant and Machinery, Equipments, Play Ground, Motor Vehicles, Library Books, Stock of Sports Materials, Stock of Stationery, Stock of Drugs, Loans and Advances given, Accured Interest, Prepaid Expenses, Outstanding Income, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxxx, , Some times instead of adding surplus into Capital Fund, it is accumulated as a credit Balance, to Income and Expenditure Account. such balance is shown separate in Balance Sheet. On the, Liabilities side making there of may be as under., Income the Expenditure Account, Opening credit Balance, Add surplus of current year, , Amt `, , Amt `, , xxx, xxx, , xxx, , 2.3.9 (A) Additional Information :, 1) (Refer illustration No. 4) Outstanding and prepaid Expenses, 1., , Outstanding Expenses - Outstanding expenses are the expenses which are unpaid., Two effects, i), Add outstanding amount in the concerned expenditure on expenditure side of Income &, Expenditure Account., ii), , Show outstanding expenses on Liabilities side of Balance Sheet., 73
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2., , Prepaid Expenses - Prepaid Expenses are the expenses which are paid in advance., Two effects, i), ii), , Deduct the prepaid amount from the concerned expenses on expenditure side of In come, and Expenditure Account., Show prepaid expenses on Asset side of Balance Sheet., , 3., , Accured Income/Outstanding Income :, The Income which is earned during the year but it has not been, received during the year, it is, an outstanding income., Two effects, i), Outstanding income is added in the concerned Income on Income side of Income and , Expenditure Account., ii) Outstanding Income is shown on the Asset side of the Balance Sheet., , 4., , Income Received in Advance / Pre - Received Income :, Sometimes income is received during the year which is actually related to the next year. It is, income received but not earned., Two effects, i), The amount of Income received in advance is deducted from the concerned income in, Income side of Income and Expenditure Account., ii) Show on Liabilities side of Balance Sheet., , 5., , Subscription received in advance and outstanding subscription :, Subscription is a revenue income of Not for Profit concern. Subscription may be given, periodically. All members have to pay subscription regularly. It is credited to Income and, Expenditure Account., Subscription can be classified as :, i), Subscription of current year received in the current year ii) Subscription of previous year received in current year iii) Subscription of next year received in the current year iv) Subscription of current year is outstanding., , 6., , Depreciation :, (for this refer to illustration No. 3) Depreciation is a Nominal Account., Two effects, 1) Debit side of Income and Expenditure Account., 2) Deduct from deduct from the concerned asset from Balance Sheet., , 7., , Capitalisation of Entrances fees :, Entrances fees are the fees paid by the persons, who intend to become a member of the organ, isation / concern., Generally Entrance fees are treated as Capital receipts / Income. But sometime part & it can, be treated an Revenue Receipts., e.g Entrance Fees Received ` 50,000., Additional Information -, , 74
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50 % Entrance Fees should be Capitalised., 50 % of ` 50,000 = ` 25,000, ` 25,000 will be added in Capital Fund. and ` 25,000 will be treated as Revenue - Income, which is credited on Income side of Income and Expenditure Account. (Deduct from Entrance, Fees), 8. Creation of special funds out of Donations :, Donations means gifts given by either members or any outsiders to the Organisation Types of, Donations., 1) Genaral Donations - Treated as Revenue Income and will be shown on Income side of, Income and Expenditure Account. These donations are given without any condition., 2) Specific Donations - Donations are sometimes given for specific purpose. The doner, specifies the purpose for utilising the amount donated by him e.g., , Donations for Building Fund, Donations for Prize Fund, Donations for Sports , Tournaments etc., , Such Donations should be shown on the Liabilities side of Balance Sheet., 9. Stock of Stationery : Stationery is an expenditure. It is a consumable item., It may be calculated as under :, , Opening Stock of Stationery, ` xxx, , Add : Purchases of Stationery during the year, ` xxx , , Add : Outstanding Stationery Bill, ` xxx, , Less : Closing Stock of Stationery, ` xxx, , Stationery Consumed, ` xxx, Stationery consumed is to be debited to Income and Expenditure Account and closing Stock &, Stationery will be shown on Asset side of Balance Sheet., Same treatment id to be given for Sports Material Consumed, Medicines/Druges etc., 10. Opening Balances of Assets and Liabilities Opening Balance Sheet : , At the beginning of accounting year the accounts of assets and liabilities show balance. With, these opening balances, opening Balance Sheet is prepared. While preparing final Accounts of, the concern these balances are property taken into account., Capital Fund should he represented on Liabilities side of Balance Sheet., Refer the Point 2:3:8, B) Important Terms:, 1) Entrance fees - (please refer Additional information point No. 7), 2) Subscriptions - (please refer Additional information Point No. 5), 3) Legacy - Legacy means gifts received under the will on the death of a donor . This gift, may be for general or special purpose., i) General gift - Revenue Income which is credited on Income side of Income and, Expenditure Account., ii) Special purpose (Gift) - It is a capital Receipt. It should be shown on the liability side, of Balance Sheet., 4. Life Membership Fees :, In Not for Profit concerns same members Pay Life Membership fees. It is non - recurring income, therefore it will be shown on liability side of Balance Sheet., 75
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5., , 6., , Sale of old Assets :, When any asset became obsolete or useless for the concern, it is sold out. Amount relaised on it, in a Capital Receipt. The Book value of sale of such asset is deducted from the concerned asset., The difference between the Book Value and Realised value is either Profit on Loss on sale of, Asset. It there is a Profit it should be shown to income side of Income and Expenditure Account., If there is a loss it should be shown on Expenditure side of Income and Expenditure Account., Sale of Scrap, News papers etc. Scrap of old materials is sold in the market. It is treated as, recurring income. Therefore, It is credited to Income side of Income and Expenditure Account., Sale of old News Papers is a miscellaneous income. It is credited on Income side of Income and, Expenditure Account., 7) Specific Donations (please refer point No. 8), 8) General Donations (please refer point No. 8), 9) Specific Funds (please refer point No. 8), 10) Endowment Fund, It is a fund created out of specific amount embarked, gifted or donated. The Income of, this fund is a specific Income. It shows on the liability side of the Balancesheet., Illustrations, , 1:, , Treatment of Stationery, Balance Sheet, as on 31st March 2017, Liabilities, , Amount Amount, `, , Assets, , `, , Amount Amount, `, , Stock of Stationery, , `, , 800, , Receipts and Payments Account, for the year ended 31st March 2018, Dr. , , Cr., Receipts, , Amount Amount, `, , Payments, , Amount Amount, `, , `, , By Stationery Purchased, , `, , 7,000, , Adjustments :, 1) ` 1,500 is Outstanding for Stationery Bill., 2) Stock of Stationery on 31st March 2018 was ` 1,300., With the help of above information calculate the amount of stationery cosumed during the year., Particulars, Stock of stationery as on 1-4-2017, Add : Purchased during the year, Add : Outstand bill, , Amount `, 800, 7,000, 1,500, 9,300, 1,300, 8,000, , Less : Closing Stock (31-3-2018), Stationery consumed during the year, 76
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2:, , For considering adjustments relating to subscription only, Receipts and Payments Account, for the year ended 31st March 2018, Dr. , Receipts, , Amount Amount, `, , Payments, , `, , Cr., Amount Amount, `, , `, , To Subscription, 2016 - 17, , 1,500, , 2017 - 18, , 80,000, , 2018 - 19, , 3,500, , 85,000, , Adjustments :, 1) Subscription outstanding for current year was ` 7,000, 2) Outstanding subscription for 2016 - 17 was ` 2,000 Subscription received in advance during, last year was ` 8,000., With the help of above information show the effects in final account., Solution :, Income & Expenditure Account, for the year ended 31st March 2018, Dr. , , Cr., , Expenditure, , Amount Amount, `, , Income, , `, , Amount Amount, `, , By Subscription, Add : Subscription, received in advance in last, year, Add ; Outstanding, Subscription for current year, , `, , 80,000, 8,000, , 7,000, 95,000, , Balance Sheet, as on 31st March 2018, Liabilities, , Amount Amount, `, , Subscritpion, received in, advance (2018-19), 3:, , Assets, , `, , Amount Amount, `, , 3,500 Outstanding Subscription, 2016 - 17, 2017 - 18, , 500, 7,000, , `, , 7,500, , Calculation of Depreciation, On 1st April 2018 Furniture Account shows a balance of ` 1,00,000, On 1st July 2018,, Additional Furniture was purchased for ` 30,000., Furniture is to be depreciated by 12 % p.a. show the presentation in Final Accounts., 77
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Income & Expenditure Account, for the year ended 31st March 2019, Dr. , Expenditure, , Amount Amount, `, , To Depriciation on Furniture, (Working Note), , Cr., Amount Amount, , Income, , `, , `, , `, , 14,700, , Balance Sheet, as on 31st March 2019, Liabilities, , Amount Amount, `, , Assets, , Amount Amount, , `, , `, , Furniture, , 1,00,000, , Add : Additions, , 30,000, 1,30,000, 14,700 1,15,300, , Less : 12 %Depreciation, Working Note :, , A) 12 % Depr. on ` 1,00,000 for 1 year, B) 12 % Depr. on ` 30,000 for 9 months, , 4:, , `, , ` , , , , 12,000, 2,700, 14,700, , Total Depreciation, , Outstanding Expenses and Prepaid Expenses of the current year and previous year, Balance Sheet as on 31st March 2018, Liabilities, , Amount Amount, `, , Assets, , `, , Amount Amount, `, , Prepaid Salaries, (for 2018 - 19), , `, , 2,000, , Receipts & Payments Account, for the year ended 31st March 2019, Dr. , , Cr., Receipts, , Amount Amount, `, , Payments, , `, , Amount Amount, `, , `, , By Salaries, 2018 - 19, 2019 - 20, , 30,000, 1,000, , 31,000, , Adjustment : Outstanding Salaries for the current year was ` 5,500, show the presentation of, Salaries in the Final Accounts of a concern for the year 2018 - 19., 78
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Solution :, Income & Expenditure Account, for the year ended 31st March 2019, Dr. , , Cr., Expenditure, , To salaries, Add : Paid during, the year (2017 - 18), Outstanding for current year, , Amount Amount, `, , Income, , `, , Amount Amount, `, , `, , 30,000, 2,000, 5,500, , 37,500, , Balance Sheet, as on 31st March 2018, Liabilities, , Amount Amount, `, , Outstanding Salary, , Assets, , `, , 5,500, , Amount Amount, `, , Prepaid Salaries, (for 2019 - 20), , `, , 1,000, , 5:, , Simple Example - Prepare Income and Expenditure Account only, From the following Receipts & Payments Account and Adjustments given below you are, required to prepare Income and Expenditure Account for year ended 31st March 2020 of Venna, Cultural Association, Satara., Receipts & Payments Accounts, for the year ended 31st March 2020, Dr. , Cr., Receipts, , Amount Amount, `, , To Balance b/d, 10,000, , Cash at Bank, To Subscriptions, 2018 - 19, 2019 - 20, 2020 - 21, To Donations, (General), To Entrance fees, , 19,200, , 2018 - 19, , 29,200 2019 - 20, By Fixed Deposit, 15,000, By Sundry Exp., 1,00,000, By Insurance, 8,000 1,23,000 By Printing &Stationery, 25,000 By Picnic Expenses, By Salaries, 15,000 By Traveling Expenses, , `, , `, , 700, 54,300, , 4,800 By Advt. (2018 - 19), , Deposit, To Picnic Receipts, , Amount Amount, , By Rent, , Cash in Hand, , To Interest on Fixed, , Payments, , `, , 55,000, 47,000, 8,000, 12,000, 6,000, 18,000, 20,000, 13,000, 7,000, , By Balance c/d, 20,000 Cash in Hand, , 15,000, , Cash at Bank, , 16,000, , 2,17,000, 79, , 31,000, 2,17,000
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Adjustments :, 1) Outstanding Rent for the current year was ` 7,000., 2) 60 % Entrance fees should be capitalised., 3) Outstanding subscription for the current year was ` 20,000., 4) Prepaid Insurance ` 1,000., Solution :, In the books of Venna Cultural Association, Satara, Income and Expenditure Account, for the year ended 31st March 2020, Dr. , , Cr., Expenditure, , Amount Amount, `, , To Rent, Add : Outstanding, To Sundry Expenses, To Insurance, Less : Prepaid Insurance, To Printing & Stationery, To Picnic Expenses, To Salaries, To Traveling Expenses, To Surplus (Excess, of Income over, Expenditure), , 54,300, 7,000, , 12,000, 1,000, , Income, , `, , `, , By Subscriptions, 61,300 Add : Outstanding, Subscription, 8,000 By Donations, By Entrance fees, 11,000, 6,000, 18,000, 20,000, 13,000, 38,500, , Amount Amount, , Less : 60 % Capitalised, By Interest on Fixed, Deposit, By Picnic Receipts, , 1,75,800, , `, , 1,00.000, 20,000 1,20,000, 25,000, 15,000, 9,000, , 6,000, 4,800, 20,000, , 1,75,800, , Note : Picnic Expenses may be deducted form picnic receipts., 6:, , The following are the details of Subscription, as per Receipts and Payments Account., Subscription received during the year 2018 - 19 ` 50,000 Subscription outstanding on 31st, March 2018 ` 10,000. Subscription outstanding on 31st March 2019 ` 20,000. Subscription, received in advance as on 31st March 2018 ` 15,000. Subscription received in advance as on, 31st March 2019 ` 10,000, You are required to show its presentation in Income and Expenditure Account for the year, ended 31st March 2019 and a Balance Sheet as on that date., , 80
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Income & Expenditure Account, for the year ended 31st March 2019, Dr. , , Cr., Expenditure, , Amount, , Income, , Amount, , `, , `, , By Subscription for the, Current year (Working Note), , 65,000, , Balance Sheet as on 31st March 2019, Dr. , , Cr., Liabilities, , Amount, , Assets, , Amount, , `, , Subscription Received in advance, , 10,000, , `, , Outstanding Subscription, , 20,000, , Working Note :Calculation of subscription Income for the current year can be done by preparing either an, Account or a Statement., i), Statement of Subscription, Particulars, Subscription - As per Receipt & Payment A/c, Add : Outstanding for the year 31-3-2019, Less : Outstanding for the year 31-3-2018, Less : Advance during the year 31-3-2019, Add : Advance during the year 31-3-2018, As per Income and Expenditure Account (Balancing fig), Subscription Account, Dr. , Particulars, , Amount, , Amount `, 50,000, +, 20,000, 10,000, 10,000, +, 15,000, 65,000, , Particulars, , `, , To Outstanding Subscription b/d, To Income & Expenditure A/c, To Advance Subscription c/d, , 10,000, 65,000, 10,000, , Cr., Amount, `, , By Advance Subscription b/d, By Bank, By Outstanding Subscription c/d, , 85,000, , 15,000, 50,000, 20,000, 85,000, , 81
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7:, , From the following Receipts and Payments Account and additional information prepare, Income and Expenditure Account for the year ended 31st March 2019 and Balance Sheet, as on that date., Receipts and Payments Account, for the year ended 31st March 2019, Dr. , Cr., Receipts, , Amount, , Payments, , Amount, , `, , `, , To Balance b/d, , 3,000, , By Salaries, , 4,000, , To Subscription, , 5,000, , By Printing & Stationery, , 1,000, , To Donations (Revenue), , 5,000, , By Commission, , To Entrance fees, , 4,000, , By Rent, , 2,000, , To Interest, , 1,000, , By Electric Charges, , 1,500, , By Furniture, , 8,000, , By Balance c/d, , 1,000, , 500, , 18,000, , 18,000, , Additional Information :, 1) Outstanding Rent was ` 200, 2) Subscription includes ` 1,000 as Subscription received in advance and subscription, outstanding for current year was ` 500., 3) Depreciate Furniture @ 8 % p.a., 4) 50 % Entrance fees should be capitalised, 5) Capital Fund was ` 3,000, Income and Expenditure Account, for the year ended 31st March 2019, Dr. , Expenditure, , Amount Amount, `, , To Salaries, To Printing & Stationery, , Add : O/s Rent, To Electric charges, To Deperaciation on, , 500, 2,000, 200, , `, , 5,000, 1,000, 4,000, , Add : O/s Subscriptions, , 500, , 2,200 By Donations, 1,500 By Entrance fees, 640 Less : 50 % Capitalised, , Furniture, To Surplus, (Excess of Income over, Expenditure, , Amount Amount, `, , 4,000 By Subscriptions, 1,000 Less : Advance Subscriptions, , To Commission, To Rent, , Income, , `, , Cr., , By Interest, , 4,500, 5,000, , 4,000, 2,000, , 2,000, 1,000, , 2,660, , 12,500, 82, , 12,500
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Balance Sheet, as on 31st March 2019, Liabilities, , Amount Amount, `, , Assets, , `, , Amount Amount, `, , Capital Fund, , 3,000, , Furniture, , Add : 50 % Entrance fees, , 2,000, , Less : 8 % Depreciation, , Add : Surplus, , 2,660, , `, , 8,000, 640, , 7,360, , 7,660 Cash in hand, , Outstanding Rent, , 1,000, , 200 O/s Subscription, , 500, , Subscription, received in advance, , 1,000, 8,860, , 8,860, , 8:, , Dr. Abhinav Bharat started practice of Medical Practitioner on 1st April 2019, He gives, you the Receipts and Payments Account for the year ended 31st March 2020 and the, adjustments., Prepare Income and Expenditure Account and Balance Sheet for the year ended 31st March, 2020., Dr. Abhinav Bharat, Receipts and Payments Account, for the year ended 31st March 2020, Dr. , Cr., Receipts, , Amount, , Payments, , `, , To Cash introduced, To Visit fees, To Receipts from Dispensary, To Sundry Receipts, , Amount, `, , 25,000, 10,000, 30,000, 5,000, , By Furniture, By Equipments, By Drugs, By Salaries, By Rent, By Conveyance, By Stationery, By Electrical Charges, By Journals, By Drawings, By Balance c/d, , 70,000, , 83, , 8,000, 10,000, 7,000, 12,000, 6,000, 4,000, 500, 5,000, 500, 15,000, 2,000, 70,000
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Additional Information :, 1) Receipts in Arrears are Visit Fees ` 2,000 and Dispensary ` 500, 2) Outstanding Expenses - Rent ` 500 and Salaries ` 1,000, 3) Stock of drugs was ` 1,000, 4) Depreciate Furniture @ 8 % p.a. and Equipments ` 500., Solution : , In the books of Dr. Abhinav Bharat., Income and Expenditure Account, for the year ended 31st March 2020, Dr. , , Cr., Expenditure, , Amount Amount, `, , To Drugs, , 7,000, , Less : Stock & Drugs, , 1,000, , To Salaries, Add : O/s Salary, To Rent, , 12,000, 1,000, , By Visit fees, 6,000 Add : Outstanding, Visit Fee, 13,000 By Receipts for, , 6,000, , Add : O/s Rent, , 500, , To Conveyance, , 4,000, , Less : 40 % Domestic, , 1,600, , To Stationery, To Electrical Charges, To Journals, To Deperaciation on, Furniture, Equipments, To Surplus, (Excess of Income, over expenditure), , Income, , `, , Amount Amount, `, , `, , 10,000, 2,000, , 12,000, , 30,000, , Dispensary, 6,500 Add : Outstanding, By Sundry Receipts, , 500, , 30,500, 5,000, , 2,400, 500, 5000, 500, , 640, 500, , 1,140, 12,460, , 47,500, , 84, , 47,500
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Balance Sheet as on 31st March 2020, Liabilities, Capital Fund, (Cash Introduced), Add : Surplus, Less : Drawings, Less : Additional Drawings, , Amount Amount, `, , Assets, , `, , 25,000, , Furniture, Less : 8 % Depreciation, Equipments, Less : Depreciation 5%, Stock of Drugs, O/s Visit Fees, 20,860 O/s Receipts form, Dispensary, 500 Cash in Hand, 1,000, , 12,460, 37,460, 15,000, 22,460, 1,600, , Outstanding Rent, Outstanding Salaries, , Amount Amount, `, , 8,000, 640, 10,000, 500, , 22,360, 9:, , `, , 7,360, 9,500, 1,000, 2,000, 500, 2,000, 22,360, , Following is the Receipts and Payments Account of Parnil Sports Club, Pune and, additional information given below you are required to prepare Income and Expenditure, Account., Account for the year ended 31st March 2019 and a Balance Sheet as on that date., Receipts and Payments Account, for the year ended 31st March 2019, , Dr. , , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, , 5,000, , To Subscriptions, , Amount, `, , By Bank Overdraft (repaid), , 32,000, , By Salaries, , 10,000, , 2016 - 17 , , 2,000, , By Electrical Charges, , 4,000, , 2017 - 18, , 3,000, , By Municipal Taxes, , 2,700, , 2018 - 19, , 70,000, , 75,000, , By Purchase of Sports Materials, , 50,000, , To Donations, To Entrance fees, , 15,000, , By General Expenses, , 500, , 1,700, , By Billiard Expenses, , 3,000, , To Life membership fees(Revenue), , 17,000, , By Repairs to Ground, , 500, , To Tournament Receipts, , 60,000, , BY Tournaments Exp., , 50,000, , By Balance c/d, Cash in Hand, , 7,000, , Cash at Bank, , 14,000, , 1,73,700, , 1,73,700, , 85
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Additional Information :, 1) 50 % Donations are for Building Fund, 2) 70 % of Entrance fees should be Capitalised, 3) Subscription ` 500 for the year 2016 - 17 and ` 1,000 for the year 2017 - 18 are still in, arrears., 4) Following are the balances appeared in the books as on 1-4-2018., Building Fund ` 47,000, Bank Overdraft ` 32,000, Land ` 1,50,000. Sports Materials, ` 30,000, Outstanding Subscription for 2016 - 17 ` 2,500 and 2017 - 18 ` 4,000., 5) Outstanding subscription for the current year is ` 8,000, 6) Closing Stock of Sports Materials was ` 8,000 on which depreciation is to be provided at, 12.5% p.a., Solution :, Income and Expenditure Account, for the year ended 31st March 2019, Dr. , , Cr., Expenditure, , Amount Amount, `, , To Salaries, To Electricity Charges, To Municipal taxes, To Sports Materials, consumed, Opening Stock, Add : Purchases, Less : Closing Stock, To General Expenses, The Billiard Expenses, To Repairs to Ground, To Depreciation on, Sports Materials, To Surplus, (Excess of Income, over Expenditure), , 30,000, 50,000, 80,000, 8,000, , Income, , `, , Amount Amount, `, , 10,000 By Tournament Receipts, 4,000 Less : Tournament exp., 2,700 By Subscriptions, Add : Outstanding, By Donations, Less : 50 % for, Building fund, By Entrance fees, 72,000 Less : 70 % Capitalised, 500 By Life Membership Fee, 3,000, 500, 1,000, , 60,000, 50,000, 70,000, 8,000, 15,000, 7,500, 1,700, 1,190, , `, , 10,000, 78,000, 7,500, , 510, 17,000, , 19,310, , 1,13,010, , 86, , 1,13,010
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Balance Sheet, as on 31st March 2019, Liabilities, , Amount Amount, `, , Capital Fund, Add : 70 % Entrance fees, Add : Surplus, Building Fund, Add : 50 % Donations, , Assets, , `, , Amount Amount, `, , 1,12,500, Cash in Hand, 1,190, Cash at Bank, 19,310 1,33,000 O/s Subscription, 47,000, 2016 - 17, 7,500 54,500 2017 - 18, 2018 -19, Land, Sports Materials, Less : 12.5 % Depreciation, , `, , 7,000, 14,000, 500, 1,000, 8,000, 8,000, 1,000, , 1,87,500, , 9,500, 1,50,000, 7,000, 1,87,500, , Working Notes :, 1) Calculation of Capital Fund, Balance Sheet, as on 31st March 2018, Liabilities, , Amount Amount, `, , Building Fund, Bank Overdraft, Capital Fund, (Balancing figure), , 2), , Assets, , `, , Amount Amount, `, , 47,000 Land, 32,000 Sports Materials, 1,12,500 Outstanding Sub., 2016 - 17, 2017 - 18, Cash in Hand, 1,91,500, , Calculation of Depreciation on Sports Materials, 1, 12 2, % Depreciation, on ` 8,000, 12.5, 8,000 × 100 = ` 1,000, , 87, , `, , 1,50,000, 30,000, 2,500, 4,000, , 6,500, 5,000, 1,91,500
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10 : Saraswati High School, Khed showed the following position on 31st March 2018, Balance Sheet, as on 31st March 2018, Liabilities, , Amount Amount, `, , Capital Fund, Entrance fees, , Assets, , `, , Amount Amount, `, , `, , 6,80,000 Cash in Hand, 20,000 Cash at Bank, Laboratory, Building, Furniture, Books, Tuition fees, Receivable, , 5,000, 8,000, 15,000, 6,00,000, 40,000, 22,000, 10,000, , 7,00,000, , 7,00,000, , Receipts and Payments Account, for the year ended 31st March 2019, Dr. , , Cr., Receipts, , To Balance b/d, Cash, Bank, To Tuition fees, 2017 - 18, 2018 - 19, To Fine Collected, To Admission fees, To Term fees, To Donations to for, Library, To Interest on Bank, Deposits, To Govt. Grants, (Revenue), , Amount Amount, `, , 5,000, 8,000, , Payments, , `, , 13,000, , 8,000, 1,00,000 1,08,000, 2,000, 10,000, 7,000, 1,000, 5,000, 2,00,000, , By Salaries to Teachers, By Salaries to Office, staff, By Books, (Purchased on 1-1-2019), By Printing & Stationery, By Annual, Gathering Exp, By Office Rent, By Repairs, By Sports Exp., By Furniture, (Purchased on 1-7-2018), By Balance c/d, Cash, Bank, , 3,46,000, , 88, , Amount Amount, `, , `, , 1,80,000, 30,000, 15,000, 5,000, 10,000, 16,000, 15,000, 5,000, 50,000, , 8,000, 12,000, , 20,000, 3,46,000
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Additional Information :1) Tuition fees are outstanding for current year ` 5,000, 2) Salary to teachers is outstanding ` 15,000, 3) Rent paid in advance is ` 3,000, 4) Depreciation on Books @ 15 % p. a. and 10 % on Furniture. , You are required to prepare Income & Expenditure Account for the year ended 31st, March, 2019 and a Balance Sheet as on that date., Solution :, In the Book of Saraswat High School, Khed, Income and Expenditure Account, for the year ended 31st March, 2019, Dr. , Expenditure, , Amount Amount, `, , To Salaries to teachers, Add : o/s Salaries, To Salaries to Office Staff, To Printing and Stationery, To Annual Gathering, Expenses, To Office Rent, Less : Prepaid Rent, To Repairs, To Sports Expenses, To Depreciation on, Furniture, Books, To Surplus, (Excess of Income, over Expenditure), , 1,80,000, 15,000 1,95,000, 30,000, 5,000, 10,000, 16,000, 3,000, , 7,750, 3,863, , Income, , `, , Cr., Amount Amount, `, , `, , By Tuition fees, 1,00,000, Add : Outstanding tuition fees, 5,000 1,05,000, By Fine Collected, 2,000, By Admission fees, 10,000, By Term fees, 7,000, By Interest on Bank Deposits, 5,000, By Govt. Grants, 2,00,000, , 13,000, 15,000, 5,000, , 11,613, 44,387, , 3,29,000, , 3,29,000, , 89
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Balance Sheet as on 31st March 2019, Liabilities, , Amount Amount, `, , Capital Fund, Add : Surplus, Entrance fees, Donations for Library, Outstanding Salary, of teachers, , 6,80,000, 44,387, , Assets, , `, , `, , 7,24,387, 20,000, 1,000, 15,000, , Cash in Hand, Cash in Bank, Tution fees Receivable, 2017 - 18, 2018 - 19, Prepaid Rent, Laboratory, Building, Furniture, Add : Furniture Purchased, Less : 10 % Depreciation, Books, Add : Purchases, Less : 15 % Depreciation, , 7,60,387, Working Notes :, 1) Calculation of Depreciation on Furniture, a) 10 % Depreciation on ` 40,000, , , `, , 8,000, 12,000, 2,000, 5,000, , 40,000, 50,000, 90,000, 7,750, 22,000, 15,000, 37,000, 3,863, , 7,000, 3,000, 15,000, 6,00,000, , 82,250, , 33,137, 7,60,387, , `, , 4,000, , b) 10 % Depreciation on ` 50,000, , for 9 months, 10, 9, 50,000 ×, ×, 100, 12, , , 3,750, 7,750, , Total Depreciation, 2), , Amount Amount, , Calculation of Depreciation on Books, , `, , a) 15 % Depreciation on ` 22,000 =, , , 3,300, , b) 15 % Depreciation on ` 15,000, , for 3 months, 15, 15,000 ×, × 3 =, 100, 12, , , 563, 3,863 , , Total Depreciation, , 90
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11 : Following is the Balance Sheet on 1st April 2019 and Receipts and Payments Account of, Dayanand Library Ambajogai. You are required to prepare Income and Expenditure, Account of the year ended 31st March 2020 and Balance Sheet as on that date., Balance Sheet as on 31st March 2019, Liabilities, , Amount, , Assets, , `, , Capital Fund, Subscription received in Advance, Outstanding Expenses, , 7,50,000, 3,000, 2,000, , Amount, `, , Furniture, Books, Stock of Postage stamps, Investments in Securities, Cash in Hand, Cash at Bank, , 7,55,000, , 50,000, 6,50,500, 500, 7,000, 7,000, 40,000, 7,55,000, , Receipts and Payments Account, for the year ended 31st March 2020, Dr. , , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, Cash, Bank, To Members Subscription, To Entrance fees, To Sale of old News Papers, To Hire of Lecture Hall, To Interest on securities, To Life Members Fee, , 7,000, 40,000, 1,80,000, 30,000, 2,000, 10,000, 5,000, 10,000, , Amount, `, , By Salaries, By Purchase of Postage Stamps, By Books (Purchased on 1-10-19), By Outstanding Expenses Paid, By Investments in Fixed Deposit, By Furniture, (Purchases on 1-7-2019), By Printing & Stationery, By Rent, By Balance c/d, Cash, Bank, , 2,84,000, , 24,000, 1,500, 1,00,000, 2,000, 50,000, 30,000, 6,000, 18,000, 9,500, 43,000, 2,84,000, , Adjustments :, 1) Depreciation on Books at 10 % p.a., 2) Depreciation on Furniture at 8.5 % p.a., 3) 50 % Entrance fees and whole amount of Life Membership Fees should be capitalised., 4) Library had 2,000 members paying Subscription ` 100 each., 5) The value of unused Postage Stamps was ` 200., , 91
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Solution :, In the Book of Dayanand Library, Ambajogai., Income & Expenditure Account, for the year ended 31st March 2020, Dr. , , Cr., Expenditure, , Amount Amount, `, , To Salaries, To Postage, Opening Stock, Add : Purchases, Less : Closing Stock, To Printing and Stationery, To Rent, To Depreciation on :, Books, Furniture, To Surplus (Excess of, income over Expenditure), , 500, 1,500, 2,000, 200, , 70,050, 6,162, , Income, , `, , Amount Amount, `, , 24,000 By Members, Subscription, Add : Subscription, received in advance, Add : O/s. Subscription, 1,800 By Entrance fees, 6,000 Less : 50 %Capitalised, 18,000 By Sale of old, News Papers, By Hire of Lecture Hall, 76,212 By Interest on securities, 1,05,988, , 1,80,000, 3000, 17,000 2,00,000, 30,000, 15,000, 15,000, 2,000, 10,000, 10,000, , 2,32,000, Liabilities, , Balance Sheet as on 31st March 2020, Amount Amount, Assets, `, , Capital Fund, , `, , `, , 2,32,000, Amount Amount, `, , `, , 7,50,000, , Cash in Hand, , 9,500, , Add : 50 % Entrance fees, , 15,000, , Cash at Bank, , 43,000, , Life Membership Fees, , 10,000, , Furniture, , Surplus, , 1,05,988 8,80,988 Add : Purchases, , 50,000, 30,000, 80,000, , Less : 8.5 % Depreciation, , 6,162, , Books, , 6,50,500, , Add : Purchases, , 1,00,000, , 73,838, , 7,50,500, Less : Depreciation, Stock of Postage Stamps, Investment in Securities, Investment in Fixed Deposit, O/s Subscription, 8,80,988, , 70,050 6,80,450, 200, 7,000, 50,000, 17,000, 8,80,988, , 92
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Working Notes :, 1) Calculation of Depreciation on Books, a) 10 % Depreciation on ` 6,50,500, , `, , 10, × 100 = 65,050, , 65,050, , , b), , , , 2), , 6,50,500, 1, , 10 % Depreciation on ` 1,00,000, for 6 months, 1, 10,000, ×, ×, 100, 1, , 6, 12, , 5,000, 70,050, , Total Depreciation, , Calculation of Depreciation of Furniture, a) 8.5 % Depreciation on ` 50,000, , , b), , , , `, , 8.5, 50,000 × 100 = 4,250, , 4,250, , 8.5 % Depreciation on ` 30,000, for 6 months, 9, = 1,912, 30,000 × 8.5 ×, 12, 100, , 1,912, 6,162, , Total Depreciation, , 12 : Following is the Receipts and Payments Account of Chamber of Commerce, Beed for, the year ended 31st March 2018 and same additional information. You are required, to prepare Income and Expenditure Account for the year ended 31st March 2018 and, Balance Sheet as on that date., Receipts and Payments Account, for the year ended 31st March 2018, Dr. , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, (Cash at Bank), To Subscription, (including ` 8,000 for 2016 - 17), To Sale of Machinery, (Book value ` 25,000), To Donations, To Admission fees (Revenue), , 22,250, 72,000, 20,000, 55,000, 6,000, 1,75,250, , Amount, `, , By Insurance, By Printing & Stationery, By Books, By Computers, By Traveling Expenses, By Furniture, By Balance c/d, (Cash at Bank), , 10,000, 4,000, 30,000, 60,000, 4,000, 62,000, 5,250, 1,75,250, , 93
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Additional Information :, 1) Assets and liabilities on 1st April 2017 were as follows :, Outstanding Subscription ` 10,000, Machinery ` 50,000, Building Fund ` 2,10,000,, Investment ` 3,00,000., 2) Depreciate Machinery by ` 2,500., 3) Donations received for Building fund., 4) Outstanding subscription for the current year was due for ` 6,000., Solution :, In the Book of Chambers of Commerce, Beed., Income & Expenditure Account, for the year ended 31st March 2018, Dr. , , Cr., Expenditure, , Amount Amount, `, , `, , To Insurance, To Printing and Stationery, To Traveling Exp., To Loss on sale, Machinery, To Depreciation on, Machinery, To Surplus, (Excess to Income, over Expenditure), , Income, , Amount Amount, `, , 10,000 By Subscriptions, 4,000 Less for 2016 - 17, 4,000, 5,000 Add : O/s.Subscriptions, By Admission fees, 2,500, , 72,000, 8,000, 64,000, 4,000, , `, , 68,000, 6,000, , 48,500, , 74,000, Balance Sheet as on 31st March 2018, Liabilities, , Amount, , Capital Fund, Add : Surplus, Building Fund, Add : Donations, , 1,72,250, 48,500, 2,10,000, 55,000, , `, , Amount, , Assets, , `, , Cash at Bank, 2,20,750 Books, Computers, 2,65,000 Furniture, O/s Subscription, 2016 - 17, 2017 - 18, Machinery, Less : Sold, Less : Depreciation, Investment, 4,85,750, 94, , 74,000, Amount, `, , Amount, `, , 5,250, 30,000, 60,000, 62,000, 2,000, 4,000, 50,000, 25,000, 25,000, 2,500, , 6,000, , 22,500, 30,000, 4,85,750
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Working Note :, 1) Calculation of Capital Fund as on 1-4-2017, Balance Sheet, as on 1st April 2017, Liabilities, , Amount, , Assets, , `, , Building Fund, Capital Fund, (Balancing figure), , 2,10,000, 1,72,250, , Cash at Bank, O/s Subscription (2016-17), Machinery, Investment, , 3,82,250, , Amount, `, , 22,250, 10,000, 50,000, 3,00,000, 3,82,250, , 2) Current years O/s Subscription, Subscription Outstanding on 1st April, 2017 =, 10,000, Less Subscription Received for 2016-17, =, 8,000, , 2,000, Subscription Still Outstanding for, =, Subscription Outstanding on 31st March, 2018 is given ` 6,000 which includes ` 2,000 for, 2016-17 i.e. Current years Subscription Outstanding will be ` (6,000-2,000) ` 4,000., 13 : Following is the summary of Receipts and Payments of Jay Hanuman Vyayamshala,, Aurangabad for the year ended 31st March 2020., Receipts & Payments Account, for the year ended 31st March 2020, Dr. , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, To Subscription, 2018 - 19, 2019 - 20, , 32,800, 4,000, 2,30,000, , To Donations, To Receipts from Entertainments, To Interest on F. D., To Entrance fees, To Income from Investment, , 2,34,000, 60,000, 40,000, 3,000, 50,000, 1,000, , Amount, `, , By Salary, By Lighting, By General Expenses, By Maintenances charges, By Entertainment Exp., By Printing & Stationery, By Expenses for 2018 - 19, By Investment, By 8 % Fixed Deposit with, Wai Urban Bank Ltd., By Balance c/d, , 4,20,800, , 95, , 50,000, 10,500, 20,000, 40,000, 35,000, 7,000, 25,000, 1,50,000, 50,000, 33,300, 4,20,800
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Additional Information :, 1) Jay Hanuman Vyayamshala has ` 5,000 members paying annual subscription ` 50 each., 2) Outstanding Salary ` 12,000., 3) On 1st April, 2019 the assets stood as under., a) Land & Building ` 70,000, b) Furniture ` 45,000, Depreciate the above assets at 10 % p. a., 4) Income Accrued on Investment is ` 2,000, 5) 50 % Entrance fees and 60 % of Donations should be capitalised., Prepare Income and Expenditure Account for the year ended 31st March 2020 and also, Balance Sheet as on same date., Solution :, In the Book of Jay Hanuman Vyayamshala, Aurangabad., Income & Expenditure Account, for the year ended 31st March 2020, Dr. , Cr., Expenditure, To Salary, Add : Outstanding, To Lighting, To General Exp., To Maintenance Charges, To Entertainment, Expenses, To Printing & Stationery, To Depreciation on, Land & Building, Furniture, To Surplus, (Excess of Income, over Expenditure), , Amount Amount, `, , 50,000, 12,000, , 62,000, 10,500, 20,000, 40,000, 35,000, 7,000, , 7,000, 4,500, , Income, , `, , 11,500, 1,60,000, , By Subscription, Add : O/s Subscription, By Donations, Less : 60 % Capitalised, By Receipts from, Entertainment, By Income from, Investment, Add : Outstanding, By Entrance fees, Less : 50 % Capitalised, By Interest on F. D., Add : O/s Interest, , 3,46,000, , 96, , Amount Amount, `, , `, , 2,30,000, 20,000 2,50,000, 60,000, 36,000, 24,000, 40,000, 1,000, 2,000, 50,000, 25,000, 3,000, 1,000, , 3,000, 25,000, 4,000, 3,46,000
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Balance Sheet as on 31st March 2020, Liabilities, , Amount Amount, `, , Capital fund, Opening Balance, Add : 50 % Entrance fees, Add : 60 % Donations, Surplus, O/s Salary, , 1,26,800, 25,000, 36,000, 1,60,000, , Assets, , `, , Amount Amount, `, , Cash in Hand, Investment, Add : Accrued Income, 8 % Fixed Deposit, 3,47,800 Add : O/s Interest, 12,000 O/s Subscription, Land & Building, Less : 10 %Depreciation, Furniture, Less :10 % Depreciation, 3,59,800, , `, , 33,300, 1,50,000, 2,000 1,52,000, 50,000, 1,000, 51,000, 20,000, 70,000, 7,000, 63,000, 45,000, 4,500, 40,500, 3,59,800, , Working Note :, 1) Calculation of capital fund, Balance Sheet as on 1st April 2019, Liabilities, , Amount, , Assets, , `, , Outstanding Expenses, , 25,000, , Capital Fund, , 1,26,800, , (Balancing figure), , Amount, `, , Cash in Hand, Outstanding Subscription, , 32,800, 4,000, , Land & Building, , 70,000, , Furniture, , 45,000, , 1,51,800, , 1,51,800, , 14 : Given below is the Balance Sheet of Yesubai Mahila Mandal on 01.04.2018 and Receipts, and Payments Account for the year ending 31.03.2019., Balance Sheet as on 1st April 2018, Liabilities, , Amount, , Assets, , `, , Capital Fund, , 30,000, , Outstanding Expenses, , Amount, `, , Cash in Hand, , 3,000, , Cash at Bank, , 8,000, , Salary , , 8,000, , Furniture, , Rent , , 7,000, , Outstanding Subscription, , 8,500, , Stationery, , 1,000, , 6 % Investment, , 6,500, , , , 16,000, 46,000, , 20,000, , 46,000, , 97
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Receipts & Payments Account, for the year ended 31st March 2019, Dr. , , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, , `, , By Rent, , Cash in Hand, , 3,000, , By Stationery, , Cash at Bank, , 8,000, , By Salaries, , To Entrance fees, , 28,000, , To Subscriptions, 2017 - 18, , 2,000, , 2018 - 19, , 45,000, , 2019 - 20, , 3,000, , To Miscellaneous receipts, , Amount, , By Furniture Repairs, , 25,000, 3,000, 22,000, 1,800, , By Honorarium to Secretary, , 16,000, , By Miscellaneous Expenses, , 2,000, , By Balance c/d, 50,000, , Cash in Hand, , 8,200, , 5,000, , Cash at Bank, , 16,000, , 94,000, , 94,000, , Additional Information :, 1) Rent for last two months ` 5,000 is still due., 2) Stationery Expenses payable on 31st March 2019 were ` 450., 3) Outstanding Subscription for 2018 - 19 was ` 3,000., 4) Entrance fees should be capitalised., 5) Depreciate Furniture @ 10 % p.a., You are required to prepare Income and Expenditure Account for the year ended 31st, March 2019 and a Balance Sheet as on that date., , 98
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In the Books of Yesubai Mahila Mandal, Income & Expenditure Account, for the year ended 31st March 2019, Dr. , , Cr., Expenditure, , To Rent, Less : O/s for 2017-18, Add : O/s for 2 months, To Stationery, Less : O/s for 2017 - 18, Add : O/s Expenses, To Salaries, Less : O/s for 2017 - 18, To Furniture Repairs, To Honorarium to, Secretary, To Miscellaneous Expenses, To Depreciation on Furniture, , Amt., , Amt., , `, , `, , 25,000, 7,000, 18,000, 5,000, 3,000, 1,000, 2,000, 450, 22,000, 8,000, , Income, , Amt., , Amt., , `, , `, , By Entrance fees, 28,000, Less : Capitalized, 28,000, By Subscriptions, 45,000, 23,000 Add : O/s Subscriptions, 3,000, By Miscellaneous, Receipts, By O/s Interest on Investment, 2,450 By Deficit, (Excess of Expenditure, 14,000 over Income), 1,800, 16,000, , -------48,000, 5,000, 390, 7,860, , 2,000, 2,000, 61,250, , 61,250, , Balance Sheet as on 31st March 2019, Liabilities, , Amount Amount, `, , Capital Fund, Opening Balance, Add : Entrance fees, Less : Deficit, Outstanding Expenses, Rent, Stationery, Subscription Received, in Advance, , 30,000, 28,000, 58,000, 7,860, 5,000, 450, , Assets, , `, , Amount Amount, `, , Cash in Hand, Cash at Bank, Furniture, Less : 10 % Depreciation, 50,140 6 % Investments, Add : O/s Interest, Outstanding Subscription, 5,450 2017 - 18, 3,000 2018 - 19, 58,590, , 99, , `, , 8,200, 16,000, 20,000, 2,000, 6,500, 390, 6,500, 3,000, , 18,000, 6,890, , 9,500, 58,590
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15 : Following is the Receipts and Payments Accounte of Krishna Junior College, Mahabaleshwar, for the year ended 31st March 2020., Receipts & Payments Account, for the year ended 31st March 2020, Dr. , Cr., Receipts, To Balance b/d, Cash, To Tution fees, 2018 - 19, 2019 - 20, To Fine Collected, To Interest on Bank, Deposits, To Admission fees, To Donations for, Prize Fund, To Govt. Grands, , Amount Amount, `, , 23,500, 7,000, 70,000, , Payments, , `, , 77,000, 4,000, 25,500, 12,000, 90,000, 1,73,000, , By Bank Overdraft, By Salaries to teachers, By Salaries to Office Staff, By Books Purchased on, 1 - 7 - 2019, By Printing and Stationery, By Office Rent, By Repairs, By Sports Expenses, By Annual Gathering Exp., By Furniture, (Purchased on 1-1-2020), By Balance c/d, Cash in Hand, Cash in Bank, , 4,05,000, , Amount Amount, `, , `, , 28,500, 2,00,000, 40,000, 60,000, 7,000, 6,000, 3,000, 1,500, 12,000, 40,000, , 200, 6,800, , 7,000, 4,05,000, , Additional Information :, 1) For the current year (2019 - 20) Tuition fees are outstanding ` 10,000., 2) 50 % Admission fees should be capitalised., 3) Outstanding Salary to teachers are ` 12,000., 4) Depreciation : Books @ 10 % p.a. and Furniture @ 15 % p.a., 5) 50 % Govt. Grants should be capitalised., 6) Assets and Liabilities on 1st April, 2019 were as follows. Building ` 18,00,000, Furniture, ` 7,00,000, Books ` 5,00,000, 9 % Bank Deposits ` 3,00,000,, Tution fees receivable ` 7,000, Bank overdraft ` 28,500, You are required to prepare Income and Expenditure Account for the year ended 31st, March 2020 and Balance sheet as on that date., , 100
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Solution :, In the Books of Krishna Junior College Mahabaleshwar., Income and Expenditure Account, for the year ended 31st March 2020, Dr. , , Cr., Expenditure, , Amount Amount, `, , To Salaries to teachers, Add : O/s Salary to, teachers, To Salaries to office staff, To Printing & Stationery, To Office Rent, To Repairs, To Sports Expenses, To Annual Gathering, Expenses, To Depreciation on, Books, Furniture, , Income, , `, , Amount Amount, `, , 2,00,000, By Tution fees, 12,000 2,12,000 Add : O/s Tution fees, By Fine Collected, 40,000 By Admission fees, 7,000 Less : 50 %Capitalised, 6,000 By Interest on, 3,000 Bank Deposits, 1,500 Add : O/s Interest, 12,000 By Govt. Grants, Less : 50 %Capitalised, 54,500, By Deficit, 1,06,500 1,61,000 (Excess of Exp. over, Income), , 70,000, 10,000, 12,000, 6,000, 25,500, , `, , 80,000, 4,000, 6,000, , 1,500, 1,73,000, , 27,000, , 86,500, , 86,500, 2,39,000, , 4,42,500, , 4,42,500, , Balance Sheet as on 31st March 2020, Liabilities, , Amount, , Amount, , `, , `, , Less : Deficit, Add :, Donation for prize fund, Outstanding, Salaries to teachers, , Amount Amount, `, , Capital Fund, 33,02,000, Add : 50 %Admission fees, 6,000, Add : 50 % Govt. Grants, , Assets, Outstanding Tution fees, Building, Furniture, Add : New Furniture, , `, , 10,000, 18,00,000, , 7,00,000, 86,500, 40,000, 33,94,500, 7,40,000, 2,39,000 31,55,000 Less : 15 % Depreciation 1,06,500 6,33,500, Books, 5,00,000, 90,000 Add : Purchases, 60,000, 12,000, 5,60,000, Less : 10 % Depreciation, 54,500 5,05,500, 9 % Bank Deposits, 3,00,000, Add : Outstanding Interest, 1,500 3,01,500, Cash in Hand, 200, Cash at Bank, 6,800, 32,57,500, 32,57,500, 101
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Working Note :1) Calculation of Capital Fund, Balance Sheet as on 1st April 2019, Liabilities, , Amount, , Assets, , Amount, , `, , Bank overdraft, Capital fund, (Balancing figure), , 28,500, 33,02,000, , `, , Cash in Hand, , 23,500, , Tution fees receivable, Building, Furniture, Books, 9 % Bank Deposits, , 7,000, 18,00,000, 7,00,000, 5,00,000, 3,00,000, , 33,30,500, , 33,30,500, , 2), , Calculation of Depreciation on Books, `, a) 10 % Depr. on ` 5,00,000 50,000, b) 10 % Depr. on ` 60,000, , for 9 months , 4,500, Total Depreciation , 54,500, 3), , Calculation of Depreciation on Furniture, a) 15 % Depr. on ` 7,00,000 1,05,000, b) 15 % Depr. on ` 40,000 1,500, , for 3 months 1,06,500 , Total Depreciation , 4), , Calculation of 9 % Interest on Bank Deposits, 9 % on Bank Deposits, ` 3,00,000, Interest Received, ` 25,500, Outstanding Interest , 1,500, , , 102, , 27,000
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16 : The following is the Receipts and Payments Account of Young Pensior's Association. Leh, for the year ended 31st March 2020., Receipts & Payments Account, for the year ended 31st March 2020, Dr. , Cr., Receipts, , Amount Amount, `, , To Bal b/d, To Subscriptions, 2018 - 19, 2019 - 20, 2020 - 21, To Entrance fees, (Capital Receipt), To Donations, To Legacies, To Interest on, Deposit, To Picnic Receipts, , 5,000, 83,000, 2,000, , Payments, , `, , Amount Amount, `, , 7,000 By Stationery, By Postage, By Picnic Exp, By Salaries, 90,000 By Annual, 13,000 General meeting, Expenses, 60,000 By Traveling Exp, 40,000 By Rent, By charity, 7,000 By Sundry Exp., 10,000 By Fixed Deposit, By Furniture, By Balance c/d, 2,27,000, , `, , 8,000, 1,000, 8,000, 8,000, 4,500, , 7,500, 12,000, 7,800, 3,200, 1,10,000, 50,000, 7,000, 2,27,000, , Adjustment :, 1) Outstanding subscription for current year ` 7,000., 2) Furniture was purchased on 1st Oct, 2019 and it is to be depreciated by 10 % p.a., 3) Outstanding picnic receipts ` 7,500., 4) Stock of stationery on 1-4-2019 was ` 350 and on 31st March, 2020 was ` 1,700., 5) 50 % of legacies and full amount of donations are to be capitalised., With the above information, you are required to prepare Income and Expenditure Account, for the year ended 31st March 2020., , 103
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In the Books of Young Pensioner’s Association, Leh., Income and Expenditure Account, for the year ended 31st March 2020, Dr. , , Cr., Expenditure, , Amount Amount, `, , `, , Add : Purchases, Less : Closing stock, , Amount Amount, `, , To Stationery used, Opening stock, , Income, , 350, , By Subscriptions, , 83,000, , Add : Outstanding, , 7,000, , 8,000, , By Legacies, , 40,000, , 8,350, , Less : 50 %Capitalised, , 20,000, , 1,700, , `, , 90,000, 20,000, , 6,650 By Interest on, , To Postage, , 1,000 Deposits, , 7,000, , To Picnic Exp., , 8,000 By Picnic Receipts, , 10,000, , To Salaries, , 8,000 Add : Outstanding, , 7,500, , To Annual, , 4,500, , 17,500, , General meeting, Expenses, To Traveling Exp., To Rent, , 7,500, 12,000, , To Charity, , 7,800, , To Sundry Exp., , 3,200, , To Depr. on Furniture, , 2,500, , To Surplus, , 73,350, , (Excess of Income, over Exp), 1,34,500, Working Note :, 1) Calculation of Depr. on Furniture 10 % Depr. on ` 50,000 for 6 months ` 2,500., Hint :, Picnic Receipts + Outstanding Receipts, are credited to Income and Expenditure, A/c and Picnic, Expenses are deducted from Picnic Receipts., `, , Picnic Receipts, 10,000, Add : Outstanding, 7,500, , 17,500, Less : Picnic Expenses, 8,000, 9,500, , 104, , 1,34,500
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17 : Following is the Balance Sheet and Receipts and Payments Account of Samarth Hospital,, Sawantwadi., Prepare Income and Expenditure Account for the year ended 31st March 2018 and Balance, Sheet as on that date., Balance Sheet as on 1st April 2017, Liabilities, Capital Fund, Outstanding Salary, , Amount Amount, `, , Assets, , `, , Amount Amount, `, , `, , 8,98,500 Cash in Hand, , 5,000, , 15,000 Cash at Bank, , 25,000, , Medicines bill, , Land & Building, , 7,00,000, , Unpaid, , 9,000 Furniture, , Outstanding sundry, , 1,500 Equipments, , 1,40,000, , Outstanding, , 4,000, , Expenses, , 50,000, , Subscription, 9,24,000, , 9,24,000, , Receipts & Payments Account, for the year ended 31st March 2018, Dr. , , Cr., Receipts, , To Balance b/d, Cash in Hand, Cash at Bank, To Subscription (included, ` 4,000 received for previous year), To Sale of Furniture (Book value 20,000), To Donations (Capital), To Life Membership fees, To Visit fees, , Amount, `, , 5,000, 25,000, 90,000, 15,000, 50,000, 30,000, 55,000, , 2,70,000, , 105, , Payments, By Medicines (Included of, previous year bill), By Purchase of Equipment, By Salaries (Inclusive of, Previous year), By Taxes, By Sundry Expenses, (2016 - 17), By Balance c/d, Cash in Hand, Cash at Bank, , Amount, `, , 50,000, 1,30,000, 52,000, 7,200, 1,500, , 8,300, 21,000, 2,70,000
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Additional Information :, 1) Prepaid taxes ` 1,000, 2) Outstanding Salary ` 8,000, 3) Depreciate Land & Building by 10 % p.a. and Equipments by ` 12,000 , 4) Outstanding Subscription ` 20,000 , 5) 50 % of Life Membership should be capitalised., Solution :, In the Books of Samarth Hospital, Sawantwadi., Income and Expenditure Account, for the year ended 31st March 2018, Dr. , , Cr., Expenditure, , To Medicines, Less : Unpaid Bill, , Amount Amount, `, , 50,000, 9,000, , To Salaries, , 52,000, , Less : O/s for previous year, , 15,000, , (2016-17), , By Subscription, 41,000 Less : Previous year, , 8,000, , To Taxes, , 7,200, , Less : Prepaid, , 1,000, , Add : O/s Subscription, 45,000 By Life Membership, Less : 50 % Capitalised, , Of Furniture, , 5,000 By Deficit, , (20,000 - 15,000), , (Excess of Expenditure, , To Depreciation on :, , over Income), , Equipment, , 12,000, , `, , 90,000, 4,000, , 20,000 1,06,000, , (2017-18), , 6,200 By Visit fees, , 70,000, , `, , 86,000, , To Loss on Sale, , Land & Building, , Amount Amount, , (2016-17), , 37,000, , Add : O/s (2017-18), , Income, , `, , 30,000, 15,000, , 15,000, 55,000, 3,200, , 82,000, , 1,79,200, , 106, , 1,79,200
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Balance Sheet as on 31st March 2018, Liabilities, Capital Fund, Add : Life Membership, (50 %), Add : Donations, Less : Deficit, O/s Salary, , Amount Amount, `, , Assets, , `, , Cash in Hand, Cash at Bank, O/s Subscription, 50,000, Land & Building, 9,63,500, Less : 10 % Depreciation, 3,200 9,60,300 Furniture, 8,000 Opening Balance, Less : Sold, Equipments, Opening Balance, Add : Additions, , Amount Amount, `, , 8,98,500, 15,000, , Less : Depreciation, Prepaid Taxes, 9,68,300, , 107, , `, , 8,300, 21,000, 7,00,000, 70,000 6,30,000, 50,000, 20,000, , 30,000, , 1,40,000, 1,30,000, 2,70,000, 12,000 2,58,000, 1,000, 9,68,300
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18 : From the following Receipts and Payments Account of Bahurao Patil Polytechnic, College, Nagpur for the year ending 31st March 2019 and additional information. Prepare, Income and Expenditure Account for the year ended 31st March 2019 and a Balance, Sheet as on that date., Receipts & Payments Account, for the year ended 31st March 2019, Dr. , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, 12,000, , Bank, , 2,00,000, , To Interest, , 60,000, , To Donations, , 7,00,000, , To Tution fees, , 15,00,000, , To Admission fees, , `, , By Salaries to teaching staff, , Cash, , 65,000, , Amount, , Office Staff, , 15,00,000, 8,55,000, , By Printing & Stationery, , 27,000, , By Books, , 88,000, , By Furniture, , 78,000, , (Purchased on 1-1-2019), By Drama Expenses, , 90,000, , To Term fees, , 4,00,000, , By Postage, , 7,000, , To Drama Receipts, , 1,00,000, , By Telephone Charges, , 6,000, , To Rent from use of hall, To Legacies (capital), , 6,000, 60,000, , By Electricity, By Magazines and Newspaper, , 61,000, 6,500, , By Balance c/d, Cash, , 62,000, , Bank, , 3,23,000, , 31,03,000, , 31,03,000, , Additional Information :, 1), Particulars, 1/4/2018 (`), 31/3/2019 ( `), Books, 9,00,000, 8,88,000, Furniture, 3,26,000, 3,00,000, Building Fund, 8,27,000, ?, Capital Fund, 6,11,000, ?, , , 2) 60 % Donations are for Building Fund and balance is to be treated as revenue income., 3) Outstanding office staff Salaries ` 70,000., , 108
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Solution :, In the Books of Bahurao Patil Polytechnic College, Nagpur., Income and Expenditure Account, for the year ended 31st March 2019, Dr. , , Cr., Expenditure, , Amount, `, , To Salaries to teaching, , Amount, , Income, , `, , `, , 15,00,000 By Interest, , staff, To Salaries to office, , Amount Amount, , 8,55,000, , staff, , 60,000, , By Donations, , 7,00,000, , Less : 60 % for Building, , 4,20,000, , By Tution fees, , Add : Outstanding, , 70,000, , To Printing & Stationery, , 65,000, , 27,000 By Term fees, 7,000 By Drama Receipts, , To Telephone charges, , 6,000 Less : Expenses, , To Electricity, , 4,00,000, 1,00,000, 90,000, , 61,000 By Rent from Hall, , To Magazines &, , (Excess of Expenditure, , To Depr. on, , over Income), , Books, , 1,00,000, , Furniture, , 1,04,000, , 10,000, 6,000, , 6,000 By Deficit, , News Papers, , 2,80,000, 15,00,000, , 9,25,000 By Admission fees, , To Pastage, , `, , 4,15,000, , 2,04,000, 27,36,000, , 27,36,000, , Balance Sheet as on 31st March 2019, Liabilities, Capital Fund, Add : Legacies, Less : Deficit, Building Fund, Add : Donations, O/s Salaries to office, staff, , Amount Amount, , Assets, , 6,11,000, 60,000, 6.71,000, 4,15,000 2,56,000, 8,27,000, 4,20,000 12,47,000, 70,000, , Books, Add : Purchases, , `, , `, , Less : 10 % Depreciation, Furniture, Add : Purchases, Less : Depreciation, Cash in Hand, Cash at Bank, , 15,73,000, 109, , Amount, `, , 9,00,000, 88,000, 9,88,000, 1,00,000, 3,26,000, 78,000, 4,04,000, 1,04,000, , Amount, `, , 8,88,000, , 3,00,000, 62,000, 3,23,000, 15,73,000
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19 : From the following Particulars relating to Sushma Memorial Hospital, Jalgaon, Prepare, Income and Expenditure Account for the year ended 31st March 2020 and Balance Sheet, as on that date., Receipts & Payments Account, for the year ended 31st March 2020, Dr. , Cr., Receipts, , Amount, , Payments, , `, , To Balance b/d, To Subscription, To Entrances fees (Revenue), To Life membership fees, (Revenue), To Sale of Old News Papers, To Donations for Building fund, , 12,000, 1,03,000, 1,700, 18,000, , Amount, `, , By Furniture, By Medicines, By Honorarium to Doctors, By Salary to staff, By General Expenses, By Surgical Instruments, By Fixed Deposit, (31-3-2020), By Balance c/d, , 500, 1,50,000, , 27,000, 7,000, 80,000, 15,000, 8,000, 60,000, 80,000, 5,500, 2,82,500, , 2,82,500, Additional Information :, 1), Particulars, 1/4/2019 `, 31/3/2020 `, Outstanding Subscription, 9,000, 10,000, Subscription received in advance, 8,000, 6,000, Building, 13,00,000, 13,00,000, Investment, 2,00,000, 2,00,000, Capital Fund, 10,13,000, ?, Building Fund, 5,00,000, ?, Solution :, In the Books of Sushma Memorial Hospital, Jalgaon., Income and Expenditure Account, for the year ended 31st March 2020, Dr. , Expenditure, , Amount Amount, `, , To Medicines, To Honorarium to, Doctors, To Salary to Staff, To General Expenses, To Surplus, (Excess of Income, over Expenditure), , Income, , `, , Amount Amount, `, , 7,000 By Subscription, 80,000 (Workinh Note), By Entrance fees, 15,000 By Life Membership fees, 8,000 By Sale of old News, 13,500 Papers, , 1,23,500, , 110, , Cr., `, , 1.03.300, 1.700, 18,000, 500, , 1,23,500
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Balance Sheet as on 31st March 2020, Liabilities, Capital Fund, Add : Surplus, Building Fund, Add : Donations, Subscription received, in advance, , Amount, , Amount, , `, , `, , Assets, , Amount Amoun `, `, , 10,13,000, Investment, 13,500 10,26,500 Building, 5,00,000, Furniture, 1,50,000 6,50,000 Surgical, 6,000 Instruments, Fixed Deposit, Cash in Hand, Outstanding, Subscription, 16,82,500, , 2,00,000, 13,00,000, 27,000, 60,000, 80,000, 5,500, 10,000, 16,82,500, , Working Note : Calculation of Subscription, Particulars, As per Receipts and Payments Account, , `, , 1,00,300, , Add : Outstanding for the Current Year, , 10,000, 1,10,300, Less : Outstanding for the previous year, 9,000, 1,01,300, Add : Received in advance in previous year, 8,000, 1,09,300, Less : Received in advance during current year, 6,000, As per Income and Expenditure Account, 1,03,300, , , , EXERCISE - 2, , HHHHHHHHHHHHH, , HHHHHHHHHHHHH, , Q.1 Objective Type Questions:, A) Select the most appropriative alternatives from those given below., 1. Not for Profit Concern renders ............. services to public at large., a) Commercial, b) Social, c) Individual, 2., , Donation for Scholarship Fund is ............., a) Capital Receipt, b) Revenue Receipt, c) Capital Expenditure d) Revenue Expenditure, , 3., , Income and Expenditure Account is a ........... Account, a) Capital, b) Real, c) Personal, , 4., , d) Group, , d) Nominal, , Outstanding subscription at the end of the Accounting Year represents ..........., a) Liability, b) An Expenditure, c) An Asset, d) Capital Fund, , 111
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5., , Subscription received in advance during the accounting year is ..........., a) An Income, b) An Expense, c) An Asset, d) A Liability, , 6., , Excess of Income over Expenditure is termed as ............, a) Deficit, b) Profit, c) Surplus, , d) Loss, , 7., , Not for Profit Concerns prepares ............... account instead of Profit and Loss account to, know the result., a) Trading, b) Income and Expenditure, c) Cash, d) Receipt and Payments, , 8., , The closing balance of Receipts and Payments account usually represent ......., a) Closing stock, b) Cash and Bank balance, c) Surplus, d) Deficit, , 9., , Not for Profit Organization is also called ............. organization., a) Service, b) Trading, c) Profit making, , 10. Expenditure on Purchase of Building is a ........... Expenditure., a) Capital, b) Revenue, c) General, , d) Commercial, d) Recurring, , B) Write the Word / Term / Phrase which can substitute each of the following statements., 1. The Form of Organization providing services to the society only., 2. An account which is prepared by Not for Profit Concern instead of Profit and Loss Account., 3. Donation received for a specific purpose., 4. The Receipts which are not recurring in nature., 5. An Account which records only revenue items in case of Not for Profit Concern., 6. Accounts which records only cash transactions in case of Not for Profit Concern., 7. The income which is earned during the year but not received during the year., 8. The credit balance of Income and Expenditure Account., 9. The excess of total assets over total liabilities of a Not for Profit Concern., 10. All such receipts which are non recurring in nature and not forming a part a regular flow, of income., C) State whether the following statements are True or False with reasons., 1. Not for Profit Concerns do not have profit motive., 2. Charitable Institutions prepare Profit and Loss Account at the end of every financial year., 3. There is no difference between Receipts and Payments Account and Income and, Expenditure Account., 4. Income and Expenditure Account represents either surplus or deficit., 5. Receipts and Payments Account do not have any opening balance., 6. Not for Profit Concerns do not prepare Balance Sheet., 7. Purchases of Sports Equipment is a Capital Expenditure., 8. Income and Expenditure Account is Real Account., 9. Receipts and Payments Account contains only the transactions relating to current year., 10. Excess of Assets over Liabilities is called Capital Fund., , 112
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D), , Fill in the blanks, 1. Not for Profit Organization never is engaged in ............ activities., 2. Not for Profit organization is called ............. organization., 3. Receipts and Payments Account falls under the category of ..... Account., 4. In Receipts and Payments Account the summary of ....... transactions are recorded., 5. Income and Expenditure Account is similar to the .......... account of Trading Concern., 6. Credit side of Receipts and Payments Account shows cash .........., 7. Income and Expenditure Account is a ......... Account., 8. Mumbai University prepares ........... Account instead of a Profit and Loss account., 9. Subscription received from the members is considered as ........... receipts., 10. The transactions recorded in Income and Expenditure Account are related only to the, ............. year., , E), , Answer in one sentence only., 1. What do you mean by ‘Not for Profit Concern’?, 2. Which organizations prepare Income and Expenditure Account?, 3. What is Receipts and Payments Account?, 4. Why Income and Expenditure Account is prepared?, 5. What is Capital Fund?, 6. What is Subscription?, 7. What is Legacy?, 8. What is Surplus?, 9. What do you mean by Non Recurring Expenses?, 10. To which account Surplus or Deficit is transferred?, , F. I. Complete the Table, Sr.No., Income `, 1, 10,000, 2, 8,000, 3, ?, 4, 7,500, 5, 15,000, II. Salaries paid during the year, Sr.No., 1, 2, 3, 4, 5, 6, , Total `, 1,100, 2,700, 8,250, 1,200, ?, 1,800, , Expenditure `, ?, ?, 15,000, 9,000, 11,300, , Prepaid / Outstanding, Prepaid, Prepaid, Prepaid, Outstanding, Outstanding, Outstanding, , 113, , Surplus/Deficit `, 5,000 (Deficit), 4,000 (Surplus), 8,000 (Surplus), ?, ?, `, , 100, ?, ?, 200, 600, ?, , Expenditure for the year, ?, 2,000, 6,650, ?, 5,100, 2,200
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III. Rent received during the year, Sr.No., 1, 2, 3, 4, 5, 6, G), , H), , Total Received `, , Rent received in, Advance/Accrued, Received in Advance, Received in Advance, Received in Advance, Accrued, Accrued, Accrued, , `, , Income for the year, `, , 1,300, 200, ?, ?, 400, 1,400, 2,650, ?, 2,000, ?, 290, 3,190, 1,700, ?, 2,150, 2,600, 500, ?, Calculate the following, 1. 10 % p.a. Depreciation on Furniture ` 50,000 (for three months), 2. 12 % p.a. Interest on Bank Loan ` 80,000 for 1 year., 3. Opening Stock of Stationery ` 5,000, Purchases Stationery ` 7,000, Outstanding, Stationery Bill ` 12,000, Closing Stock ` 1,000 What is the amount of Stationery, Consumed?, 4. Salary ` 10,000, Outstanding Salary ` 5,000, Calculate the Salary to be debited to Income, and Expenditure Account?, 5. Library Books ` ................? Less 10 % Depreciation ` 5,000 = ` 45,000, Find odd one., 1. Trading Account, Profit and Loss Account, Receipts and Payments Account, Balance, Sheet., 2. Machinery, Furniture, Computers, Salaries., 3. Subscription, Stationery, Interest Received, Locker Rent received,, 4. Reliance Industries, Venna Vidya Mandir, Laxmi Hospital, Manoj Sports club., 5. Surplus, Deficit, Net Profit, Capital fund,, Practical Problems, , 1., , (Calculation of stationery consumed during the year), Balance Sheet as on 01.04.2018, , Liabilities, , Amt. `, , Amt. `, , Assets, Stock of Stationery, , Amt. `, , Amt. `, 400, , Receipts and Payments Account for the year ending 31.03.2019, Dr. , Receipts, , Cr., Amt. `, , Amt. `, , Payments, By Stationery Purchased, , 114, , Amt. `, , Amt. `, 6,300
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Adjustments :, 1) ` 1,000 Outstanding for Stationery bill., 2) Stock of Stationery as on 31.03.2019 was valued at ` 1,800., With the above information, calculate the amount of Stationery consumed during the year, and show its presentation in final Accounts of a concern., (Ans. : Stationery Consumed during the year ` 5,900), 2., , (Presentation of Subscription only), Balance Sheet as on 01.04.2018, , Liabilities, Subscription received in, Advance for 2018 - 19, , Amt. `, , Assets, Outstanding Subscription, 20,000, 2016 - 17, 2017 - 18, , Amt. `, , Amt. `, 26,000, 35,000, , Amt. `, , 61,000, , Receipts and Payments Account for the year ending 31.03.2019., Dr. , , Cr., , Receipts, To Subscriptions, 2016 - 17, 2017 - 18, 2018 - 19, 2019 - 20, , Amt. `, 23,000, 30,000, 4,10,000, 21,000, , Amt. `, , Payments, , Amt. `, , Amt. `, , 4,84,000, , Adjustments :, Outstanding Subscription for 2018 - 19 is ` 32,000., With the above information present the item Subscription in Income and Expenditure, Account for the year ended 31.03.2019 Balance Sheet as on the date., Ans. :, i), Total subscription for 31.03.2019 ` 4,62,000., ii, Total subscription for outstanding as on 31.03.2019 ` 40,000 (i.e ` 3,000 + ` 5,000 +, ` 32,000), iii subscription received in advance for 2019 - 20 ` 21,000), 3., Receipts and payments Account for the year ending 31.03.2018., Dr. , Receipts, To Subscriptions, 2016 - 17, 2017 - 18, 2018 - 19, , Cr., Amt. `, 2,000, 60,000, 4,500, , Amt. `, , 66,500, , 115, , Payments, , Amt. `, , Amt. `
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Adjustments :, Subscription Outstanding for the year 2017 - 18 is ` 6,000., During previous year Subscription received in advance for 2017 - 18 is ` 2,000., Outstanding subscription of 2016 - 2017 is ` 2,500, With the help of above information present the item Subscription in Income and, Expenditure Account for the year ending 31.03.2018 and Balance Sheet as on that date., (Ans. : Subscription ` 68,000), 4., , (Preparation of Income and Expenditure Account only), Following is the Receipts and Payments Account of “Satara Sports Club” Satara Prepare, Income and Expenditure Account for the year ending 31.03.2019., Receipts and Payments Account for the year ending 31.03.2019., , Dr. , , Cr., , Receipts, Amt. ` Amt. `, To Balance b/d, Cash in hand 4,500, Cash at Bank 12,000 16,500, To Subscription, 2017 - 18, 4,000, 2018 - 19, 44,500, 2019 - 20, 3,500 52,000, To Entrance fees, 8,000, To Donation for, 70,000, Building fund, To Interest, 600, To Sale of furniture, 4,500, (Book Value ` 8000), , Payments, Amt. ` Amt. `, By Salaries, 5,000, 5,000, By Rent (Including ` 2,000, for 2017 - 18), By Electricity Charges, 1,450, By Fixed Deposit, 60,000, By Printing and Stationery, 750, By General Expenses, 5,500, (Including ` 500 paid for, next year), By Sports Material Purchased, 40,000, By Balance c/d, Cash in Hand, 8,900, Cash at Bank, 25,000 33,900, , 1,51,600, , 1,51,600, , Adjustments :, 1) Outstanding Subscription for Current Year is ` 4,500, 2) Outstanding Rent for Current Year amounted to ` 1,000, 3) Entrance Fees are to be treated as Revenue Income, 4) Stock of Sports Material as on 01.04.2018 ` 6,000 and on 31.03.2019 ` 14,000, (Ans. : Surplus Amount ` 5,900), , 116
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5., , “Bhartiya Kala Kendra”, Solapur gives you thefollowing information, for the year ended, on 31.03.2018 Prepare Income and Expenditure Account for the year ending 31.03.2018, Receipts and payments Account for the year ending 31.03.2018., Dr. , Cr., Receipts, To Balance b/d, Cash in Hand, Cash at Bank, To Locker Rent, To Entrance fees, To Sale of old newspapers, To Receipts from Drama, To Legacies, To Interest of Govt. Securities, To Miscellaneous Receipts, , Payments, By Stationery, By Furniture Purchased, By Investments in, Govt. Securities, By Expenses of Drama, By Postage, By Magazine and, Newspaper, By Salaries, By Balance c/d, Cash in Hand, Cash at Bank, , Amount `, 200, 12,500, 400, 2,900, 250, 9,000, 12,000, 400, 400, , 38,050, , Amount `, 600, 7,000, 14,000, 3,000, 450, 600, 4,400, 700, 7,300, 38,050, , Additional Information :, 1) Legacies are to be capitalized, 2) Outstanding Salary ` 200, 3) 50 % of Entrance Fees are to be Capitalised, (Ans. : Surplus ` 2,650), 6., , (Accounts of a Charitable Hospital), From the following particulars relating to “Radha-Krishna Charitable Hospital” Pune., Prepare Income and Expenditure Account for the year ending 31.03.2020 and Balance, Sheet as on that date., Receipts and payments Account for the year ending 31.03.2020., Dr. , Cr., Receipts, To Balance b/d, Cash, To Subscriptions, To Donations (General), To Interest in Investments, To Proceeds from Charity Show, , Amount `, 8,230, 52,000, 17,500, 10,000, 8,530, , Payments, By Medicines Purchased, By General Expenses, By Salaries, By Stationery, By Expenses on Charity Show, By Surgery and Dispensary Exp., By Equipments, By Balance c/d, Cash in Hand , 960, Cash at Bank, 13,000, , 96,260, 117, , Amount `, 41,000, 1,050, 23,500, 2,000, 550, 4,200, 10,000, , 13,960, 96,260
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Additional Information :, Particulars, 1. Subscription Due, 2. Subscription Received in Advance, 3. Stock of Medicines, 4. Estimated Value of Equipments, 5. Buildings, 6. Capital Fund, 7. 10 % Investment, , 01.04.2019 `, , 31.03.2020 `, , 310, 600, 8,000, 15,000, 40,000, 1,70,940, 1,00,000, , 350, 150, 11,000, ?, ?, ?, ?, , Provide Depreciation on Equipments ` 1,900 and on Building ` 1,500, (Ans. : Surplus ` 15,820, Total of Balance Sheet ` 1,86,910), 7., , From the following transactions of Receipts and Payments Account of “Pavan - putra, Hanuma Vyayamshala” Parbhani, and the adjustments given, you are required to prepare, Income and Expenditure Account and Balance Sheet as on 31st March 2019., Receipts and payments Account for the year ending 31.03.2019., Dr. , Cr., Receipts, To Balance b/d, Cash in Hand, To Subscriptions, 2018 - 19 , 18,000, 2019 - 20 , 410, To Donations, To Receipts from Entertainment, To Interest, To Entrance fees, , Amount `, 5,000, , 18,410, 6,000, 5,400, 400, 6,200, , Payments, By Salaries, By Entertainment Expenses, By Sundry Expenses, By Electricity Charges, By Rent, By Investment, By Printing and Stationery, By Postage, By Fixed Deposit, By Balance c/d, Cash in Hand, 830, Cash at Bank , 6000, , 41,410, Adjustments :, 1) There are 500 members paying an annual Subscription of ` 50 each, 2) Outstanding Salary was ` 1,200, 3) The Assets on 01.04.2018 were as follows:, Building ` 50,000, Furniture ` 15,000, 4) Provide depreciation on Building and Furniture at 5 % and 10 % respectively., 5) 50 % Entrance Fees is to be capitalized., 6) Interest on Investment at 5 % p. a. has accrued for 6 months., 7) Capital Fund ` 70,000 on 01.04.2018, (Ans. : Surplus ` 19,395, Total of Balance Sheet ` 94, 105), 118, , Amount `, 6,000, 2,480, 1,300, 1,200, 700, 15,000, 800, 3,200, 3,900, , 6,830, 41,410
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8., , (Newly Started Art Circle), “Jeevan Jyoti Art Circle” a newly established concern has presented the following information., Receipts and payments Account for the year ending 31.03.2018., , Dr. , , Cr., , Receipts, To Admission fees, To Subscriptions, To Donations, , Amt. `, , Payments, Amt. `, Amt. `, 22,000 By Furniture, 40,000 By Stationery, 18,000 By Office Rent, By Newspapers & Periodicals, By Telephone Expenses, By Investments, By Balance c/d, Cash in Hand, 7,540, Cash at Bank, 30,000, 80,000, , Amt. `, 12,000, 4,000, 2,600, 300, 560, 23,000, , 37,540, 80,000, , Adjustments :, 1) Subscription Outstanding for the year was ` 5,000, 2) Depreciate Furniture @ 10 % p.a, 3) Full amount of Admission Fees and 50 % Donations are to be capitalized., You are required to prepare income and Expenditure Account for the year ending 31.03.2018, and Balance Sheet as on that date., (Ans. : Surplus ` 45,340, Total of Balance Sheet ` 76,340), 9., , Given below is Receipts and Payments Account of “Vithai Mahila Mandal” Pandharpur, for the year ending 31.03.2018. Prepare an Income and Expenditure Account for the year, ended 31.03.2018 and Balance Sheet as on that date., Receipts and payments Account for the year ending 31.03.2018., , Dr. , , Cr., , Receipts, Amt. ` Amt. `, To Balance b/d, Cash in Hand, 3,000, Cash at Bank, 20,000 23,000, To Entrance Fees, 3,500, To Subscription, 19,000, To Miscellaneous Receipts, 850, , Payments, Amt. ` Amt. `, By Stationery, 600, By Repairs to Furniture, 95, By Rent, 8,30, By Salaries, 15,00, By Miscellaneous Expenses, 45, By Balance c/d, Cash in Hand, 1,650, Cash at Bank, 14,000 15,650, , 46,350, , 46,350, , 119
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Adjustments :, 1) Capital Fund on 01.04.2017 was ` 90,000, 2) Outstanding Subscription ` 4,000, 3) Entrance Fees are to be capitalized, 4) Rent paid includes ` 800 paid for April 2018, 5) They have following Assets and Liabilities 01.04.2017, Furniture ` 9,000, Building ` 70,000, and Outstanding Expenses ` 12,000, (Ans. : Deficit ` 6,050, Total of Balance Sheet ` 99,450), 10. From the following Receipts and Payments Account “K.B.P. Engineering College” Nashik, for the year ending on 31.03.2019 and additional information, prepare Income and, Expenditure Account for the year ending 31.03.2019 and Balance Sheet as on that date., Receipts and payments Account for the year ending 31.03.2019., Dr. , Cr., Receipts, To Balance b/d, Cash in Hand, Cash at Bank, To Interest, To Subscriptions, To Life Membership fees, To Donation, To Tution Fees, To Term Fees, To Sundry Receipts, To Admission Fees (Revenue), , Amount `, 18,000, 1,00,400, 55,000, 28,300, 25,000, 7,00,000, 12,30,000, 2,00,800, 8,000, 60,000, , Payments, By Salaries to Teaching Staff, By Electricity Charges, By Books, By Furniture, By Stationery, By Fixed Deposit (31.03.2019), By Balance c/d, Cash in Hand, Cash at Bank, , 24,25,500, , Amount `, 11,70,000, 55,000, 61,000, 51,000, 21,850, 8,50,000, 16,650, 2,00,000, , 24,25,500, , Additional Information :, Particulars, , 01.04.2018 `, 6,00,000, 3,19,000, 10,00,000, 9,10,000, 9,47,400, , Books, Furniture, Building Fund, Fixed Deposit, Capital Fund, , 31.03.2019 `, 6,00,000, 3,00,000, ?, ?, ?, , 1) 50% of Donation are for Building Fund and the balance is to be treated Revenue Income., 2) Outstanding subscription ` 5,300, 3) Life membership fees are to capitalised, (Ans. : Surplus ` 5,59,550, Total of Balance Sheet ` 28,81,950), , 120
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11. (Account of a School), From the following Balance Sheet and Receipts and Payments Account of “New English, School”, Barshi, Prepare Income and Expenditure Account for the year ending 31.03.2020, and a Balance Sheet as on that date., Balance Sheet as on 01.04.2019, Liabilities, Capital Fund, , Amount `, 6,43,000, , Assets, Cash in Hand, Cash at Bank, Building, , Amount `, 6,000, 10,000, 4,50,000, , Furniture, Library Books, Computer Laboratory, , 72,000, 45,000, 60,000, 6,43,000, , 6,43,000, Receipts and Payments Account for the year ending 31.03.2020., Dr. , Receipts, To Balance b/d, Cash in Hand, Cash at Bank, To Tution Fees, To Term Fees, To Admission Fees, To Donation (Capital), To Interest Received, To Government Grant, (Revenue), To Sundry Receipts, , Cr., Amt. `, 6,000, 10,000, , Amt. `, , 16,000, 90,000, 3,000, 12,000, 61,000, 2,000, 1,20,000, 11,000, , Payments, By Salary, By Library Books, By Office Rent, By Printing and Stationery, By Sundry Expenses, By Insurance, By Sport Expenses, By Annual Gathering Exp., By Furniture, By Repairs, By Balance c/d, Cash in Hand, Cash at Bank, , 3,15,000, Additional Information :, 1) Outstanding Salary of ` 9,000, 2) Outstanding Tution Fees ` 15,000, 3) Depreciate Library Books by ` 9,000 and Furniture by ` 10,000, (Ans. : Surplus ` 48,000, Total of Balances Sheet ` 7,61,800), , 121, , Amt. `, , 4,800, 70,000, , Amt. `, 90,000, 14,000, 10,000, 22,000, 12,000, 10,200, 8,000, 9,000, 50,000, 15,000, , 74,800, 3,15,000
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12., , (Account of a Library), Following is the Receipts Payments Account of “Dhananjay Library , Mumbai” for the, year ending 31.03.2020, Receipts and payments Account for the year ending 31.03.2020., Dr. , Cr., Receipts, To Balance b/d, To Admission Fees, To Subscriptions, To Lecture Hall Hire Charges, To Miscellaneous Income, To Interest on Investment, , Amount `, 5,000, 4,500, 20,000, 4,200, 250, 900, , Payments, , Amount `, By Salaries, 9,000, By Rent, 7,500, By Investments, 6,000, By Stationery, 1,350, By Electricity Charges, 850, By Books, 5,000, By Outstanding Expenses (2018 - 19), 500, By Balance c/d, 4,650, , 34,850, 34,850, You are required to prepare an Income and Expenditure Account for the year ended, 31.03.2020 and Balance Sheet as on that day., The following information is also made available to you., 1) On 31.03.2019, the Library had the following Assets also; Books at ` 50,000, Furniture, ` 6,500, and Machinery of ` 30,000, 2) Subscription received in advance amounted to ` 500, 3) Outstanding Salaries ` 1300 and for Rent ` 950, 4) 50 % of the Admission Fees should be capitalized., 5) Furniture to be depreciated at 10 % p.a., 6) Library Books were purchased on 1st April 2019 charge Depreciation at 10 % p. a., 7) The Investments were purchased on 01.04.2019 and they carry interest at 20 % p.a., (Ans. : Surplus ` 300, Balance Sheet Total ` 96,300 Capital Fund ` 91,000), 13. (Outstanding Expenses and Prepaid Expenses), From the following information supplied to you, prepare Income and Expenditure Account, for the year ending on 31.03,2020 and Balance Sheet as on that date for “Morya Sports, Club” Thane., Balance Sheet as on 01.04.2019., Liabilities, Capital Fund, Bank overdraft, Outstanding Salary, , Amount `, 64,500, 38,000, 4,000, , Assets, Machinery, Outstanding Subscriptions, Prepaid Insurance Premium, Furniture, Cash in Hand, Outstanding Locker’s Rent, , 1,06,500, 122, , Amount `, 69,000, 8,000, 2,000, 15,000, 12,000, 500, 1,06,500
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Receipts and Payments Account for the year ended 31.03.2020, Dr. , Liabilities, To Balance b/d, To Subscription, To Entrance Fees (Capitalized), To Locker Rent, To Donations (Capitalized), , Cr., Amount `, 12,000, 1,05,000, 9,300, 1,500, 800, , Payments, By Balance b/d (Bank Overdraft), By Salary, By Insurance Premium, By Interest, By Refreshment Expenses, By Furniture, By Balance c/d, Cash in Hand, , Amount `, 38,000, 17,500, 11,000, 1,400, 4,200, 30,000, , Cash at Bank, , 20,000, 1,28,600, , 1,28,600, , 6,500, , Adjustments :, 1) Subscription received includes ` 3,000 for 2018 - 19 and Outstanding Subscription for 2019 - 20, was ` 14,000., 2) On 31.03.2020, Prepaid Insurance Premium was ` 2,500., 3) Depreciate Furniture by ` 3,000., 4) Locker Rent Outstanding for 2019 - 20 is ` 400., (Ans. : Surplus ` 84,800, Total of Balance Sheet ` 1,59,400), 14. (Charitable Hospital), Following information has been provided by “Vivekanand Charitable Hospital” Latur., You are required to prepare Income and Expenditure Account for the year ending on 31.03.2019, and Balance, Sheet as on that date., Balance Sheet as on 01.04.2018., Liabilities, Capital Fund, Bank Loan, Outstanding Bill for Drugs, , Amount `, 11,00,000, 6,50,000, 50,000, , Assets, Building, Ambulance, Stock of Drugs, Hospital Equipments, Cash in Hand, , 18,00,000, , Amount `, 10,50,000, 4,00,000, 42,000, 3,04,000, 4,000, 18,00,000, , 123
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Receipts and Payments Account for the year ended 31.03.2019, Dr. , Receipts, To Balance b/d, To Subscription, To Life Membership Fees, To Hospital Receipts, (Revenue), , Cr., Amount `, 4,000, 2,22,000, 30,000, 5,10,400, , Payments, By Purchase of Drugs, (Includes 40,000 for 2017 - 18), By Salary to Staff, By Honorarium to Doctors, By Repairs and Maintenance, By Furniture, By General Expenses, By Balance c/d, , 7,66,400, , Amount `, 2,00,000, 85,000, 4,00,000, 18,000, 45,000, 16,000, 2,400, 7,66,400, , Adjustments :, 1) On 31.03.2019 Stock of Drugs was valued at ` 22,000., 2) Depreciation on Building at 5 % p.a. and on Ambulance ` 30,000., 3) Life Membership Fees are to be capitalized., (Ans. : Deficit ` 49,100, Balance Sheet Total ` 17,40,900), Activity :, 1. Visit any Mahila Bachat Gat and study the procedure of maintaing the accounts and write, a reprot on the same., 2., , Visit any School/Junior College and study the Income & Expenditure A/c and Balance, Sheet., , 3., , Visit any Co-operative Housing Society and understand the procedure of Accounting., , bbb, , 124
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3, , Reconstitution of Partnership (Admission of Partner), , Contents, 3.1 Meaning of Reconstitution of Partnership, 3.1.1 Different forms of reconstitution, 3.2 Admission of a partner, 3.2.1 , Need, 3.2.2 Capital brought by new partner, 3.2.3 New Profit Sharing Ratio, 3.2.4 , Sacrifice Ratio, 3.2.5 Meaning of Goodwill, 3.2.5.1 Methods of Valuation of Goodwill, 1) Average Profit Method, 2) Super Profit Method, 3.2.5., Treatment of Goodwill, 3.2.6 Revaluation of Assets and Liabilities, 3.2.7 Adjustment of accumulated Profits and Losses, 3.2.8 Adjustment of Capitals, Competency Statement, o, , , , , , , , , , , The students will be able :, To understand the meaning and different ways of reconstitution., To understand the meaning and need of admission of partner., To learn the adjustments required on admission of a partner., To calculate the new profit sharing ratio and sacrifice ratio., To know the methods of valuation of goodwill and treatment of goodwill., To learn the accounting treatment of accumulated profits / loss., To To make necessary adjustments for revaluation of assets and liabilities., To learn to adjust the capitals according to new profit sharing ratio., , 3.1 Meaning of Reconstitution of Partnership :, The reconstitution of partnership primarily involves change in the form of partnership. There, is change in agreement among the partners which leads to change in the relationship between the, partners and change in share of the Profit or Losses of the partners in the firm. The change in the, partnership may take the following forms :, 3:1:1 Different forms of Reconstitution :, 1) Change in Profit - Sharing of existing Partner, The partners of a firm may decide to change their existing profit sharing ratio. If one partner purchases a share of profit from another partner, the old partnership agreement stands, terminated and the new agreement comes into force stating the new profit sharing ratio., 125
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2), , Admission of a Partner, When the new partner is admitted in the business he brings capital and his share of goodwill., Old partners have to sacrifice their share of profit for new partner. So the partnership agreement, changes., , 3), , Retirement of a Partner, If the partner is retiring from partnership firm his share of profit, upto the date of retirement, capital, his share in other reserves of the firm will be paid to him. Old partners will gain the, profit and there will be change in the profit sharing ratio., , 4), , Death of a Partner, Partner is going out of business due to death his legal heir will get the partner’s share in the, business. Share of Profit of continuing partners will change and old partnership agreement, comes to an end., , 3.2, Admission of a Partner :, According to section 31 (1) of the Partnership Act 1932, A person can be admitted as a new, partner only with the consent of all existing partners unless otherwise agreed upon. New Partner will, bring his share of goodwill and capital and enjoy the right to share the future profits., This chapter covers the accounting treatment of admission of a partner in the existing partnership firm., 3.2.1, Need :, Generally, the new Partner is admitted in the firm to expand the capital base as well as to use, the skills of that person to improve the overall performance of the partnership firm., 3.2.2, Capital brought by new partner :, The purpose of admitting new partner is to increase the capital of the partnership firm. The new, partner can bring capital in Cash or kind. The new partner will bring the capital as per the terms in, Partnership Deed. The accounting treatment for the capital brought in by the new partner is:, 3.2.3, Transaction, Journal Entry, When new partner brings cash towards his, Cash/Bank A/c.............................................. Dr., Capital, To New Partner’s capital A/, When new partner brings certain assets towards Assets A/c..................................................... Dr., his capital, To New Partner’s capital A/c, , 126
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New ratio, As the new partner is admitted in partnership firm the profit sharing ratio of existing partners, changes and there is need to calculate new profit sharing ratio including new partner. This ratio is, used for writing off goodwill and capital adjustments., Formula for calculating new ratio, If total profit is 1, 1(-) Share of new partner = Balance of 1, New Ratio = Old Ratio × Balance of 1, OR, If Sacrifice ratio of old partners is given along with old ratio the new ratio can be calculated, as follows:, New Ratio = Old Ratio - Sacrifice Ratio, 3.2.4 Sacrifice Ratio :, When new partner is admitted old partners have to sacrifice their share of profit to give the, share of profit to new partner. The ratio in which the old partners sacrifice their share of profit is, called as sacrifice ratio. This ratio is used to retain the goodwill in premium method., Sacrifice ratio = Old Ratio - New Ratio, Change in the Profit sharing ratio due to admission of a partner, Illustrations, 1:, , (Calculation of New ratio), Mohan and Ganpat are sharing profits and losses in the ratio of 2:3. They admitted Chandrakant, for 1/4th share in future profit. The new profit sharing ratio of Mohan, Ganpat and Chandrakant will, be as under, Formula, = 1 - share of New Partner, , = 1- 1/4, , = 3/4 Remaining Profit, New Ratio, = Old Ratio × balance of 1, Mohan’s New Ratio = 2/5×3/4 = 6/20, Ganpat’s New Ratio = 3/5× 3/4 = 9/20, Chandrakant’s Ratio = 1/4 i.e. 5/20, New Profit Sharing Ratio will 6:9:5, 2:, , (Calculation of Sacrifice Ratio), A and B are Partners sharing profits in the ratio of 6:4. C is admitted as a partner. The new, profit sharing ratio of A, B and C is 10 : 6: 4. Find out the sacrificing ratio., Sacrifice ratio, = Old Ratio - New Ratio, A's sacrifice, = 6/10 - 10/20 = 2/20, B’s Sacrifice, = 4/10 - 6/20 = 2/20, Sacrifice ratio of A and B = 2/20 : 2/20 or 2:2 = 1 :1, 127
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3:, , (Calculation of Sacrifice Ratio and New Ratio), Pravin and Navin are partners sharing profits in the ratio of 7:3 They admit Reena for 1/5th, share of profit which he takes equally from Pravin and Navin. Calculate sacrifice ratio and new, profit sharing ratio., Reena’s share, = 1/5, Sacrifice Ratio of P and Q, = 1:1 or 1/2:1/2, Pravin’s Sacrifice, = 1/5 × 1/2 = 1/10, Navin’s Sacrifice, = 1/5 × 1/2 = 1/10, New Ratio, = Old Ratio - Sacrifice Ratio, New Share of Pravin, = 7 /10 - 1/10 = 6 / 10, New share of Navin, = 3 / 10 - 1/10 = 2 / 10, Reena’s share = 1/5th share, = 2/10, Therefore, New Ratio is 6:2:2 = 3:1:1, , 4:, , (Calculation of Sacrifice Ratio and New Ratio), X and Y are partners sharing profits in the ratio 7:3. X surrenders 1/7th of his share and Y, surrenders 1/3rd of his share in favour of Z, a new partner. Calculate new ratio and sacrificing ratio., Old Ratio of X and Y = 7:3 or 7/10 : 3 /10, X’s Sacrifice, = 1/7 × 7/10 = 1/10, Y’s Sacrifice, = 1/3 × 3/10 = 1/10, Sacrificing ratio of X and Y = 1/10 :1/10 or 1:1, Z’s share = X’s share + Y’s share = 1/10 + 1/10 = 2/10, X’s New share = Old ratio - Sacrifice ratio = 7/10 - 1/10 = 6/10, Y’s New share = Old ratio - Sacrifice ratio = 3/10 - 1/10 = 2/10, Therefore, New Ratio of X, Y and Z = 6:2:2 = 3:1:1, 3.2.5, Meaning of Goodwill :, Goodwill is the benefit, name, fame, reputation, image of a business which ultimately helps the, business to earn more profits. It is also because of the honesty, business ethics and hard work done, by all the partners in the past years. Good will is calculated on the basis of part performances., 3.2.5.1, There are various methods of valuation of goodwill. For Std 12th following two main methods are included:, 1) Average Profit Method, Under this method goodwill is calculated on the average basis of the past number of years of, profit. It is assumed that the firm will maintain average profit for next certain years also and so the, goodwill is calculated on the basis of certain number of years purchase of average profit., Goodwill can be calculated as per this method by following these steps, i), Calculation of total profit, Total Profit is calculated by adding the profits of the previous years and deducting the losses, if, any., 128
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Eg. Profits / Losses of the past 4 years are as follows:, Year Amount, 2016 , 1,20,000 (Profit), 2017 , 80,000 (Profit), 2018 , 20,000 (Loss), 2019 , 60,000 (Profit), The total Profit will be as follows :, Total Profit = 1,20, 000 + 80,000 - 20,000 + 60,000, , = ` 2, 40,000, ii), , Calculation of Average Profit, Average Profit =, , Average Profit =, , Total Profit, Number of years, 2,40,000, 4, , Average Profit = ` 60,000, iii) Calculation of Goodwill:, Goodwill is valued at certain number of year’s purchase of average profit., Thus Goodwill can be calculated by using the following formula, Goodwill = Average profit × Number of year’s purchase, In above example If Goodwill is to be calculated as 2 year’s purchase of average profit. then,, Goodwill = 60, 000 × 2, , = ` 1,20, 000, 2), , Super Profit Method, Super Profit is the profit which is earned over and above the normal profit. If the firm earns, extra profit than the normal standard profit this is because of reputation of the firm. So super, profit can be considered as a base for calculation of goodwill. Normal rate of return is considered to calculate the profit normally expected on the capital employed. If the firm earns excess, than the normal profit it is super profit., Calculation of Goodwill by using Super Profit method., Capital employed :, It is the amount of capital used by the firm to start and run the business activities. It is made of, fixed assets other than goodwill plus current assets minus current liabilities., Normal Rate of return :, It is the rate of return normally earned by the firms in the same industry or it is the profit expected by the investor on the capital employed., 129
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1:, , Find the value of Goodwill from the following information by using Super Profit Method., Year, Amount (`), 2014, 80,000 (Profit), 2015, 95,000 (Profit), 2016, 1,10,000 (Profit), 2017, 40,000 (Loss), 2018, 85,000 (Profit), i), Capital employed is ` 3, 50, 000, ii) Normal Rate of Return is 12%, iii) Goodwill is to be valued at two year’s purchase of super profit., i), , Calculation of Average Profit, Average Profit =, , Total Profit, Number of years, , =, , , 80,000 + 95,000 + 1,10,000 - 40,000 + 85,000, 5, , = ` 3,30,000, 5, , = ` 66,000, ii), , Calculation of Normal Profit, Normal Profit =, , Capital employed × NRR, Number of years, , = ` 3,50,000 ×12, 100, = ` 42,000, ii), , Calculation of Super Profit, , Super Profit, =, =, =, iii) Calculation of Goodwill, Goodwill , =, , =, =, , Average Profit - Normal Profit, 66,000 - 42,000, ` 24,000, Super Profit × No. of year’s purchases, 24,000 × 2, ` 48,000, , 130
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3.2.5.2 Treatment of Goodwill, Unlike other assets Goodwill is treated separately at the time of reconstitution of the firm. There, are two methods of recording Goodwill in the books of accounts while admitting new partner in the, firm., (A) Premium Method, Under this method new partner brings his share of goodwill in cash or kind. It may be retained, in the business or may be withdrawn by the old partners., Sr., No, 1, , 2, , 3, , Transactions, , Journal Entry, , When new partner brings his (a) Cash / Bank / A/c................................................Dr., share of goodwill in cash and, To Goodwill A/c, it is retained in the business., (Being goodwill brought in by new partner), (b) Goodwill A/c.......................................................Dr., To Old Partners’ Capital / Current A/c, (Sacrifice Ratio), (Being goodwill distributed among old, partners), When new partner brings his (a) Cash / Bank / A/c................................................Dr., share of goodwill in cash, To Goodwill A/c, and it is withdrawn by old, (Being goodwill brought in by new partner), partners., (b) Goodwill A/c.............................................................. Dr., To Old Partners’ Capital / Current A/c, (Sacrifice Ratio), (Being goodwill distributed among old, partners), (c) Old Partner’s Capital / Current A/c. Dr., (Actual withdrawn), To Cash / Bank A/c, (Being goodwill withdrawn by old partners), When new partner brings In this case no entry is required to be passed the books of, his share of goodwill in cash the firm., and it is paid to old partners, privately, , (B) Valuation Method:, Under this method new partner does not bring his share of goodwill. So old partners measure, the goodwill of the firm and then it is raised in the books of the firm at the time of admission of, new partner., , 131
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Sr. Transcation, Journal Entry, No., 1 When new partner does not (a) Goodwill A/c........................................................Dr., bring his share of goodwill, To Old Partners’ Capital / Current A/c (Old Ratio), in cash and it is raised in the, (Being goodwill raised in the books of the firm), books of the firm., l, , 2, , Goodwill will appear in the New balance sheet on, asset side., , When goodwill is raised and (a) Goodwill A/c........................................................Dr., written off., To Old Partners’ Capital / Current A/c (Old Ratio), (Being goodwill raised in the books), (b) All Partners Capital A/c......................................Dr., (New Ratio), To Goodwill A/c, (Being goodwill written off), l, Goodwill will not appear in the New Balance sheet, , 3, , When, goodwill, already In such cases, if the goodwill is revalued, the difference, appears in the books of the between revalued value of goodwill and its books value, firm (In balance sheet), is transferred to Old partners’ capital/ current A/c or, Revaluation A/c, l, , If goodwill already, appears in the Balance, sheet and new partner, brings goodwill in cash, , l, , Then it is desirable to write off the goodwill appearing, in the books among old partners in their old profit, sharing ratio., , 3.2.6 Revaluation of Assets and Liabilities, Meaning, The value of assets shown in Balance Sheet may be different than market value. So the increase, or decrease in the value at the time of admission of new partner belongs to old partners. The new, partner has no right over such past profits Also he should not suffer due to losses on revaluation of, assets., Same way there may be unrecorded Asset or unrecorded Liability at the time of admission. It, should be shown in the books before admitting the new partner. Such adjustment of values of assets, and liabilities is called as ‘Revaluation of Assets and Liabilities’., At the time of reconstitution of the firm, assets and liabilities of the firm are revalued. The, change made in the value of assets and liabilities are recorded in ‘Revaluation Account’ or ‘Profit, and Loss Adjustment Account’. After recording the increase or decrease in asset and liabilities the, gain or loss on revaluation is transferred to old partners’ Capital / Current accounts in their old profit, sharing ratio. Revaluation Account / Profit and Loss Adjustment account is a Nominal Account., , 132
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Sr. Transaction, Journal Entry, No., 1. Increasing the value of Asset A/c ..........................................................................Dr., asset and Decreasing the Liability A/c.......................................................................Dr., value of liability, To Revaluation A/c / P & L Adjustment A/c, (Being the value of asset increased and value of, liability decreased), 2, , Decreasing the value of Revaluation A/c / P & L Adjustment A/c...........................Dr., asset and Increasing the, To Asset A/c, value of liability, To Liability A/c, (Being the value of asset decreased and value of liability, increased), , 3., , Recording the unrecorded Asset A/c ..........................................................................Dr., asset in the books of, To Revaluation A/c, accounts, (Being, unrecorded asset brought in the books of accounts), , 4., , Creating new liability in Revaluation A/c.................................................................Dr., the books, To New Liability A/c, (Being unrecorded liability brought in the books of accounts), , 5., , Transfer of Profit on Revaluation A/c.................................................................Dr., Revaluation to old partner’s, To Old Partner’s Capital/Current A/c, Capital/Current A/c, (Being profit on revaluation credited to partners’, capital/ current A/c), , 6., , Transfer of Loss on Old Partners’ Capital/ Current A/c....................................Dr., Revaluation to old partners’, To Revaluation A/c, Capitals/ Current A/c, (Being loss on revaluation transferred to partners’, capital / current A/c), , Dr., , Specimen of Revaluation / Profit & Loss Adjustment Account, , Particular, Amt (`), To Asset A/c (Decrease-- in Asset), xxx, To Liability (Increase in Liability), xxx, To Old Partners’ Capital / Current, xxx, A/c (Profit on Revaluation transferred), xxx, , Cr., , Paritcular, Amt (`), By Asset A/c (Increase in Asset), xxx, By Liability (Decrease in Liability), xxx, By Old Partner’s Capital / Current A/c, (Loss on Revaluation transferred), xxx, , 3.2.7 Adjustment of accumulated profit and Losses, Accumulated profit is the profit earned by the old partners before admitting the new partner that, may be in the form of undistributed profit, Reserve Fund, General Reserve, Workmen Compensation, Fund, Joint Policy Reserve etc., , 133
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These reserves are on the Liability side of Balance Sheet therefore transferred on credit side of, partner’s Capital / Current A/c., Any type of Reserve / Accumulated profits A/c ................................Dr., To Partners’ Capital / Current A/c, (Being reserve / accumulated profits transferred to partners), Accumulated Loss is the loss sustained by the old partners before admitting the new partner & it, is undistributed loss. It appears on the Assets side of Balance-sheet therefore transferred on the debit, side of Partners Capital/Current A/c e.g. Profit Loss A/c (Debit Balance) Preliminary Expenses, Partner’s Capital / Current A/c ................................Dr., To Accumulated loss, (Being accumulated loss transferred to partners), 3.2.8 Adjustment of Capitals, Sometimes capitals of all partners are to be adjusted in the new profit sharing ratio after the, admission of new partner. The capitals of the partners may be adjusted in any one of the following, ways., (1) Capitals of old partners may be adjusted on the basis of the capital of the new partner, In this case, capital of the new partner is taken as base to find out the total capital. The total, capital can be calculated as follows : Total Capital = New partner’s capital × Reciprocal of his PSR (Profit sharing ratio), e.g. ‘Z’ is admitted in the firm with 1/5th share of the profits of the firm. ‘Z’ contributes `, 50,000 as his capital. ‘X’ and ‘Y’ the other two partners were sharing profits in the ratio of 2:3., Then the required capital of X and Y should be calculated as follows.:, Calculation of New profit sharing ratio:, X’ s Share of Profits = 2/5 × (1- 1/5) = 2/5 × 4/5 = 8/ 25, Y’ s Share of Profits = 3/5 × (1- 1/5) = 3/5 × 4/5 = 12/ 25, Z’ s Share of Profits = 1/5 = 5 / 25, So new ratio is 8:12:5, Calculation of New Capital :, If Z’ Capital / Share is ` 50,000, then the total capital of the firm has to be ` 50,000 × 5/1 = `, 2,50,000, X’s share should be ` 2,50,000 × 8/25 = ` 80,000, Y’s share should be ` 2,50,000 × 12/25 = ` 1,20,000, (2) Capitals of the new partner may be determined on the basis of the total capital of the old partners: In this case, new partner is required to bring his share of capital in proportion to total, capital of old partner’s. It is calculated as follows:, , 134
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eg. After making all adjustments as regards goodwill reserve, accumulated profits / loss, revaluation profit / loss etc. the capitals of ‘P’ and ‘Q’ are ` 60,000 and ` 48,000. The profits and, losses are shared by P and Q in the ratio of 3:2 respectively. R is admitted and is to be given 1/4th, share of profits. He has to bring in capital representing his share, which is explained as under., R gets 1/4 th share, so 3/4th share is left for P and Q. Therefore the combined capital of P and, Q is 1,08,000 represents 3/4th share. Thus total capital should be ` 108000 × 4/3 = 1, 44,000., Therefore R should bring ` 36,000 i.e. ` 1,44,000 × 1/4, Proportionate capitals of the partners are recorded in capital accounts. The difference is adjusted normally through Cash / Bank / Current / Loan account. Difference between the actual, capital and proportionate capital can be shown by passing following entries., 1) An entry for surplus capital, , Concerned Partner’s Capital A/c ..........................Dr., , To Cash / Bank / Current A/c, 2) An entry for deficit capital, , Cash / Bank / Current A/c .....................................Dr., , To Concerned Partner’s Capital A/c, Illustrations, 1:, , (Journal Entries), The Balance Sheet of Sujata and Pournima who shared profits equally was as follows:, , Dr., Balance Sheet as on 31st March 2018, Cr., Liabilities, Capitals, Sujata, Pournima, Creditors, Bills Payable, , Amt `, 1,00,000, 1,40,000, , Amt `, , 2,40,000, 34,000, 26,000, 3,00,000, , Assets, Land & Building, Plant & Machinery, Furniture, Sundry Debtor, Stock, Cash, , Amt `, , Amt `, 60,000, 70,000, 24,000, 26,000, 40,000, 80,000, 3,00,000, , On 1st April 2018, Aparna joins the firm as a third partner for 1/5 th share of future profits on the, following terms and condition :, a) Goodwill is valued at ` 2,00,000, Aparna is to bring her share of goodwill in cash., b) Aparna is to bring in ` 1,00,000 as capital., c) A provision of 10% is to be created on sundry debtors, d) Land and Building is to be valued at ` 80,000, e) Stocks Plant and Machinery is to be reduced by 20%, Draft the journal entries to record the above arrangement and give the opening balance, sheet of the new firm., , 135
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Date, 2018, April 1 st, , April 1 st, , April 1 st, , April 1 st, , April 1 st, , In the Books of Sujata, Pournima, Aparna, JOURNAL, Particulars, L.F., Cash A/c............................................................. Dr., To Aparna’s Capital A/c, To Goodwill A/c, (Being cash brought in by Aparna as her share of, capital and goodwill), Goodwill A/c...................................................... Dr., To Sujata’s capital A/c, To Pournima’s capital A/c, (Being the amount of goodwill distributed among, partners in scarifying ratio), Revaluation A/c................................................. Dr., To RDD A/c, To Stock A/c, To Plant & Machinery A/c, (Being decrease in value of Debtors, Stock, Plant, and Machinery recorded in revaluation accounts), Land & Building A/c......................................... Dr., To Revaluation A/c, (Being increase in value of Debtors and Building, recorded in revaluation accounts), Sujata’s capital A/c, Aparna’s capital A/c, To Revaluation A/c, (Being loss on revaluation transferred to partners, capital account), , Liabilities, Creditors, Bills Payable, Capitals, Sujata, Pournima, Aparna, , BALANCE SHEET AS ON 1st APRIL 2018, Assets, Amt (`), Amt (`), 34,000 Cash in hand, 26,000 Sundry Debtors, Less : Provision, 1,17,700, Stock, 1,57,700, Less: - Decrease, 1,00,000 3,75,400 Furniture, Land & Building, Add: - Appreciation, Plant and Machinery, Less: - Depreciation, 4,35,400, , Debit `, 1,40,000, , Credit `, 1,00,000, 40,000, , 40,000, 20,000, 20,000, , 24,600, 2,600, 8,000, 14,000, , 20,000, 20,000, , 2,300, 2,300, 4,600, , Amt (`), 26,000, 2,600, 40,000, 8,000, 60,000, 20,000, 70,000, 14,000, , Amt (`), 2,20,000, 23,400, 32,000, 24,000, 80,000, 56,000, 4,35,400, , 136
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Working Note : 1) Cash in hand, (In old balance sheet) 80000 + 140000 (capital and goodwill brought in), = 220000, 2) Revaluation Account, Dr. , Revaluation Account, Particulars, Amount, Particulars, `, , To R.D.D. A/c, To Stock, To Plant & Machinary, , 2,600, 8,000, 14,000, , `, , By Land & Building A/c., By Sujata’s Capital A/c., By Pournima’s Capital A/c., (Revolution Loss), , 24,600, 2:, , Cr., Amount, 20,000, 2,300, 2,300, 24,600, , Padma and Kumud share profits and losses in the ratio 3:2 in partnership firm. Their, Balance Sheet as on 31st March 2019 was as under:, Balance Sheet As on 31st March, 2019, , Liabilities, Creditors, Bills payable, , Amt `, , Amt `, 37,500 Bank, , Assets, , 30,000 Bills Receivable, , Bank loans, General reserve, Capitals :, Padma, Kumud, , Amt `, , Amt `, 22,500, 11,400, , 48,000 Debtors, 62,400, 7,500 Less: R. D. D, 2,400, 60,000, Stock, 36,000, 45,000, Furniture, 14,100, 36,000, 81,000 Machinery, 15,000, Building, 45,000, 2,04,000, 2,04,000, On 1.04.2019 they admitted Asha on the following terms : 1) For 1/2 Share in profits in future, Asha should bring `30,000 for capital and ` 15,000 for, goodwill in cash., 2) Half of amount of goodwill is withdrawn by old partners., 3) The Stock is to depreciated by 10% and Machinery by 5%, 4) RDD is to be maintained at ` 3,000, 5) Furniture should be appreciated to `16,050 and Building be aprreciated by 20%, Pass the necessary Journal entries in the books of the firm., , 137
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Solutions : - , Journal Entries in the Books of the Firm, Date, Particulars, L. F., 1.4.2019, General reserve A/c............................................ Dr., To Padma’s capital A/c, To Kumud’s capital A/c, (Being general reserve distributed among old, partners), Profit & Loss Adjustment A/c............................ Dr., To Stock A/c, To Machinery A/c, To RDD A/c, (Being decrease in the value of assets and RDD, increased), , Debit (`), 7,500, , 4,500, 3,000, , 4,950, 3,600, 750, 600, , Furniture A/c...................................................... Dr., Building A/c...................................................... Dr., To Profit & Loss Adjustment A/c, (Being appreciation in the value of assets), , 1,950, 9,000, , Profit & Loss Adjustment A/c............................ Dr., To Padma’s Capital A/c, To Kumud’s Capital A/c, (Being Profit on Revaluation distributed in Profit, sharing ratio), Bank A/c Dr., To Asha’s capital A/c, (Being cash brought in by Asha as capital), , 6,000, , 10,950, , 3,600, 2,400, , 30,000, 30,000, , Bank A/c .......................................................... Dr., To Goodwill’s A/c, (Being cash brought in by Asha as goodwill), , 15,000, , Goodwill A/c...................................................... Dr., To Padma’s capital A/c, To Kumud’s capital A/c, (Being goodwill distributed in sacrifice ratio), , 15,000, , Padma’s capital A/c........................................... Dr., Kumud’s capital A/c.......................................... Dr., To Bank A/c, (Being half the amount of goodwill withdrawn by, old partners), , 138, , Credit (`), , 15,000, , 9,000, 6,000, 4,500, 3,000, 7,500
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Working Notes: In the Books of firm, Profit and loss adjustment A/c, Dr. Cr., Particulars, , Amount, Particulars, (`), 3,600 By Furniture A/c By, , To Stock Ac, To Machinery A/c, , 750, , To RDD A/c, , 600, , To Profit on Revaluation, transferred to Partners a Capital A/c, Padma, Kumud, , 3,600, 2,400, , By Building A/c, , Particulars, , Particulars, , Amount (`), 9,000, , To Kumud’s capital A/c, , 6,000, 15,000, , 3:, , 10,950, , Goodwill A/c , , To Padma ‘s capital A/c, , 9,000, , 6,000, 10,950, , Dr. , , Amount, (`), 1,950, , By Bank A/c, , Cr., Amount (`), 15,000, 15,000, , Anand and Rohit are partners sharing profits and losses in the ratio of 4:1. Their Balance, Sheet as on 31 st March 2018 was as follows:, Balance Sheet As on 31st March, 2018, Liabilities, , Capitals :, Anand, Rohit, Reserve Fund, Creditors, Bills Payable, , Assets, , Amount (`), Goodwill, Equipments, Stock, Debtors, Cash, , 1,35,000, 75,000, 90,000, 54,000, 6,000, 3,60,000, They agreed to Admit Nachiket on the following terms :, 1, The Goodwill is to be written off after admission of Nachiket., 2, 1/4th of equipments to be written off., 3, Stock is undervalued by 10% and it is to be adjusted properly., 4, Debtors of ` 1,800 are not recoverable., 5, Nachiket will introduce ` 1,20,000 for 2/5th share of firm, 6, Anand withdrew ` 60,000 from business., Prepare Revaluation A/c & Pass Journal entries of Goodwill, 139, , Amount (`), 90,000, 45,000, 54,000, 1,20,000, 51,000, 3,60,000
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Solution :, Dr., , Revaluation Account, , Particular, To Equipment, To Bad debts, , Cr., , Particulars, Amount (`), Amount (`), 11,250 By Stock, 6,000, 1,800 By Revaluation Loss, 7,050, Transferred to Capital A/c, Anand, 5,640, Rohit, 1,410, 13,050, , 13,050, , Journal, Date, , Particulars, , L. F., , Anand’s capital A/c...........................................Dr., Rohit’s capital A/c.............................................Dr., To Goodwill A/c, (Being Goodwill written off after admission of, partner), 4:, , Debit (`), , Credit (`), , 72000, 18000, 90,000, , The following is the Balance Sheet of Makarand and Mahesh sharing profits in the ratio of, 3:2, Balance Sheet As on 31st March 2019, Liabilities, Assets, Amt (`), Amt (`), , Capital Account, Makrand, Mahesh, Sundry Creditors, Bills Payable, , 95,000, 1,00,000, 4,000, 3,000, , Building, Plant and Machinery, Debtors, Less: R.D.D., Bank, Furniture, , 72,000, 60,000, 42,000, 2,000, , 2,02,000, On 1st April 2019 Mangesh is admitted for 1/2 share on the following terms:, 1, He Paid `1,00,000 as his capital and ` 40,000 as his share of goodwill by RTGS., 2, Plant and Machinery revalued at ` 48,000., 3. Building taken by Makarand ` 1,00,000., 4. RDD to be increased up to ` 4,000., 5, The old partners decided to retain half of the amount of goodwill in the business., 6, The old partners decided to sacrifice equally., Prepare Partner’s Capital Account Only, , 140, , 40,000, 20,000, 10,000, 2,02,000
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Solution:, Dr., , Partner’s Capital Account, , Cr., , Particular, , Makarand Mahesh Mangesh Particulars, Makarand, (`), (`), (`), (`), To Building, 1,00,000, By Balance b/d, 95,000, To Bank, 10,000, 10,000, By Bank A/c, To Balance C/d, 13,400 1,15,600 1,00,000 By Goodwill A/c, 20,000, By Revaluation, 8,400, A/c (Profit), 1,23,400 1,25,600, , Working Note:, Dr., Particulars, To Plant & Machinery, To RDD, To Revaluation Profit transferred, to Partners Capital A/c, Makarand, Mahesh, , 1,00,000, , Mahesh Mangesh, (`), (`), 1,00,000, 1,00,000, 20,000, 5,600, , 1,23,400, , 1,25,600, , Revaluation Account, , Cr., , Particulars, Amt (`), 12,000 By Building, 2,000 (Taken by Makarand), , 8,400, 5,600, , Amt (`), 28,000, , 14,000, 28,000, , 5:, , 1,00,000, , 28,000, , The following is the Balance Sheet of Madhuri and Manisha sharing Profit and Losses in, the ratio of 3:2 as on 31 March, 2019, Balance Sheet As on 31st March 2019, , Liabilities, Capital Account, Madhuri, Manisha, Sundry Creditors, Bills Payable, , Amount (`), 80,000, 1,00,000, 60,000, 10,000, , Assets, Building, Plant and Machinery, Stock, Debtors, Less : R.D.D., Bank, Furniture, , Amount (`), 72,000, 60,000, 48,000, 42,000, 2,000, , 2,50,000, , 40,000, 20,000, 10,000, 2,50,000, , On 01/04/2019 Mohini is admitted on the following terms:, 1, She is to pay ` 1,00,000 as her capital and ` 40,000 as her share of Goodwill., 2, The new profit sharing ratio is to be 5:3:2, 3. The assets are to be revalued as under:, Building ` 1,00,000, Plant and Machinery ` 48,000, 141
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4., 5, 6, , RDD to be increased up to ` 4,000., The old partners decided to retain half of the amount of goodwill in the business., Sundry creditors should be revalued at ` 66,000, Give Revaluation Account, Capitals Accounts and Balance Sheet of New firm,, Solution :, In the books of Partnership firm, Dr., Revaluation Account, Particular, , Particular, , Amount (`), , To Plant and Machinery, To RDD A/c, To Sundry Creditors A/c, To Profit on Revaluation, transferred to Capital A/c, Madhuri, Manisha, , 12,000, 2,000, 6,000, , Amount (`), , By Building A/c, , 28,000, , 4,800, 3,200, 28,000, , Dr., , 28,000, , Partner’s Capital Account, , Particular, , Madhuri Manisha, (`), (`), , To Bank, To Balance c/d, , Cr., , Cr., Madhuri Manisha Mohini, (`), (`), (`), , Mohini Particulars, (`), , 10,000 10,000, By Balance b/d, 94,800 1,13,200 1,00,000 By Bank A/c, By Goodwill A/c, By Revaluation A/c, (Profit), 1,04,800 1,23,200 1,00,000, , 80,000 1,00,000, 20,000 1,00,000, 20,000, 4,800, 3,200, , 1,04,800 1,23,200 1,00,000, , Balance Sheet of Madhuri, Manisha & Mohini as on 1st April, 2019, Liabilities, Capital Account, Madhuri, Manisha, Mohini, Sundry Creditor, Bills Payable, , Amt `, , Assets, , Amt `, 94,800, 1,13,200, 1,00,000, 66,000, 10,000, , Building, Add: Appreciation, Plant & Machinary, Less Depreciation, Furniture, Sundry Debtors, Less: R.D.D., Stock, Bank, , 3,84,000, , 142, , Amt `, Amt `, 72,000, 28,000 1,00,000, 60,000, 12,000, 48,000, 10,000, 42,000, 4,000, 38,000, 48,000, 1,40,000, 3,84,000
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Note: Goodwill brought in by Mohini transfered to Old Partners Capital A/c in their Sacrific Ratio, which is 1:1, 6:, , Sameer and Nisha were partners sharing profits and losses in the ratio of 3/4 and 1/4, showed the following Balance sheet on 31st March, 2018, Balance Sheet as on 31st March 2018, , Liabilities, Capital, Sameer, Nisha, General Reserve, Creditors, , Amt `, 1,50,000, 1,62,000, , Assets, , Amt `, , Stock, Fixtures, 3,12,000 Debtors, 48,000 Less: R.D.D., 90,000 Bills Receivable, Cash in hand, 4,50,000, , Amt `, , 1,50,000, 15,000, , Amt `, 90,000, 60,000, 1,35,000, 90,000, 75,000, 4,50,000, , They admit Poonam for 1/5th share on 1st April 2018, on the following terms :, 1, Poonam introduced ` 1,20,000 as her capital., 2, Poonam would pay cash for Goodwill which would be based on 4 year’s purchase of past, profits of last 5 years., 3. Assets were revalued as under :, Fixtures at ` 45,000, Bill Receivable ` 1,20,000, Stock at ` 60,000 Debtors at book value less, a provision of 20%, 4. Bill payable of ` 15,000 have been omitted from books., Profits for the last five years were as under :, I, ` 60,000, II ` 45,000, III ` 75,000, IV ` 30,000 , V ` 45,000, Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet after Poonam’s admission., Solution :, Dr., , In the books of Partnership firm, Revaluation Account, , Particulars, To Fixtures A/c, To Stocks A/c, To Provision on Debtors A/c, To Bills Payable A/c, , Amount (`), 15,000, 30,000, 15,000, 15,000, , Particulars, By Bill Receivable A/c, By Revaluation Loss, transferred to, Sameer, Nisha, , 75,000, , Cr., Amount (`) Amount (`), 30,000, , 33,750, 11,250, , 45,000, 75,000, , 143
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Dr., , Partner’s Capital Account, Particulars, , To Revaluation A/c, (Loss), To Balance c/d, , Sameer, (`), 33,750, , Nisha, (`), , Poonam, (`), , 11,250, , Cr., , Particulars, , Sameer, (`), 1,50,000, , By Balance b/d, , 1,82,850 1,72,950 1,20,000 By General, Reserve A/c, By Cash A/c, By Goodwill A/c, , 36,000, , 2,16,600 1,84,200 1,20,000, , Liabilities, Creditors, Bill Payable, Capitals, Sameer’s capital, Nisha’s capital, Poonam’s capital, , Nisha, Poonam, (`), (`), 1,62,000, 12,000, , 4,800, 30,600, , 10,200, , 2,16,600, , 1,84,200, , Balance Sheet As on 1st April, 2018, Assets, Amt (`), Amt (`), 90,000 Cash, 15,000 Debtors, Less : Provision, 1,82,850 Bills Receivable, 1,72,950 Add: - Increase, 1,20,000 Stock, Less: Depreciation, Fixture, Less: Depreciation, 5,80,800, , 1,20,000, , Amt (`), 1,50,000, 30,000, 90,000, 30,000, 90,000, 30,000, 60,000, 15,000, , 1,20,000, , Amt (`), 2,35,800, 1,20,000, 1,20,000, 60,000, 45,000, 5,80,800, , Working Note :, i), Calculation of Goodwill and Poonam’s share there of, Total Profit, ` 2,55,000, Average Profit, ` 51,000, Goodwill, ` 51,000 × 4, = ` 2,04,000, Poonam’s Share, ` 2,04,000 × 1/5 = ` 40,800, Treatment of Goodwill, Date, 1.4.2019, , 1.4.2019, , Particulars, , L.F., , Cash A/c , Dr., To Poonam’s capital A/c, To Goodwill A/c, (Being cash brought by Poonam as her share of, capital and goodwill), Goodwill A/c, Dr., To Sameer’s capital A/c, To Nisha’s capital A/c, (Being amount of goodwill distributed among, partners in their sacrificing ratio), 144, , Debit (`), 1,60,800, , Credit (`), 1,20,000, 40,800, , 40,800, 30.600, 10,200
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7:, , The Balances sheet of Bhavesh and Chandra who share profit and losses in the ratio of 3:1, as at 31st March 2018 was as under :, Balance Sheet As on 31st March, 2018, Particulars, , Creditors, Workmen’s Compensation Reserve, General Reserve, Bhavesh’s Capital, Chandra’s Capital, , Amt (`), 20,000, 30,000, 24,000, 32,000, 28,000, , Particulars, Bank, Debtors, Less : Provision, Bills Receivable, Stock, Land & Building, Goodwill, , Amt (`), 20,000, 13,000, 1,000, , 1,34,000, , 12,000, 10,000, 20,000, 30,000, 42,000, 1,34,000, , Alia was admitted on 1.4.2018 for 1/5th share on the following terms :, 1, Alia shall bring ` 20,000 for her share of goodwill and necessary amount for her share of, capital in cash., 2, Anju, an old customer whose account was written off as bad, has paid ` 400 in cash in full, settlement of his dues., 3. The market value of Land and Building be taken as ` 40,000., 4. Workmen’s Compensation Reserve is to be increased by ` 10,000., 5. Unaccounted Accrued Incomes of ` 200 to be accounted for., 6. The capitals of all partners are to be in new profit sharing ratio taking old partners total capital, as base after adjustment. Actual cash is to be paid off or brought in by the partners for adjusting, their capital accounts., Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet after Alia’s, admission., Solution :, Dr., Revaluation Account, Cr., Particulars, To Workmen Compensation Reserve A/c, To Profit transferred to Capital A/c, Bhavesh, Chandra, , Particulars, Amt (`), 10,000 By Accrued Income A/c, By Land and Building A/c, 450, By Bad Debts Recovered A/c, 150, 600, 10,600, , 145, , Amt (`), 200, 10,000, 400, , 10,600
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Dr., , Partner’s Capital Account, Particular, , To Goodwill A/c, To Cash A/c, To Balance c/d, , Bhavesh Chandra, (`), (`), , 31,500, 46,950, , 78,450, , Alia, (`), , Particulars, , Cr., Bhavesh Chandra, (`), (`), , 10,500, By Balance b/d, 13,000, By General Reserve A/c, 15,650 15,650 By Revaluation A/c, (Profit), By Goodwill A/c, By Cash A/c, 39,150 15,650, , 32,000, 18,000, 450, , 28,000, 6,000, 150, , 15,000, 13,000, 78,450, , 5,000, , Alia, (`), , 15,650, 39,150 15,650, , Balance Sheet As on 1 .4. 2018, Particulars, , Particulars, Amt (`) Amt (`), Creditors, 20,000 Cash, Workmen’s Compensation Reserve 30,000, Bank, Add: Increase, Capitals :, Bhavesh, Chandra, Alia’s Capital, , 10,000, , 40,000 Debtors, Less: Provision, 46,950 Bills Receivable, 15,650 Stock, 15,650 Accrued income, Land & Building, Add: Appreciation, 1,38,250, , Working Note :, Calculation of proportionate Capital, Bhavesh’s capital after adjustment ............. ` 33,950, Chandra’s capital after adjustment ............. ` 28,650, Total capital of Bhavesh and Chandra for 4/5 share ............. ` 62,600, Total Capital of the firm should be ............. ` 62,600 × 5/4 = 78,250, New profit sharing ratio of Bhavesh Chandra and Alia is 3:1:1, Bhavesh’s new Capital , = ` 78,250 × 3/5, = ` 46,950, Chandra’s new Capital , = ` 78,250 × 1/5, = ` 15,650, Alia’s new Capital , = ` 78,250 × 1/5, = ` 15,650, , 146, , Amt (`), , 13,000, 1,000, , 30,000, 10,000, , Amt (`), 36,050, 20,000, 12,000, 10,000, 20,000, 200, 40,000, , 1,38,250
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Treatment of Goodwill, Date, 1.4.2018, , Particulars, L.F., Cash A/c............................................................ Dr., To Goodwill A/c, (Being cash brought by Alia as her share of goodwill), , 1.4.2018, , Goodwill A/c..................................................... Dr., To Bhavesh’s Capital A/c, To Chandra’s Capital A/c, (Being amount of goodwill distributed among, scarifying partners in sacrificing ratio), , 20,000, , 1.4.2018, , Bhavesh’s Capital A/c...................................... Dr., Chandra’s Capital A/c...................................... Dr., To Goodwill A/c, (Being old goodwill written off from the books), , 31,500, 10,500, , 8:, , Debit (`), 20,000, , Credit (`), 20,000, , 15,000, 5,000, , 42,000, , The Balances sheet of Adil and Sameer who share profits in the ratio of 2:1 as on 31st, March, 2018, Balance Sheet As on 31st March 2018, Particulars, , Capitals:, Adil, Sameer, Investment Fluctuation Reserve, General Reserve, Sundry Creditors, Bills Payable, , Amt (`), 90,000, 48,600, 15,000, 12,000, 63,000, 60,000, , Particulars, Land & Building, Investment, Debtors, Goodwill, Profit and Loss A/c, Advertisement Suspense, Cash, , 2,88,600, , Amt (`), 75,000, 1,08,000, 39,000, 12,000, 12,000, 12,000, 30,600, 2,88,600, , On 1.4.2018 Raju was admitted into partnership on the following terms :, 1, Raju pays ` 30,000 as his capital for 1/4th share., 2, Raju pays ` 15,000 for Goodwill. Half of the sum is to be withdrawn by Adil and Sameer., 3. RDD is created @ 10%., 4. The value of land and building is appreciated by ` 30,000., 5. Investments were reduced by ` 22,500., 6. Sundry creditors are to be valued at ` 62,250., 7. Capitals of Adil and Sameer to be adjusted taking Raju’s capital as the base. Adjustment of, capitals is to be made through cash., Prepare Revaluation Account, Partner’s Capital Account and Balance Sheet of the New, Firm as on 1st April, 2018, , 147
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Solution :, Dr., , Revaluation Account, , Particulars, To Provision to Doubtful Debts A/c, To Investment A/c (22500-15000), To Profit transferred to, Adil’s Capital A/c, Sameer’s Capital A/c, , Cr., , Particulars, Amt (`), 3,900 By Land and Building A/c, 7,500 By Creditors A/c, 12,900, 6,450, , Amt (`), 30,000, 750, , 19,350, 30,750, , Dr., , 30,750, , Partner’s Capital Account, Particulars, , To Goodwill A/c, To Advertisement, Suspens A/c, To Cash A/c, To Profit and, Loss A/c, To Cash A/c, (Surplus), To Balance c/d, , Adil Sameer, (`), (`), 8,000 4,000, 8,000 4,000, 5,000, 8,000, , Raju, (`), , Particulars, By Balance b/d, By Revaluation A/c, (Profit), By Cash A/c), By Goodwill A/c, , 2,500, 4,000, , 31,900 19,550, , By General Reserve A/c, , 60,000 30,000, , 30,000, , 1,20,900 64,050, , 30,000, , Cr., Adil Sameer Raju, (`), (`), (`), 90,000 48,600, 12,900 6,450, 30,000, 10,000, , 5,000, , 8,000, , 4,000, , 1,20,900 64,050 30,000, , Balance Sheet As on 1 .4. 2018, Particulars, Bill Payable, Sundry Creditors, Capital :, Adil, Sameer, Raju, , Amt (`), , Amt (`), 60,000, 62,250, , 60,000, 30,000, 30,000 1,20,000, , Particulars, Cash, Debtors, Less : Provision, Investments, Land & Building, , 2,42,250, , Amt (`), 39,000, 3,900, , Amt (`), 16,650, 35,100, 85,500, 1,05,000, , 2,42,250, , Note :, At the time of the admission it is desirable that the amount of goodwill which is already appearing in the books should always be written off among old partners in their old profit sharing, ratio, when the new partner brings in cash for goodwill., 148
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Working Note :, Adil’s Share, = 1/4, Remaining share, = 1- 1/4 = 3/4, Adil’s new share, = 2/3 × 3/4 = 2/4, Sameer’s new share = 1/3 × 3/4 = 1/4, New ratio, = 2: 1:1, Calculation of new Capital of Partners., 2) Investment fluctuation reserve will be used at the time of reduction in the value of investments., 9:, , The following is the Balance Sheet of the firm Triveni Traders as on 31st March 2019, Narmada and Godavari are the partners of the firm who share profits and losses in the, ratio of 3:2 respectively., Balance Sheet As on 31st March 2019, Liabilities, Assets, Amount (`), Amount (`), 4,000, Creditors, 49,600 Cash at bank, 20,000, Capitals:, Building, 28,000, Narmada, 28,000 Machinery, 1,200, Godavari, 28,000 Furniture, 16,400, Stock, 36,000, Debtors, 1,05,600, 1,05,600, , They take Kaveri into partnership on 1.4.2019 the terms being:, 1, Kaveri shall pay ` 4,000 as her share of Goodwill, the amount to be retained in business., 2, She shall bring in ` 12,000 as capital for 1/4 the share in the future profits., 3. The firm’s assets were to be revalued as under:, Building ` 24,000, Machinery and Furniture to be reduced by 10%, a Provision of 5% on, Debtors is to be made for doubtful debts; Stock is to be taken at a value of ` 20,000., 4. The excess of capital of Narmada and Godavari over their due proportion of sharing profits of, the new firm is to be transferred to their respective loan account., Prepare Profit and Loss Adjustment Account, Capital Account of Partners and New, Balance sheet., Soluation :, Dr., Profit and Loss Adjustment A/c, Cr., Galiabilities, To Machinery A/c, To Furniture A/c, To R. D. D. A/c, To Profit on Revaluation, transferred to Capital A/c, Narmada, Godavari, , Amt `, , 1728, 1152, , Assets, Amt `, 2,800 By Building A/c, 120 By Stock A/c, 1,800, , Amt `, , Amt `, 4,000, 3,600, , 2,880, , 7,600, , 7,600, , 149
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Dr., , Partners Capital Account, , Particulars, , Particulars, , Narmada Godavari Kaveri, (`), (`), (`), , To Loan A/c, To Balance c/d, , 10,528, 21,600, , 32,128, , Cr., Narmada Godavari, (`), (`), , 16,352, By Balance b/d, 14,400 12,000 By Goodwill A/c, By Bank A/c, By P & L Adj. A/c, (Profit), , 28,000, 2,400, 1,728, , 1,152, , 30,752 12,000, , 32,128, , 30,752, , Kaveri, (`), , 28,000, 1,600, 12,000, , 12,000, , Balance Sheet as on 1.4. 2019, Particulars, Capital A/c :, , Particulars, Building, , Amt (`), 20,000, , Amt (`), , Narmada, , 21,600 Add: Appreciation, , 4,000, , 24,000, , Godavari, , 14,400 Machinery, , Kaveri, , 12,000 Less : Depreciation, , 2,800, , Furniture, , 1,200, , Amt (`), , Amt (`), , Loan A/c :, Narmada, , 10,528 Less: Depreciation, , Godavari, , 16,352 Stock, , Creditors, , 28,000, , 120, , 25,200, 1,080, , 16,400, , 49,600 Add: Appreciation, Debtors, Less R. D.D, , 3,600, , 20,000, , 36,000, 1,800, , 34,200, , Cash at Bank, , 20,000, , 1,24,480, , 1,24,480, , 10 : Kabir and Reshma are partners in a firm sharing profits and losses in the ratio of 4:1., Their Balance Sheet as on 31st March, 2019 is as follows., Balance Sheet as on 31st March 2019, Galiabilities, Capitals :, Kabir, Reshma, General Reserve, Profit and Loss A/c, Creditors for goods, Creditors for expenses, , Amt `, , Assets, , Amt `, 1,05,000, 75,000, 30,000, 6,000, 48,000, 12,000, , Goodwill, Sundry Debtors, Less: RDD, Land and Building, Bank, , 2,76,000, , 150, , Amt `, , Amt `, 66,000, , 30,000, 3,000, , 27,000, 1,00,000, 83,000, 2,76,000
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On 1 April 2019 Suvarna is admitted in the partnership on the following terms :, 1, Suvarna to bring for 20% share in future Profits ` 45,000., 2, Goodwill of the firm is valued at ` 75,000., 3. RDD is no longer required., 4. Rent receivable ` 4,500 to be adjusted in the books., 5. Capital Accounts of partners to be adjusted in new profit sharing ratio by opening Current, Account Prepare : 1) Profit and Loss Adjustment Account 2) Partner’s Capital A/c and, 3) New Balance Sheet., Solution :, Dr., , Profit and Loss Adjustment A/c, Particulars, , To Revaluation Profit Transferred to Capital A/c:, Kabir, Reshma, , Amt, , Amt, , (`), , (`), , 6000, 1500, , Cr., Particulars, , Amt, (`), , By R.D.D., By Rent Receivable, , 3,000, 4,500, , 7500, 7,500, , Dr., , 7,500, , Partner’s Capital Account, , Particulars, , Kabir, (`), , Reshma Suvarna, (`), (`), , To Balance c/d 1,44,000 36,000, To Current A/c, 3,000 49,500, , Cr., , Particulars, , Kabir, (`), , Reshma Suvarna, (`), (`), , 1,05,000 75,000, By General Reserve A/c 24,000 6,000, 1200, 4,800, By Profit and Loss A/c, , 45,000 By Balance b/d, , By Bank, , 1,47,000 85,500, , 45,000, , By Goodwill A/c, , 7200, , 1,800, , By P and L Adj A/c, (Profit), , 6000, , 1,500, , 45,000, , 14,700 85,500, , 45,000, , Balance Sheet as on 1.4. 2019, Liabilities, Capital A/c, Kabir, Reshma, Suvarna, Current A/c, Kabir, Reshma, Creditors for goods, Creditors for expenses, , Amount (`), , Assets, , Goodwill, 1,44,000 Sundry Debtors, 36,000 Land and Building, 45,000 Bank, Rent Receivable, 3,000, 49,500, 48,000, 12,000, 3,37,500, 151, , Amount (`), 75,000, 30,000, 1,00,000, 1,28,000, 4500, , 3,37,500
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11: Tara, Chandra and Surya are partners in a firm of Accountants sharing profits and losses, in the ratio of 2:3:1. Their Balance Sheet as on 31 st March 2018 on which date Akash is, admitted as a partner as follows., Balance Sheet As on 31st March 2018, Liabilities, Chandra’s Capital, Surya’s Capital, , Assets, Amount (`), 1,05,000 Furniture, 66,000 Motor Car, Cash, Tara’s Capital, , 1,71,000, , Amount (`), 30,000, 60,000, 54,000, 27,000, , 1,71,000, , Akash is given 1/4th share of the profits and losses in the firm and the profit and loss, sharing ratio among other partners to remain same as before. The following adjustments are to, be made prior to Akash’s admission:, 1, The Motor Car is taken over by Chandra at a value of ` 75,000., 2, The Furniture is revalued at ` 54,000., 3. Goodwill account is raised in the books at ` 1,50,000., 4. Unrecorded debtors are ` 33,000., 5. Expenses incurred but not paid ` 9,000 are to be provided for., 6. Akash brings in ` 60,000 in cash as his capital contribution., Pass necessary journal entries and prepare Balance Sheet of the firm after Akash’s, admission., , 152
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Solution :, Dr., Date, 1, , 2, , 3, , 4, , 5, , 6, , Journal, , Cr., , Particular, , LF, , Goodwill A/c., To Tara’s Capital A/c, To Chandra’s Capital A/c, To Surya’s Capital A/c, (Being goodwill raised in the books), , Dr., , Amt (`), 1,50,000, , Amt (`), 50,000, 75,000, 25,000, , Motor Car A/c, Dr., Furniture A/c, Dr., Debtor A/c (unrecorded), Dr., To Revaluation A/c, (Being recording of unrecorded assets and appreciation of assets), Revaluation A/c, To Outstanding Expenses A/c, (Being recording of outstanding expenses), Chandra’s capital A/c, To Motor Car A/c, (Being acquisition of Motor Car by Chandra), , Dr., , Cash A/c, To Akash’s Capital A/c, (Being cash brought in by Akash), , Dr., , 15,000, 24,000, 33,000, 72,000, , 9,000, 9,000, , Dr., , 75,000, 75,000, 60,000, 60,000, , Revaluation A/c, Dr., To Tara’s Capital A/c, To Chandra’s Capital A/c, To Surya’s Capital A/c, (Being distribution of revaluation profits done), , 63,000, 21,000, 31,500, 10,500, , Balance Sheet As on 31st March, 2018, Liabilities, Capital Accounts :, Tara, Chandra, Surya, Akash, Outstanding Expenses, , Assets, , Amount (`), 44,000, 1,36,500, 1,01,500, 60,000, 9,000, , Goodwill, Furniture, Debtors, Cash, , 3,51,000, , Amount (`), 1,50,000, 54,000, 33,000, 1,14,000, , 3,51,000, , 153
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12 : Pravin and Deepak were partners in a firm sharing profits in the ratio of 3:1. Their Balance, Sheet as on 31 st March, 2019 on which date Akash is admitted as a partner is as follows., Balance Sheet as on 31st March 2019, Liabilities, Creditors, Bills Payable, Reserve Fund, Outstanding Salary, Capital Account:, Pravin, Deepak, , Amt (`), , Amt (`), 60,000, 2,000, 32,000, 6,000, , Assets, , Debtor, Less: Provisions, Stock, Bills Receivable, Patents, Machinery, 1,20,000, 40,000 1,60,000 Cash, , Amt (`), 1,00,000, 10,000, , 2,60,000, , Amt (`), 90,000, 60,000, 20,000, 2,000, 80,000, 8,000, 2,60,000, , They admitted Sandeep as a new partner on 1st Apri 2019. New Profit sharing ratio is agreed 3:2:3,, Sandeep brings ` 96,000 as capital, Adjustments :, 1, Sandeep paid ` 32,000 as his share of goodwill privately to the partners., 2. Provision for doubtful debts is to be reduced by ` 4,000., 3, Unrecorded Computer valued at ` 4,800 not appearing in the books of the firm. It is now to be, recorded., 4, Patents are useless., Prepare : Revaluation Account, Capital A/cs and New Balance Sheet., Solutions :, Dr., , Revaluation Account, Particulars, , Amt, (`), , To Patents A/c, To Profit transferred to Capital A/c :, Pravin, Deepak, , Cr., Particulars, , Amt, (`), , 2,000 By Provision for doubtful Debts A/c 4,000, By Computer A/c (unrecorded), 4,800, 5100, 1700, , 6800, 8,800, , 154, , 8,800
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Dr., , Pravin’s Capital Account, , Particulars, To Balance c/d, , Particulars, Amount (`), 1,49,100 ByBalance b/d, By Reserve Fund, By Revaluation A/c, , Cr., Amount (`), 1,20,000, 24,000, 5100, , 1,49,100, Dr., , 1,49,100, , Deepak’s Capital Account, , Particulars, To Balance c/d, , Cr., , Particulars, Amount (`), 49,700 By Balance b/d, By Reserve Fund, By Revaluation A/c, , Amount (`), 40,000, 8,000, 1700, , 49,700, Dr., , 49,700, , Sandeep’s Capital Account, , Particulars, To Balance c/d, , Cr., , Particulars, Amount (`), 96,000 By Bank A/c, , Amount (`), 96,000, , 96,000, , 96,000, , Balance Sheet as on 1st April 2019, Galiabilities, Creditors, Bills payable, Outstanding Salary, Capital A/c :, Praveen, Deepak, Sandeep, , Amt `, , Assets, Amt `, 60,000 Debtors, 2,000 Less: RDD, 6,000 Stock, Bills Receivable, 1,49,100 Machinery, 49,700 Computer, 96,000 Cash, , 3,62,800, , Amt `, 1,00,000, 6,000, , 3,62,800, , 155, , Amt `, 94,000, 60,000, 20,000, 80,000, 4,800, 1,04,000
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13: Radha And Vikas were in partnership sharing profits & losses in proportion of 3:2 respectively. Their Balance Sheet as on 31 st March 2019 stood as follows., Balance Sheet As on 31st March 2019, Liabilities, , Amt (`), , Capital A/cs :, Radha, Vikas, Current A/cs. :, Radha, Vikas, Loan from Balu, Creditors, , 2,00,000, 1,20,000, , 2,400, 2,800, , Assets, , Amt (`), , Amt. (`), , Amt. (`), , Premises, Furniture and Fixture, 3,20,000 Stock, Debtors, Cash at bank, 5,200, 40,000, 12,000, , 2,80,000, 22,800, 54,000, 18,200, 2,200, , 3,77,200, , 3,77,200, , On 1st April 2019 Om was admitted to the firm on the following terms., 1, Premises were to be valued at ` 3,40,000 and Furniture and Fixtures at ` 20,800. A provision, for bad debts of ` 2,000 was to be made. Stock should be revalued at ` 58,000., 2. Om Should bring in ` 80,000 as Capital and ` 20,000 as his share of goodwill and it was retained in the business and he should be given one-fourth share in the future profits., 3, The loan from Balu was repaid through NEFT., Prepare Profit and Loss Adjustment Account, Partners Current Accounts and Balance, sheet of the New firm., Solution :, Dr., , Profit and Loss Adjustment Account, Particulars, , To Furniture A/c, To R.D.D A/c, To Profit on Revaluation, transferred to Current A/c :, Radha, Vikas, , Particulars, , Amt. (`), 2,000, 2,000, , 36,000, 24,000, , By Premises A/c, By Stock A/c, , Amt. (`), , 60,000, 4,000, , 60,000, 64,000, , Dr. , , Cr., , Partner’s Current Account, , Paritculars, Radha (`) Vikas (`) Particulars, To Balance c/d, 50,400, 34,800 By Balance b/d, By Goodwill A/c, By P & L Adj. A/c (Profit), 50,400, 34,800, , 156, , 64,000, Cr., Radha (`) Vikas (`), 2400, 2800, 12,000, 8000, 36,000, 24,000, 50,400, 34,800
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Liabilities, Capital A/c :, Radha, Vikas, Om, Current A/c :, Radha, Vikas, Creditors, , New Balance Sheet as on 1st April, 2019, Assets, Amt.(`), Amt.(`), 2,00,000, 1,20,000, 80,000, , 4,00,000, 50,400, 34,800, 12,000, , Premises, Add Appreciation, Furniture and Fixtures, Less : Depreciation, Stock, Add : Appreciation, Debtors, Less : R.D.D, Cash at bank, , 4,97,200, , Amt.(`), , Amt.(`), , 2,80,000, 60,000, 22,800, 2,000, 54,000, 4,000, 18,200, 2,000, , 3,40,000, 20,800, 58,000, 16,200, 62,200, 4,97,200, , 14 : Mr. Sahil & Mrs. Vanita were in Partnership sharing profits & losses in the proportion, of 3:1 respectively. Their Balance Sheet as on 31 st March 2019 of their business was as, follows., Balance Sheet as on 31st March. 2019, Liabilities, Capitals :, Sahil, Vanita, Sundry Creditors, General Reserve, , Assets, , Amount (`), 90,000, 75,000, 31,500, 6,000, , Building, Stock, Debtors, Cash, , 2,02,500, , Amount (`), 90,000, 60,000, 46,500, 6,000, , 2,02,500, , Dinesh is admitted as a partner in the firm on the following terms :, 1, He shall have 1/4 the share in profits of the firm., 2. Dinesh shall bring in cash ` 60,000 as his capital and ` 30,000 as his share of goodwill., 3, Building overvalued by `12,000 and the stock is undervalued by 20% in the books, these assest, are to be adjusted at their proper values., 4. Provided Reserve for Doubtful Debts ` 1,200 on Debtors., You are required to prepare Revaluation A/c. Capital accounts of partners and Balance, Sheet of the firm after admission of Dinesh., , 157
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Solution :, In the Books of Partnership firm, Revaluation Account, , Dr., Particulars, To Building, To R.D.D, To Profit on Revaluation, transferred to Capital A/c, Sahil, Vikas, , Cr., , Particulars, Amount (`), 12,000 By Stock A/c, 1,200, 1350, 450, , Amount (`), 15,000, , 1,800, 15,00, , Dr., , 15,000, , Partner’s Capital Accounts, , Particulars, , Sahil, (`), , To Balance c/d, , 1,18,350, , 1,18,35, , Vanita Dinesh, (`), (`), 84,450, , Cr., , Particulars, , Sahil, (`), , 60,000 By Balance b/d, By General Reserve A/c, By Cash A/c, By Goodwill A/c, By Revaluation A/c, (Profit), , 84,450, , 60,000, , Vanita, (`), , 90,000, 4,500, , 75,000, 1,500, , 22,500, 1,350, , 7,500, 450, , 1,18,350, , 84,450, , Dinesh, (`), , 60,000, , 60,000, , M/s. Sahil, Vanita and Dinesh, Balance Sheet as on 1.4. 2019, Liabilities, Capital A/c, Sahil, Vanita, Vikas, Sundry Creditors, , Amt (`), 1,18,350, 84,450, 60,000, , Assets, , Amt (`), , Building, Less : Depreciation, Stock, 2,62,800 Add : Appreciation, 31,500 Debtors, Less : R.D.D, Cash at Bank, 2,94,300, , 158, , Amt (`), 90,000, 12,000, 60,000, 15,000, 46,500, 1,200, , Amt (`), 78,000, 75,000, 45,300, 96,000, 2,94,300
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HHHHHHHHHHHHH EXERCISE - 3 HHHHHHHHHHHHH, Q.1 Objetive type questions., (A) Select appropriate alternatives from those given below and rewrite the sentences., 1. Anuj and Eeshan are two partners sharing profits and losses in the ratio of 3:2. They decided to admit Aaroh for 1/5th share, the new profit sharing ratio will be ......................., (a) 12:8:5 (b) 4:3:1, (c) 12:8:1, (d) 12:3:1, 2., , Excess of proportionate capital over actual capital represents......................., (a) Equal capital (b) Surplus Capital (c) Deficit Capital, (d) Gain, , 3., , .......................is credited when unrecorded asset is brought into business., (a) Revaluation Account (b) Balance Sheet (c) Trading Account, (d) Partners capital Account., , 4., , When goodwill is withdrawn by the partner .......................account is credited., (a)Revaluation, (b) Cash / Bank, (c) Current, (d) Profit and Loss Adjustment, , 5., , If asset is taken over by the partner .......................account is debited., (a) Revaluation (b) Capital, (c) Asset, (d) Balance Sheet, , (B) Write a word/ phrase / term which can substitute each of the following statements., 1, Method under which calculation of goodwill is done on the basis of extra profit earned, above the normal profit., 2, An account opened to adjust the value of assets and liabilities at the time of admission of, a partner., 3, Reputation of business measured in terms of money., 4, The ratio in which general reserve is distributed to the old partners., 5, Name the method of the treatment of goodwill where new partner will bring his share of, goodwill in cash., 6, The proportion in which old partners make a sacrifice., 7, Capital employed × NRR /100 =, 8, An Account which is debited when the partner takes over the asset., 9, Profit and Loss account balance appearing on liability side of Balance Sheet., 10 Old ratio - New ratio =, (C) State True or False with reasons, 1, New Partner can bring capital in cash or kind., 2, When goodwill is paid privately to the partners it is not recorded in the books., 3, Gain ratio is calculated at the time of admission of partner., 4, Revaluation profit is distributed among all partners including new partner., 5, Change in relationship between the partners is called as Reconstitution of partnership., 6, New partner always brings his share of goodwill in cash ., 7, When the goodwill is written off goodwill account is debited., , 159
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8, 9, 10, , New ratio minus old ratio is equal to sacrifice ratio., Usually when a new partner is admitted in the firm there will be an increase in the capital, of the firm., Cash/ Bank Account is credited when goodwill is withdrawn by the old partners., , (D) Find the Odd one., 1. General reserve, Creditors, Machinery, Capital, 2. Decrease in Furniture, Patents written off, Increase in Bills Payable, RDD written off., 3, Super profit method, Valuation method, Average profit method, Fluctuating capital, method., (E) Calculate the following, 1. A and B are partners in a firm sharing profits and losses in the ratio of 1:1. C is admitted., A surrenders 1/4th share and B surrenders 1/5th of his share in favour of C. Calculate the, new profit sharing ratio., 2. Anika and Radhika are partners sharing profits in the ratio of 5:1. They decide to admit, Sanika in the firm for 1/5th share. calculate the sacrifice ratio of Anika and Radhika, 3. Pramod and Vinod are partners sharing profits and losses in the ratio 3:2. After admission, of Ramesh the new ratio of Pramod, Vinod and Ramesh is 4:3:2. Find out the sacrifice, ratio., (F) Answer the following., 1, What is Revaluation Account?, 2, What is meant by Reconstitution of partnership?, 3, Why is new partner admitted?, 4, What is sacrifice ratio?, 5, What do you mean by raising the goodwill at the time of admission of a new partner?, 6, What is super profit method of calculation of goodwill?, 7, When is the ratio of sacrifice calculated for distribution of goodwill?, 8, What is the treatment of accumulated profits at the time of admission of a partner?, 9, State the ratio in which old partner’s capital A/c will be credited for goodwill when the, new partner does not bring his share of goodwill in cash., 10. What does the excess of debit over credits in Profits and Loss Adjustment account, indicate?, (G) Complete the table, 1., , Total profit, = Number of years., , ×, , NRR, 100, , 2., , Normal Profit =, , 3., , Stock shown in Balance Sheet g Stock undervalued by 20% g Cost of Stock, , ` 1,60,000, , 160
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Practical Problems, 1., , Vikram and Pradnya share profits and losses in the ratio 2:3 respectively. Their balance, sheet as on 31st March 2018 was as under., Balance Sheet as on 31st March, 2018, , Liabilities, Creditors, Capitals :, Vikram, Pradnya, , Assets, Amount (`), 1,05,000 Cash, Land & Building, 75,000 Plant, 75,000 Furniture, Stock, Debtors, 2,55,000, , Amount (`), 7,500, 37,500, 45,000, 3,000, 75,000, 87,000, 2,55,000, , They agreed to admit Avani as a partner on 1st April 2018 on the following terms:, 1, Avani shall have 1/4th share in future profits., 2. He shall bring ` 37,500 as his capital and ` 30,000 as his share of goodwill., 3. Land and building to be valued at ` 45,000 and furniture to be depreciated by 10%., 5., Provision for bad and doubtful debts is to be maintained at 5% on the Sundry Debtors., 6. Stocks to be valued ` 82, 500., The capital A/c of all partners to be adjusted in their new profit and loss ratio and excess, amount be transferred to their loan accounts., Prepare Profit and Loss Adjustment Account, Capital Accounts and New Balance Sheet., (Ans: (Revaluation Profit 10,350, Capital Balance - Vikram 97,140, Pradnya 93,210,, Avani 37,500, Balance Sheet Total - 3,32,850), 2., , Amalendu and Sameer share profits and losses in the ratio 3:2 respectively Their balance, sheet as on 31st March 2017 was as under., Balance Sheet as on 31st March, 2017, , Liabilities, Sundry Creditors, Amlendu capital, Sameer capital, General reserve, , Amount (`), 10,000, 60,000, 40,000, 20,000, , Assets, Cash at bank, Sundry debtors, Land & Building, Stock, Plant and machinery, Furniture & fixture, , Amount (`), 12,000, 24,000, 50,000, 16,000, 20,000, 8,000, , 1,30,000, 1,30,000, On 1 April 2017 they admit Paresh into partnership. The term being that:, 1, He shall pay ` 16,000 as his share of Goodwill 50% amount of Goodwill shall be, withdrawn by the old partners., st, , 161
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2, 3., A), B), C), D), 3., , He shall have to bring in ` 20,000 as his Capital for 1/4 share in future profits., For the purpose of Paresh’s admission it was agreed that the asssets would be revalued as, follows., Land and Building is to be valued at ` 60,000, Plant and Machinery to be valued at `16,000, Stock valued at ` 20,000 and Furniture and Fixtures at ` 4,000, A Provision of 5% on Debtors would be made for Doubtful Debts., Pass The necessary Journal Entries in the Books of a New Firm., , Vasu and Viraj Share Profits and Losses in the Ratio of 3:2 respectively Their Balance, Sheet as on 31st March 2019 was as under, Balance Sheet as on 31st March, 2019, , Liabilities, Sundry Creditors, General Reserve, Capital :, Vasu, Viraj, , Assets, Amount (`), 45,000 Cash at bank, 30,000 Sundry debtors, Stock, 1,08,000 Investment, 72,000 Plant, Building, 2,55,000, , Amount (`), 750, 66,750, 25,500, 36,000, 90,000, 36,000, 2,55,000, , They admit Hari into Partnership on 1.4. 2019 the terms being that :, 1, He shall have to bring in ` 60,000 as his Capital for 1/4 share in future profits, 2, Value of Goodwill of the Firm is to be fixed at The average profits for the last three years., The Profit were., 2009-10 ` 48,000,, 2010-11 ` 81,000, 2011-12 ` 73,500, Hari is unable to bring the value of the Goodwill in cash. It is decided to raise the Goodwill, in the books of accounts., 3. Reserve for Doubtful Debts is to be created at ` 1,500., 4. Closing Stock is valued at ` 22, 500, 5. Plant and Building is to be depreciated by 5%., Prepare Profit and Loss Adjustment A/c, Capital Accounts of Partners And Balance, Sheet of the New Firm., (Ans : Revaluation Loss 10,800, Capital balances - Vasu 1,60,020, Viraj 1,06,680, Hari, 60,000, Balance sheet total - 3,71,700), , 162
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4., , Mr. Deep & Mr. Karan were in Partnership sharing Profits & Losses in the proportion of, 3:1 respectively. Their Balance Sheet On 31st March 2018 Stood as follows., Balance Sheet as on 31st March, 2018, Liabilities, , Sundry Creditors, Bill Payable, Bank Overdraft, Capital A/c:, Deep, Karan, General Reserve, , Assets, Amount, (`), 40,000 Cash, 10,000 Sundry debtors, 11,000 Land & Building, Stock, Plant and machinery, 60,000, 20,000, 80,000 Furniture, 8,000, 1,49,000, , Amount, (`), , Amount, (`), , Amount, (`), 40,000, 32,000, 16,000, 20,000, 30,000, 11,000, 1,49,000, , They admit Shubham into Partnership on 1 April, 2018 The term being that :, 1. He shall have to bring in ` 20,000 as his capital for 1/5 Share in future profits & 10,000, as his share of Goodwill., 2. A Provision for 5% doubtful debts to be created on Sundry Debtors., 3. Furniture to be depreciated by 20%, 4. Stock should be appreciated by 5% and Building be appreciated by 20%, 5. Capital A/c of all partners be adjusted in their new profit sharing ratio through cash account., Prepare Profit and Loss Adjustment A/c , Partner’s capital A/c, Balance sheet of new, firm., (Ans : Revaluation Profit - 400, Cash transferred to Deep 13800, to Karan 4,600,, Balance Sheet total 1,61,000), 5., , Mr. Kishor & Mr. Lal were in partnership sharing profits & losses in the proportion of 3/4, and 1/4 respectively., Balance Sheet as On 31 March 2018, , Galiabilities, Creditors, General Reserve, Capital A/c:, Kishor, Lal, , Amt `, , 90,000, 48,000, , Assets, Amt `, 1,20,000 Land and Building, 12,000 Furniture, Stock, Debtors, 1,38,000 Bills Receivable, Cash at Bank, 2,70,000, , Amt `, , Amt `, 75,000, 6,000, 60,000, 60,000, 39,000, 30,000, 2,70,000, , They decided to admit Ram on 1 April 2018 on following terms:, 1. He should be given 1/5th share in profit and for that he brought in ` 60,000 as capital, through RTGS., 2. Goodwill should be raised at ` 60,000, 3. Appreciate Land and Building by 20%, 163
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4., 5., , 6., , Furniture and Stock are to be depreciated by 10%, The Capitals of all partners should be adjusted in their new profit sharing ratio through, Bank A/c., Pass necessary Journal Entries in the books of the Partnership firm and a Balance, sheet of new firm., , Vrushali and Leena are equal partners in the business. Their Balance sheet as on 31 March, 2018 stood as under., Balance Sheet as on 31 March 2018, Liabilities, , Sundry Creditors, Capitals :, Vrushali, Leena, General Reserves, , Amt. (`), 90,000, 45,000, 30,000, , Amt. (`), , Assets, , 90,000 Cash in Bank, Debtors, 75,000 Less: R.D.D, Building, 18,000 Machinery, Bills Receivable, 1,83,000, , Amt. (`), , Amt. (`), 62,000, , 31,000, 1,000, , 30,000, 55,000, 24,000, 12,000, 1,83,000, , They decided to admit Aparna on 1st April 2018 on the following terms:, 1. The Machinery and Building be depreciated by 10%. Reserve for Doubtful Debts to be, increased by ` 5,000, 2. Bills Receivable are taken over by Vrushali at the discount of 10%, 3. Aparna should bring ` 60,000 as capital for her 1/4 th share in future profits., 4. The capital accounts of all the partners be adjusted in proportion in the new profit sharing, ratio by opening current accounts of the partners., Prepare Profit and Loss Adjustment A/c, Partner’s capital A/c, Balance sheet of new, firm., (Ans : Revaluation loss - 14,100, Current A/c Vrushali 53,850, Leena 58,050, Balance, Sheet 3,30,000), 7., , The balance sheet of Medha and Radha who share profit and loss in the ratio 3:1 is as, follows :, Balance Sheet as on 31 March 2018, Liabilities, Assets, Amount (`), Amount (`), Sundry Creditors, 80,000 Cash, 78,000, Bills Payable, 20,000 Sundry debtors, 64,000, Bank overdraft, 20,000 Stock, 40,000, Capital A/c :, Plant & Machinery, 60,000, Medha, 1,20,000 Furniture, 22,000, Radha, 40,000 Land and Building, 32,000, General reserve, 16,000, 2,96,000, 2,96,000, , 164
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They decided to admit krutika on 1st April 2018 on the following terms:, 1. Krutika is taken as partner on 1st April 2017 she will pay 40,000 as her capital for 1/5, share in future profits and ` 2,500 as goodwill, 2. A 5% provision for bad and doubtful debt be created on debtors., 3. Furniture be depreciated by 20%., 4. Stocks be appreciated by 5% and plant & machinery by 20%, 5. The Capital accounts of all partners be adjusted in their new profit sharing ratio by adjusting amount through loan., 6. The new profit sharing ratio will be 3/5 1/5 1/5 respectively., You are required to prepare profit and loss adjustment A/c, Partner’s capital A/c, Balance, Sheet of the new firm., (Ans: Revaluation Loss 4,400, Current A/c Medha 10,575, Radha 3,525, Balance, Sheet 3,34,100), 8., , The Balance Sheet of Sahil and Nikhil who share profits in the ratio of 3:2 as on 31st March,, 2017, Balance Sheet as on 31st March 2017, , Liabilities, Creditors, Capitals:, Sahil, Nikhil, , Assets, Amt. (`), 60,000 Furniture, Building, 80,000, Debtors, 1,00,000 1,80,000 Closing Stock, Cash in Hand, 2,40,000, , Amt. (`), , Amt. (`), , Amt. (`), 60,000, 72,000, 40,000, 48,000, 20,000, 2,40,000, , Varad admitted on 1St April 2017 on the following terms :, 1. Varad was to pay 1,00,000 for his share of capital., 2. He was also to pay 40,000 as his share of goodwill., 3. The new profit sharing ratio was 3:2:3, 4. Old partners decided to revalue the assets as follows:, Building 1,00,000, Furniture- 48,000, Debtors - 38,000 (in view of likely bad debts), 5. It was found that there was a liability for 3,000 for goods in March 2017 but recorded on 2nd, April 2017 ., You are required to prepare :, a) Profit and Loss adjustment accounts, b) Capital accounts of the partners, c) Balance sheet after the admission of Varad., (Ans : Revaluation Profit ` 11,000 Capital A/c Sahil ` 1,10,600, Nikhil ` 1,20,400, Varad, ` 1,00,000, Balance sheet ` 3,94,000), , 165
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9., , Mr. Amit and Baban share profits and losses in the ratio 2:3 respectively. Their balance, sheet as on 31st March 2018 was as under., Balance Sheet as On 31st March 2018, Liabilities, , Creditors, Capital :, Amit, Baban, , Assets, Amount (`), 1,40,000 Cash, Land and Building, 100,000 Plant, 100,000 Furniture, Stock, Debtors, 3,40,000, , Amount (`), 110,000, 50,000, 60,000, 4,000, 100,000, 16,000, 3,40,000, , They agreed decided to admit Kamal on 1st April 2018 on following terms:, 1. Kamal shall have 1/4th share in future profits., 2. They agreed to admit Kamal as a partner on 1st April 2018 on the following terms:, 3. She shall bring 50,000 as her capital and 40,000 as her share of goodwill., 4. Land and building to be valued at 60,000 and furniture to be depreciated by 10%, 5. Provision for bad and doubtful debts is tobe maintained at 5% on the sundry debtors., 6. Stocks to be valued 1,10,000, The capital A/c of all partners to be adjusted in their new profit and loss ratio and excess, amount be transferred to their loan accounts., Prepare profit and loss adjustment A/c, Capital A/cs, and New Balance Sheet, (Ans : Revaluation Profit 18,800, Loan A/c Amit 56,000, Baban 45,280, Balance Sheet total, 4,48,800), 10. The following is the Balance Sheet of Om and Jay on 31st March 2018, they share profits, and losses in the ratio 3:2, Balance Sheet as On 31st March 2018, Liabilities, Creditors, Capital A/c, Om, Jay, Current A/c, Om, Jay, , Assets, Amount (`), 30,000 Cash, Building, 21,000 Machinery, 21,000 Furniture, Stock, 3,750 Debtors, 3,450, 79,200, , 166, , Amount (`), 3,000, 15,000, 21,000, 900, 12,300, 27,000, 79,200
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They take Jagdish into partnership on 1st April 2018 the terms being, 1. Jagdish should pay 3,000 as his share of Goodwill. 50% of goodwill withdrawn by partners in cash., 2. He should bring 9,000 as capital for 1/4th share in future profits., 3. Building to be valued at 18,000, Machinery and Furniture to be reduced by 10%, 4. A Provision of 5% on debtors to be made for doubtful debts., 5. Stock is to be taken at the value of 15,000., Prepare profit and loss A/c, Partner’s Current A/c, Balance Sheet of the new firm., (Ans : Revaluation Profit ` 2,160, Current A/c Om ` 5,946, Jay ` 4,914, Balance Sheet, total ` 91,860), Activity :, 1. Find out the reasons for the revaluation of assets and liabilities at the time of admission of, a partner., 2., , Visit any Bank and enquire about procedure for changes in the signatories of Partnership, due to Admission of a Partner., , bbb, , 167
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4, , Reconstitution of Partnership (Retirement of Partner), , Contents, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, , Introduction, New Ratio, Gain Ratio, Treatment of goodwill, Transfer of Reserve Fund or General Reserve / Accumulated Profit or Loss, Revaluation of Assets and re-assessment of Liabilities, Adjustment of capitals, Total payable amount to retiring partner., , Competency Statement, o, , , , , , , , , , The student's will be able to :, Understand the meaning of retirement of partners in partnership business., Learn to calculate various ratios connected to retirement of partnership., Understand the treatment of goodwill, Know the effects of reserves, accumulated Profit / Loss, Learn the effects of revaluation of assets and reassessment of liabilities., Understand the adjustments to be made for remaining partner’s capital., To know the various modes of final payment to be made to retiring partner. , , 4.1 Introduction :, When one member ceases to be a partner and the remaining partners continue to carry on the, business of the firm it is called as Retirement of a Partner. It is one of the modes of reconstitution of, partnership. The new partnership business will continue with the remaining partners and the retiring, partner will get the amount payable to him after considering net balance of Capital and Current Account, his share of Profit or Loss on revaluation of assets and liabilities, his share of accumulated, profit, goodwill etc. Partner may retire from the business due to old age, misunderstandings amongst, the partners, loss in business or want to start new business venture etc., A partner may retire, 1., , By giving notice to remaining partners in the case of partnership at will, , 2., , In accordance with the agreement by the partners, , 3., , With the consent of all partners., , 4.2 New Ratio, The ratio in which the continuing partners decide to share the future Profits and Losses is known, as New Profit Sharing Ratio., , 168
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Illustrations:, 1. A, B and C share profits and losses in the ratio of 4:2:1, if B retires what will be the new ratio?, Ans. The new ratio of A and C will be 4:1. It is cancelling by canceling B’s share., 2., , X. Y. and Z share profits and losses equally. Z retires and his share is acquired by X and Y in, the ratio of 3:1. Calculate New Profit sharing ratio., Ans: Calculation of New Profit Sharing Ratio, Old Ratio = X : Y: Z = 1:1:1, Z’s share is acquired by X and Y in the ratio of 3:1, X’s gain = 1/3 × 3/4 = 3/12, Y’s gain = 1/3 × 1/4 = 1/12, X’s New Share = 1/3 + 3/12 = 7/12, Y’s New Share = 1/3 + 1/12 = 5/12, New Profit Sharing Ratio of X and Y = 7:5, , 4.3 Gain / Benefit Ratio, The ratio in which the continuing partners acquire the retiring partner’s share is called gain ratio. It is normally used to write off goodwill created or raised to the extent of retiring partner’s, share only., Gain Ratio = New Ratio - Old Ratio, Illustration 1:, A, B and C are sharing Profits and Losses in the ratio of 4:3: 2. B retires and A and C share, future profits equally. Calculate gain ratio., Gain Ratio = New Ratio - Old Ratio, A’s Gain = 1/2 - 4/9 = 1/18, C’s Gain = 1/2 - 2/9 = 5/18, Gain Ratio of A and C is 1:5, Illustration 2:, X, Y and Z are sharing Profits and Losses in the ratio of 4:3:2. Z retires the new ratio of X and, Y is 3 :2. Calculate the gain ratio., X’s Gain = 3/5 - 4/9 = 7/45, Y’s Gain = 2/5 - 3/9 = 3/ 45, Gain Ratio of × and Y is 7:3, Illustration 3:, P,Q, and R and partners sharing Profits in the ratio of 2 :2:1. Q retired. Calculate the gain ratio., Old Ratio = 2:2:1, New Ratio = 2:1, P’ s gain = 2/3 - 2/5 = 4/15, R’s gain = 1/3 - 1/5 = 2/ 15, Gain Ratio = 4:2 i.e. 2:1, 169
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4.4 Treatment of goodwill, Sr. No. Transaction, Journal Entry, 1., When goodwill of the entire Goodwill A/c...............................................................Dr., firm is raised and retained in, To All partner’s capital A/c, the business, (old profit sharing ratio), Goodwill will appear in new Balance Sheet., 2., , When goodwill of entire firm a) When goodwill is raised, is raised and then written off, Goodwill A/c.........................................................Dr., To all Partners’ capital A/c, (Old Profit sharing ratio), b) When goodwill is written off, Continuing partner’s Capital A/c..........................Dr., (New profit sharing ratio), To Goodwill A/c, Goodwill will not appear in New Balance Sheet., , 3., , When goodwill is raised to Goodwill A/c...............................................................Dr., the extent of retiring partner’s To Retiring Partners’ capital A/c, share and retained in business. Goodwill will appear in New Balance Sheet to that extent., , 4., , When goodwill is raised to the 1) Goodwill A/c.........................................................Dr., extent of Retiring partner’s To Retiring Partner’s capital A/c, share and then written off, 2) Continuing partner’s capital A/c...........................Dr., To Goodwill A/c, (Gain ratio), Goodwill will not appear in New Balance Sheet, , 5., , In case goodwill already ap- The difference in goodwill amount can be shown either in, pears in the old Balance Sheet. Profit and Loss adjustment account/ Revaluation A/c in, Md Ratio or in Partner’s capital / Current Account., , 4.5 Transfer of Reserve Fund or General Reserve / Accumulated Profit or loss, On Retirement of a partner any reserve, accumulated profit/ loss is transferred to Capital or, Current A/c in the their profit sharing ratio to all partners or only share of retiring partner to his, Capital / Current A/c, as per the instructions given in the problem., If any type of reserve / accumulated profit is transferred the entry will be :, All types of Reserves / Accumulated profits A/c ............................Dr., To Partner’s Capital / Current A/c, (Being balance transfer to all partners including retiring partner in their profit sharing ratio), Any accumulated loss appearing on asset side of Balance Sheet is transferred to all partners in their profit sharing ratio. the entry will be:, All Partners Capital / Current A/c ............................Dr., To Profit and Loss A/c, (Being accumulated loss debited to all partner’s capital/ current A/c), 170
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4.6 Revaluation of Assets and re-assessment of liabilities., When the partner retires from the business it is desirable to revalue assets and liabilities to, bring their values at the correct position. The benefit of such change in the value of Assets and, Liabilities will be given to the retiring partner as well. To Show the changes in the value of Assets, and liabilities Revaluation Account is opened. After showing all the effects in Revaluation, Account/Profit and Loss Adjustment account the balance appearing in the account will be, transferred to partner’s capital account in their profit Sharing Ratio., (Note : For more details about effects in revaluation account and specimen of Revaluation, account/ Profit and Loss Adjustment Account please refer the previous topic (i.e. admission of, partner), 4.7 Adjustment of Capital :, On retirement of a partner the continuing partner may decide to rearrange their capital in their, new profit sharing ratio. For this Purpose., i), The total capital of the firm is divided among the partners in their new profit sharing ratio., ii) New capital balance is then compared with the latest capital balance of each partner., iii) Surplus or Deficit in individual Capital A/c is calculated., iv) Such Surplus may be withdrawn by the partner (i.e. paid to partner) or transferred to, Current A/c or Loan A/c. Deficit may be brought in by the partner or transferred to Current, A/c or Loan A/c, Sr. No., Transaction, Journal Entry, 1., If Surplus is paid back to Continuing Partners Capital A/c .................................Dr., continuing partners, To Cash / Bank A/c., 2., If Surplus on capital account Continuing Partners Capital A/c..................................Dr., is not paid but transferred, To Continuing Partner’s Current / Loan A/c., to Loan Account or Current, Account., 3., If continuing partner brings Cash / Bank A/c..........................................................Dr., cash towards his deficiency in, To Continuing Partner’s Capital A/c, the capital account, 4, , If deficit is transferred to Loan Continuing Partners Current / Loan A/c......................Dr., Account or Current Account, To Continuing Partners capital A/c, , Ascertainment of Retiring Partner’s share of profit on retirement, If a partner retires from firm on any day during accounting year, then it is necessary to compute, profit from date of last Balance Sheet to date of retirement., Profit of current year is calculated either on the basis of the last year’s profit or average profit., Proportionate profit for the part of year (i.e. from date of Balance Sheet to date of retirement), is calculated. Share of Retiring Partner is calculated on the basis of proportionate Profit., For transfer of such Profit or Loss following journal entries are drafted in the books of the firm., Transfer of Profit to Retiring Partner’s Capital / Current A/c, Profit and Loss Suspense A/c.................................................Dr., To Retiring Partner’s Capital /Current A/c. Transfer of, Retiring Partner’s Capital / Current A/c................................Dr., To Profit and Loss Suspense A/c, 171
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4.8 Total Payable amount to retiring partner, Sr. No., Transaction, Journal Entry, 1., Lumpsum : The entire amount Retiring Partner’s Capital A/c.....................................Dr., payable to retiring partner is, To Cash / Bank A/c., paid in one installment at a, time., 2. (A) Installment: The amount due Retiring Partner’s Capital A/c....................................Dr., to retiring partner may be paid, To Retiring Partner’s Loan A/c., and Balance is transferred to, Loan A./c., 2. (B) When interest charged on Interest A/c..................................................................Dr., Loan Account, To Retiring Partner’s Loan A/c, 2. (C) When interest paid in cash, Retiring Partner’s Loan A/c.......................................Dr., To Bank A/c, 3., If the total amount due to Retiring Partner’s Capital A/c..................................Dr., retiring Partner is transferred, To Retiring Partner’s Loan A/c, to loan account, 4., If amount due to retiring Retiring Partner’s Capital A/c.....................................Dr., partner is partly paid in cash, To Cash/ Bank A/c, and balance due transferred to, To Retiring Partner’s Loan A/c, Loan Account, Illustrations, 1., , Given below is a Balance Sheet of Raja, Rani and Pradhan who were partners in a firms, sharing profits and losses in the ratio 5:3:2, Their Balance Sheet as on 31st March 2019 was as follows., , Liability, Creditors, Bank Overdraft, Reserve Fund, Capital A/c:, Raja, Rani, Pradhan, , Balance Sheet as on 31-03-2019, Amt (`) Assets, 11,200 Cash, 9,700 Debtors, 15,000 Stock, Machinery, 42,000 Land, 37,000 Furniture, 33,200, , Amt (`), 7,600, 18,000, 17,500, 30,000, 70,000, 5,000, , 1,48,100, 1,48,100, On 1st April 2018 Pradhan retired on the following terms., 1. Goodwill of the firm will be raised in the Books at ` 20,000, 2. Stock be reduced by 10 % and Furniture by 5% and Machinery by 11%, 3, R.B.D.D. be maintained at 5% on debtors., 4. ` 200 to be written off from Creditors., 5. Out of the amount due to Pradhan ` 5000 to be paid by cash and remaining amount to be, transferred to his loan account., 172
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Prepare a) Profit and Loss adjustment Account, Partner’s capital A/c, Balance sheet of, new firm., Solution :, Dr , Particulars, To Stock A/c, To Furniture A/c, To R.B.D.D. A/c, To Machinery A/c, , In the Books of Partnership firm, Profit and Loss Adjustment Account , Amt (`), 1,750, 250, 900, 3,300, , Particulars, By Creditors A/c, By Partners Capital A/c (loss), Raja, Rani, Pradhan, , Amt (`), , 3,000, 1,800, 1,200, , 6,200, Dr., Raja, (`), , Rani, (`), , To P & L Adj. A/c 3,000 1,800, (Loss), To Cash A/c, To Pradhan’s, Loan A/c, To Balance c/d, 56,500 45,700, 59,500 47,500, , Liabilities, Creditors, Less: Written off, Bank Overdraft, Partners Capital A/c, Raja, Rani, Pradhan’s Loan A/c, , Amt (`), 200, 6,000, 6,200, , Partner’s Capital Account, Particular, , Cr., , Pradhan, (`), , Particulars, , Cr., Raja, (`), , Rani, (`), , 1,200 By Balance b/d, By Reserve Fund A/c, 5,000 By Goodwill A/c, 34,000, , 42,000, 7,500, 10,000, , 37,000, 4,500, 6,000, , 33,200, 3,000, 4,000, , 40,200, , 59,500, , 47,500, , 40,200, , Balance Sheet as on 1st April 2019, Assets, Amt `, Amt `, 11,200, Cash, 200, 11,000 Debtors, 9,700 Less: R. D. D 5%, Stock, 56,500 Less: Depreciation, 45,700 Machinery, 34,000 Less: Depreciation, Land, Furniture, Less: Depreciation, Goodwill, 1,56,900, , 173, , Amt `, 18,000, 900, 17,500, 1750, 30,000, 3,300, 5000, 250, , Pradhan, ( `), , Amt `, 2,600, 17,100, 15,750, 26,700, 70,000, 4,750, 20,000, 1,56,900
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2., , Following is the Balance Sheet of the firm of Nana, Nani and Sona who share Profits and, Losses in the ratio of their Capital, Balance Sheet as on 31st March 2019, Liability, , Amt (`), , Capital A/c:, Nana, Nani, Sona, Creditors, Bills Payable, , 50,000, 20,000, 30,000, 10,000, 5,000, 1,15,000, , Assets, Machinery, Building, Stock, Debtors, Less: R.D.D., Cash, , Amt (`), 20,000, 55,000, 12,000, 12,000, 1,000, , 11,000, 17,000, 1,15,000, , Sona retires from the business on 1st April 2019 and the following Adjustment were agreed., 1. Stock is to be valued at 92% of its Book Value, 2. R.D.D. is to be maintained at 10% on debtors, 3., The value of Building is to be appreciated by 20%, 4, The Goodwill of the firm be fixed at ` 12000. Sona’s share in the same be adjusted in the, accounts of continuing partners in Gain Ratio., 5. The entire Capital of the new firm be fixed at ` 1,60,000 between Nana and Nani in their New, Profit sharing ratio which is fixed at 3:1 making adjustment in Cash., 6. Amount payable to Sona paid in cash., Prepare : Revaluation A/c, Partnership Capital A/c , Balance Sheet as on 1st April 2019., Solution :, In the Books of the firm, Dr. , Revaluation A/c, Cr., Particulars, , Amt (`), 960, 200, , To Stock A/c, To R.D.D. A/c, To Partners Capital A/c (Profit), Nana, Nani, Sona, , 4,920, 1,968, 2,952, , Particulars, By Building A/c, , Amt (`), 11,000, , 9,840, 11,000, , Dr., , 11,000, , Partner’s Capital Account, Particular, , To Goodwill, To cash A/c, To Balance c/d, , Nana, (`), , Nani, (`), , 3,000, , 600, , 1,20,000, , 40,000, , 1,23,000, , 40,600, , Sona, (`), , Particulars, , Cr., Nana, (`), , Nani, (`), , By Balance b/d, 50,000 20,000, 36,552 By P & L Adj. A/c, 4,920 1,968, (Profit), By Goodwill A/c, By Cash A/c, 68,080 18,632, 36,552, 1,23,000 40,600, 174, , Sona, (`), , 30,000, 2,952, 3,600, 36,552
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Working Note:, 1. Calculation of Gain Ratio, , Old Ratio :, 5: 2: 3, , New Ratio :, 3:1, , Gain Ratio = New Ratio - Old Ratio, 10, 3, 30 - 20, 5, , Nana’s Gain Ratio = 4 =, = 40, 10, 40, 10-8, 1, 2, 2, , Nani’s Gain Ratio =, =, =, 40, 4, 40, 10, , , Gain Ratio = 10:2 i.e. 5:1, Balance Sheet as on 1st April 2019, Liabilities, Assets, Amt `, Amt `, Creditors, 10,000 Cash, Bills payable, 5,000 Stock, Capital A/c:, Less: Reduction, Nana, 1,20,000 Debtors, Nani, 40,000 Less : R.D.D, Building, Add : Appreciation, Machinery, 1,75,000, , Amt `, 12,000, 960, 12,000, 1200, 55,000, 11,000, , Amt `, 67,160, 11,040, 10,800, 66,000, 20,000, 1,75,000, , 3., , The Balance Sheet of Shyam Traders Pune is as follows, Partners share Profit and Losses, as 5:2:3, Balance Sheet as on 31st March 2019, Liabilities, Assets, Amt `, Amt `, Amt `, Amt `, Capital Account:, Plan & Machinery, 32,000, Rambha, 36,000 Building, 40,000, Menka, 32,000 Stock, 20,400, Urvashi, 17,600 Debtors, 16,800, Creditors, 20,000 Less: R. D. D., 800, 16,000, Bill Payable, 1,200 Bank, 12,400, General Reserve, 14,000, 1,20,800, 1,20,800, , 2., 3., , Menka retired from the business on 1st April 2019 on the following terms. The assets were, revalued as under., ii) Building is appreciated by 10%, i) Stock at ` 28,000, iii) R.D.D. is to be increased upto ` 1000, iv) Plant and Machinery is to be depreciated by 10%, The Goodwill of retiring partner is valued at ` 8000 and the remaining Partners decided that, Goodwill be written back in their New Profit sharing ratio which will be 5:3, Amount due to Menka is to be transferred to her Loan Account, Prepare : Profit and Loss Adjustment A/c , Capital Account of partners, Balance Sheet of, new firm., 175
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Dr. , , In the Books of Shyam Traders Pune, Profit and Loss Adjustment A/c, , Particulars, To R. D. D, (1000-800), To Plant & Machinery, To Partners Capital A/c’s (profit), Rambha, Menka, Urvashi, , Amt (`), 200, 3,200, 4,100, 1,640, 2,460, , Cr., , Particulars, By Stock A/c, By Building A/c, , 8,200, , 11,600, Partner’s Capital Account, , Dr., , Amt (`), 7,600, 4,000, , 11,600, Cr., , Particular, , Rambha Menka Urvashi, Particulars, Rambha Menka Urvashi, (`), (`), (`), (`), (`), (`), To Goodwill A/c, 5,000, 3,000 By Balance b/d, 36,000 32,000, 17,600, To Loan A/c, 44,440, By Goodwill A/c, 8,000, To Balance c/d, 42,100, 21,260 By General Reserve A/c, 7,000, 2,800, 4,200, By P & L Adj. A/c (Profit), 4,100, 1,640, 2,460, 47,100 44,440 24,260, 47,100 44,440, 24,260, , Liabilities, Creditors, Bills Payable, Capital A/c :, Rambha, Urvashi, Menka’s loan A/c, , 4., , Balance Sheet as on 1st April 2019, Assets, Amt `, Amt `, 20,000 Stock, 1,200 Add : Appreciation, Building, 42,100, Add : Appreciation, 21,260, 63,360 Debtors, 44,440 Less : R.D.D, Plant & Machinery, Less : Depreciation, Bank, 1,29,000, , Amt `, 20,400, 7,600, 40,000, 4,000, 16,800, 1,000, 32,000, 3,200, , Amt `, 28,000, 44,000, 15,800, 28,800, 12,400, 1,29,000, , Kale, Gore and Pandhare were partners sharing Profit and losses in the ratio 3:3: 2. Their, Balance sheet as on 31st March 2018 is as follows., Balance Sheet as on 31st March 2018, , Liabilities, Capital Account:, Kale, Gore, Pandhare, Creditors, Bill Payable, Reserve Fund, , Amt `, 11,000, 15,000, 8,000, 8,900, 2,000, 4,000, , Assets, Building, Plan & Machinery, Lice Stock, Debtors, Stock, Bank, , 48,900, , Amt `, 10,000, 10,700, 10,000, 5,000, 6,600, 6,600, 48,900, , 176
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On 1 st April 2018 Mr. Pandhare retired from the firm on the following terms., 1. Assets to be revalued as Stock ` 6300, Plant and Machinery ` 10,000 Live Stock `10,200, 2. Goodwill of the firm is to be valued at ` 4,000, however only Pandhare’s share in it is to be, raised in the books and written off immediately., 3. R.D.D to be maintained at 10 % on debtors., 4. ` 100 to be written off from Creditors., 5) The amount payable to Mr. Pandhare to be transferred to his loan account., Prepare : Profit and Loss Adjustment account, Partners Capital Account, Balance Sheet, of new firm., Solution :, In the Books of Shyam Traders Pune, Dr. , Profit and Loss Adjustment A/c, Cr., Particulars, , Particulars, , Amt (`), , To Plant & Machinery A/c, To Stock A/c, To R.D.D, , 700, 300, 500, , Amt (`), , By Live Stock A/c, By Creditors A/c, By Partners Capital A/c (Loss), Kale, Gore, Pandhare, , 200, 100, 450, 450, 300, , 1,500, Dr., , 1,200, 1,500, , Partner’s Capital Account, , Cr., , Particular, , Kale Gore Pandhare, Particulars, Kale Gore Pandhare, (`), (`), (`), (`), (`), (`), To Goodwill A/c., 5,00, 500, By Balance b/d, 11,000 15,000, 8,000, To P & L Adj. A/c, 450, 450, 300 By Reserve Fund A/c 1,500 1,500, 1,000, (Loss), By Goodwill A/c, 1,000, To Loan A/c, 9,700, To Balance c/d, 11,550 15,550, 12,500 16,500, Liabilities, Capital Account:, Kale, Gore, Pandhare’s Loan A/c, Creditors, Less : Written off, Bills Payable, , 10,000, , 12,500 16,500, , Balance Sheet as on 1st April 2018, Assets, Amt `, Amt `, Building, 11,550, Pant & Machinery, 15,550, 27,100 Less : Depreciation, 9,700 Live Stock, 8,900, Add : Appriciation, 100, 8,800 Debtors, 2,000 Less : R.D.D., Stock, Less : Depreciation, Cash, 47,600, 177, , Amt `, 10,700, 700, 10,000, 200, 5,000, 500, 6,600, 300, , 10,000, Amt `, 10,000, 10,000, 10,200, 4,500, 6,300, 6,600, 47,600
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5., , Given Below is the Balance Sheet of Vaishali, Madhuri, and Menka who were sharing, profit and losses in the ratio 3:3:3:, Balance Sheet as on 31st March 2019, , Liabilities, Creditors, Bank Overdraft, General Reserve, Capital A/c :, Vaishali, Madhuri, Manasi, , Amt (`), , Assets, Amt (`), 10,500 Cash, 5,000 Debtors, 12,000 Less : R.D.D., Furniture, 28,700 Machinery, 31,800 Motor car, 30,000 Profit & loss A/c, , Amt (`), 16,000, 2,000, , 1,18,000, , Amt (`), 19,500, 14,000, 15,000, 40,000, 25,000, 4,500, 1,18,000, , Vaishali retired on 1 April 2019 form the firm on the following terms., 1. Furniture be valued ` 14,000, Machinery at ` 38,000 and Motor car ` 23,800, 2. R.D.D. be maintained at 5% on Debtors, 3. Goodwill of the firm be valued at ` 15,000. However only Vailshali’s share in it is to be raised, in the Books., 4. A part payment of ` 10,000 be made to Vaishali and the balance be transferred to her Loan, Account., Prepare Profit and Loss Adjustment Account , Partners Capital A/c, Balance Sheet of new, firm., In the Books of the firm, Dr. , Profit and Loss Adjustment A/c, Cr., Particulars, Particulars, Amt (`) Amt (`), Amt (`) Amt (`), To Furniture A/c, 1,000 By R.D.D, 1,200, To Machinery A/c, 2,000 By Partners Capital A/c, (Loss), To Motor Car A/c, 1,200 Vaishali, 1,000, Madhuri, 1,000, Manasi, 1,000, 3,000, 4,200, 4,200, st, , Dr., , Partner’s Capital Account, , Cr., , Particular, , Vaishali Madhuri Manasi, Particulars, Vaishali Madhuri Manasi, (`), (`), (`), (`), (`), (`), To P & L A/c, 1,500, 1,500 1,500 By Balance b/d, 28,700, 31,800 30,000, To P & L Adj. A/c, 1,000, 1,000 1,000 By General Reserve, 4,000, 4,000 4,000, (Loss), By Goodwill A/c, 5,000, To Cash A/c, 10,000, To Vaishali’s, 25,200, Loan A/c, To Balance c/d, 33,300 31,500, 37,700, , 35,800 34,000, , 37,700, 178, , 35,800 34,000
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Balance Sheet as on 1st April 2019, Liabilities, Creditors, Bank Overdraft, Vaishali’s Loan A/c:, Capital A/c:, Madhuri, Manasi, , Amt `, , Assets, Amt `, 10,500 Cash, 5,000 Debtors, 25,200 Less : R.D.D., Furniture, 33,300 Less Depreciation, 31,500 Machinery, Motor car, Less Depreciation, Goodwill, 1,05,500, , Amt `, 16,000, 800, 15,000, 1,000, 25,000, 1,200, , Amt `, 9,500, 15,200, 14,000, 38,000, 23,800, 5,000, 1,05,500, , 6., , Following is the Balance Sheet of Anil, Sunil and Suresh who were sharing Profit and, Losses equally., Balance Sheet as on 31st March 2019, Particular, Assets, Amt `, Amt `, Amt `, Amt `, Creditors, 20,300 Bank, 8,400, Bills payable, 10,600 Debtors, 18,000, General Reserve, 13,500 Less :R.D.D, 900, 17,100, Capital A/c:, Computer, 17,500, Anil, 43,600 Land & Building, 70,000, Sunil, 35,000 Machinery, 10,000, Suresh, 32,000 Furniture, 20,000, Goodwill, 12,000, 1,55,000, 1,55,000, , On 1st April 2019 Suresh retired from the firm on the following terms., 1. Land and Building be appreciated by 10% and Computer be reduced by ` 1,900., 2. Debtors were all good and R.D.D. was no longer required., 3. Machinery be revalued at ` 9,400, 4. Goodwill of the firm be valued at ` 16,500., 5. Furniture were sold at ` 21,800 and part payment of ` 15,000 was made to Suresh by R.T.G.S., and balance was transferred to his Loan Account., Prepare: Profit and Loss Adjustment A/c , Partners capital A/c’s, Balance Sheet of Anil, and Sunil, Solution:, In the Books of Anil And Sunil, Dr., Profit and Loss Adjustment A/c, Cr., Particulars, To Computer A/c, To Machinery A/c, To Partners Capital A/c:, (profit), Anil, Sunil, Suresh, , Amt `, , 2,400, 2,400, 2,400, , Particulars, Amt `, 1,900 By Land and Building A/c, 600 By R.D.D A/c, By Furniture A/c, , 7,200, 9,700, , Amt `, , Amt `, 7,000, 900, 1,800, , 9,700, 179
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Dr., , Partner’s Capital Account, Particular, , To Bank A/c, To Suresh, Loan A/c, To Balance c/d, , Anil, (`), , 52,000, 52,000, , Sunil, (`), , 43,400, 43,400, , Suresh, (`), , Cr., , Particulars, , 15,000 By Balance b/d, 25,400 By General Reserve, By P & L Adj. A/c, (Profit), By Goodwill A/c, 40,400, , Anil, (`), , Sunil, (`), , 43,600, 4,500, 2,400, , 35,000, 4,500, 2,400, , 32000, 4,500, 2,400, , 1,500, 52,000, , 1,500, 43,400, , 1,500, 40,400, , Suresh, ( `), , Balance Sheet as on 1st April 2019, Particular, Creditors, Bills Payable, Suresh’s Loan A/c, Capital Account :, Anil, Sunil, , Amt `, 20,300, 10,600, 25,400, 52,000, 43,400, , Assets, Bank, Debtors, Computer, Land & Building, Machinery, Goodwill, , 1,51,700, 7., , Amt `, 15,200, 18,000, 15,600, 77,000, 9,400, 16,500, 1,51,700, , Given below is the balance Sheet of Jaya, Maya and Mamta, who were sharing Profit and losses as 3:3:2, Balance Sheet as on 31st March 2019, Particular, , Creditors, Bills payable, Capital Account :, Jaya, Maya, Mamta, General Reserve, , Amt `, 34,400, 9,200, 48,000, 52,000, 36,000, 16,000, , Assets, Bank, Plant and Machinery, Debtors, Live Stock, Equipments, Investment, , 1,95,600, , Amt `, 21,600, 34,800, 50,000, 25,200, 16,000, 48,000, , 1,95,600, , On 1st April 2019 Mamta retired from the firm on the following terms., 1. Assets to be revalued as under, Live Stock ` 24,000; Plant and Machinery ` 32,000, Equipments ` 16,800, 2. An item of ` 400 from Creditors is no longer a liability and hence should be properly adjusted., 3. Mr. Ram, our customer may or may not be able to pay his debts of ` 2000, 4. The amount due to Mamta be transferred to her Loan Account., Pass necessary Journal Entries in the books of the firm., , 180
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Journal entries in the books of Partnership firm, Date, 2019, April 1, , Particulars, General Reserve A/c........................................... Dr., To Jaya’s Capital A/c, To Maya’s Capital A/c, To Mamta’s Capital A/c, (Being General Reserve distributed among partners), Revaluation A/c.................................................. Dr., To Live Stock A/c, To Plant and Machinery A/c, To R.D.D. A/c, (Being assets depreciated and R.D.D. Provided on, Debtors), Equipment A/c................................................... Dr., Creditors A/c, To Revaluation A/c, (Being Equipments appreciated in value and creditors decreased in value), , LF, , Jaya’s Capital A/c................................................ Dr., Maya’s Capital A/c............................................. Dr., Mamta’s capital A/c............................................ Dr., To Revaluation A/c, (Being loss on revaluation distributed and transferred to capital accounts), Mamta’s Capital A/c.......................................... Dr., To Mamta’s Loan A/c, (Being balance amount due to mamta transferred to, her loan A/c), , Debit `, 16,000, , 6,000, 1,200, 2,800, 2,000, , 800, 400, 1,200, , 1,800, 1,800, 1,200, 4,800, , 38,800, , Working Note : 1), Calculation of profit on Revaluation of Assets and Liabilities, Dr., Revaluation Account, Particular, To Live Stock A/c, To Plant and Machinery, To R.D.D. A/c, , Amt `, 1,200, 2,800, 2,000, , Particular, By Equipments A/c, By Creditors A/c, By Partners Capital Accounts (loss), Jaya , 1,800, Maya , 1,800, Mamta , 1,200, , 6,000, , Credit `, 6,000, 6,000, 4,000, , 38,800, , Cr., Amt `, 8,00, 400, , 4,800, 6,000, , 181
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Dr., , Partner’s Capital Account, Particular, , Cr., , Anil Sunil Suresh, Particulars, (`), (`), (`), 1,800 1,800 1,200 By Balance c/d, 38,800 By General Reserve, , To Revaluation A/c, (Loss), To Suresh Loan A/c, To Balance c/d, 52,200 56,200, , 54,000 58,000 40,000, By Balance b/d, , Anil, Sunil Suresh, (`), (`), (`), 48,000 52,000 36,000, 6,000 6,000 4,000, , 54,000 58,000 40,000, 52,200 56,200, , HHHHHHHHHHHHH EXERCISE - 4 HHHHHHHHHHHHH, (A) Select the most appropriate alternatives from those given below and rewrite the sentence., 1. The Profit or Loss from revaluation on retirement of partner is shared by ................., a) The remaining partners , b) All the partners, c) Only retiring partner , d) Bank, 2., , Decrease in the value of assets should be ................. to Profit and Loss Adjustment, Account., a) Debited , b) Credited , c) Added, d) Equal, , 3., , The balance of the capital account of retired partner is transferred to his ................. account, if it is not paid., a) Loan , b) Personal , c) Current, d) Son’s, , 4., , Gain ratio................., Ratio less Old Ratio Gain Ratio.............Ratioo less Old Ratio., a) New , b) Equal , c) Capital, d) Sacrifice, , 5., , New Ratio = Old Ratio + ................. Ratio, a) Gain , b) Capital , c) Sacrifice, , d) Current, , 6., , Apte, Bhate and Chitale are sharing 1/2, 3/10, and 1/5 if Apte retire their new ratio will be, ................., a) 5:2 , b) 3:2 , c) 5:3 , d) 2:5, (B) Write the word, term, phrase, which can substitute each of the following statement., 1, Credit balance of Profit and Loss Adjustment Account., 2, The Ratio in which the continuing partners are benefited due to Retirement of Partner., 3, Debit balance of Revaluation Account, 4, The ratio which is obtained by deducting Old Ratio from New Ratio., 5, Money value of business reputation earned by the firm over a number of years., 6, Partner’s Account where Loss or Profit on revaluation is transferred., , 182
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(C) State whether the following statement are true or false with reasons., 1. Gain ratio means New ratio minus old ratio., 2. Retiring partners share in Profit up to the date of his retirement will be debited to Profit, and Loss Suspense Account, 3. On retirement of a partner sacrifice ratio is considered., 4. Retiring Partner is called an outgoing partner, 5. On retirement of a partner, remaining partner will share the goodwill in their profit sharing, ratio, 6. Retiring partner is not entitled to share in General Reserve and Accumulated Profit., (D) Fill in the blanks and rewrite the following sentence :, 1. New Ratio (less) ................. = Gain ratio, 2. Retiring Partner’s share of goodwill is ................. to remaining partner’s capital account ., 3. Revaluation A/c is also known as ................. account, 4. On retirement, the balance at a current Account of a partner is transferred to his ................., account., 5. A proportion in which the continuing partners get the share of retiring partner is known as, .................ratio., (E), , Answer the following., 1, What is meent by Retirement of a Partner?, 2, What is Benefit Ratio?, 3, What is New Ratio?, 4, How is the amount due to the retiring partner settled?, 5, How is Gain Ratio calculated?, 6, Why is retiring partner’s capital account credited with goodwill?, , Practical Problems, 1., , The Balance Sheet of Mr. Mama, Kaka and Mr. Baba who shared profit and losses as 4:3:3, respectively., Balance Sheet as on 31 st March 2018, , Liabilities, Suppliers, Loan, General Reserve, Capital Account:, Mama, Kaka, Baba, , Amt `, , Amt `, 7,000, 5,000, 6,250, 20,000, 15,000, 12,250, , Assets, Cash, Sundry Debtors, Less : R:D:D, Live Stock, Motor Car, Furniture, Plant, , 65,500, , Amt `, 5,000, 500, , Amt `, 4,500, 4,500, 12,500, 4,000, 17,500, 22,500, 65,500, , 183
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Kaka retires on 1st April 2018 on the following terms., 1. The share of Kaka in Goodwill of the firm is valued at ` 2,700, 2. Furniture to be depreciated by 10% and Motor Car by 12.5%, 3. Live Stock to be appreciated by 10% and Plant by 20%, 4. A provision of ` 2,000 to be made for a claim of compensation., 5. R.D.D. is no longer necessary., 6. The amount payable to Kaka should be transfereed to his Loan A/c, Ans. : 1. Profit and loss Adj. A/c profit ` 2,000, Balance Sheet Total ` 72200, kaka’s loan, A/c ` 20,175., 2., , The Balance Sheet of Ram, Shyam and Ghanshyam sharing profits and losses 3:2:1, respectively. Their position on 31-3-2019 were n follows., Balance Sheet as on 31st March 2019, Liabilities, , Capitals :, Ram, Shyam, Ghanshyam, Creditors, Bills payable, Loan, , Assets, , Amt `, 1,20,000, 90,000, 60,000, 22,000, 12,000, 50,000, , Bank, Debtors, Building, Investment, , 65,500, , Amt `, 54,000, 90,000, 60,000, 1,50,000, , 3,54,000, , Ghanshyam retired on 1st April 2019 on the following terms., 1. Building and Investment to be appreciated by 5% and 10% respectively., 2. Provision for Doubtful Debts to be created at 5% on Debtors., 3. The provision of ` 3,000 be made in respect of Outstanding Salary., 4. Goodwill of the firm is valued at ` 90,000 and partners decide that goodwill should be written, back., 5. The amount payable to the Retiring partner be transferred to his Loan A/c., Prepare : Profit and Loss Adjustment A/c , Partners Capital A/c, Balance Sheet of New, firm., Ans. : Profit and Loss Adjustment A/c. Profit = ` 10,500, Balance Sheet Total = ` 3,67,500,, Ghanshyam’s Loan A/c = ` 76,750, 3, , The Balance Sheet of the Anu, Renu and Dinu is as follows, the partners are sharing profits, and losses in the proportion of 2:2:1 respectively., , 184
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Balance Sheet as on 31st March 2019, Liabilities, Creditors, Bills Payable, General Reserve, Capital Account:, Anu, Renu, Dinu, , Amt `, , Assets, Amt `, 8,000 Bank, 2,000 Debtors, 5,000 Less : R.D.D, Furniture, 40,000 Machinery, 30,000 Free hold Property, 15,000 Goodwill, 1,00,000, , Amt `, 20,000, 1,000, , Amt `, 5,000, 19,000, 15,000, 4,000, 27,000, 30,000, 1,00,000, , Dinu retires from the firms on 1st April 2019 on the following terms., 1. The assets are to be revalued as freehold property ` 30,000, Machinery ` 5000, Furniture `, 12000, All debtors are good., 2., , Goodwill of the firm be valued at thrice the average profit for preceding five years. Profits of, the firm for the year., 2014-15, ` 1,000, 2015-16, ` 10,500, 2016-17, ` 10,000, 2017-18, ` 16,000, 2018-19, ` 10,000, , 3., , Dinu should be paid ` 3,000 by cheque, , 4., , The Balance of Dinu’s capital A/c should be kept in the business as loan., Prepare: Profit and loss adjustment A/c, Capital Accounts of partners , Balance Sheet of the, new firm., (Ans. Profit and Loss adjustment A/c Profit ` 8,600, Balance sheet total `1,05,600, Bank, Balance ` 2000, Dinu’s Loan A/c ` 14720), , 4., , Rohan, Rohit and Sachin are partners in a firm sharing profit and losses in the proportion, 3:1:1 respectively. Their balance sheet as on 31st March 2018 is as shown below., Balance Sheet as on 31 st March 2018, Liabilities, , Creditors, General Reserve, Bills payable, Capital Accounts :, Rohan, Rohit, Sachin, , Amt `, 40,000, 50,000, 25,000, 1,25,000, 1,00,000, 50,000, 3,90,000, , Assets, Bank, Debtors, Live Stock, Building, Plant and Machinery, Motor Truck, Goodwill, , Amt `, 12,500, 60,000, 50,000, 75,000, 35,000, 1,00,000, 57,500, 3,90,000, , On 1st April, 2018 Sachin retired and the following adjustments have been agreed upon., 1. Goodwill was revalued at ` 50,000, 2. Assets and Liabilities were revalued as follows., Debtors ` 50,000, Live Stock, ` 45,000; Building `1,25000, Plant and Machinery ` 30,000,, Motor Truck ` 95,000 and Creditors ` 30,000, 185
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3., 4., 5., , Rohan and Rohit contributed additional capital through Net Banking of ` 50,000 and ` 25,000, respectively., Balance of Sachin’s Capital Account is transferred to his Loan Account., Give Journal entries in the books of new firm., Shah, Lodha and Dhole were partners sharing profits and losses in the ratio of 4:3:3. Their, Balance Sheet as on 31st March 2019 is a given below., Balance Sheet as on 31st March 2019, , Liabilities, Sundry Creditors, Bills payable, Capital Account:, Shah, Lodha, Dhole, , Amt `, , Assets, Amt `, 20,000 Cash, 4,000 Sundry Debtors, Less: R.D.D., 45,000 Furniture, 35,000 Computers, 27,000 Vehicles, 1,31,000, , Amt `, 10,000, 1,000, , Amt `, 9,000, 9,000, 25,000, 43,000, 45,000, 1,31,000, , On 1st April 2019, Mr. Lodha retired form the firm on the following terms., 1. Goodwill is to be valued at an average Profits and Losses of the last five years which were as, follows., Years, Profit/Loss, , 2015, ` 35,000, 2016, ` 20,000, 2017, ` 30,000, 2018, ` 20,000, 2019, ` 25,000, 2., 3., 4., 5., 6., 7., , Computers to be depreciated by 10%, Furniture to be revalued at ` 27,500, Vehicles appreciated by 20%, R.D.D. was no longer necessary, Shah and Dhole will share the future profits and losses in the ratio of 2:1, It was decided that goodwill should not appear in the books of a new firm and amount payable, to Lodha is to be transferred to his Loan A/c, Prepare : Profit and Loss adjustment A/c , Partners capital accounts, Balance sheet of new, firm,, (Ans. : Profit on Revaluation ` 8,200, Balance Sheet Total ` 1,39,200), , Activity :, 1. Visit to Partnership firm and collect the procedure of Retirement and calculate retiring partners share of goodwill., 2., , Visit any lawyers office and obtain the procedure for preparation of New Partnership Deed, after Retirement of an existing partner., , bbb, 186
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5, , Reconstitution of Partnership (Death of Partner), , Contents, 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, , Meaning, New Profit sharing ratio, Gain Ratio, Revaluation of assets and liabilities., Amount due to deceased partner’s executor., Settlement of amount due., Accounting treatment, , Competency Statement, o, , , , , , , , The students will be able to:, Learn how to calculate various ratio., Know how to calculate share of profit up to the date of death of a partner, Learn to the calculation share of goodwill of deceased partner, Know how to calculate amount due to decreased partner’s executor., Understand how to settle the account of an executor., , 5.1 Meaning :, A partner will cease to be a partner on his death and hence death is considered as compulsory, retirement. Partnership business may be continued by surviving partners if partnership firm makes, provision in Partnership Deed. Partners make arrangement to settle account of deceased partner with, his legal representative who will be entitled, at their choice, to interest at 6% per annum on amount, due, from date of death to date of payment., 5.2 New Profit Sharing Ratio, On death of partner, profit sharing ratio of remaining partner’s changes. Profit Sharing Ratio, of remaining partners’ increases because profit sharing of deceased partner gets divided and, received by remaining partners., 5.3 Gain Ratio or Benefit Ratio, Benefit or Gain Ratio is a ratio by which surviving partners are benefited due to death of a partner. The extra share which they are getting is added in their old share. Such extra share which, they are getting is called as ‘Gain’ and the ratio is called as ‘Gain Ratio’. This ratio is normally, used to write off the goodwill created or raised to the extent of retiring partner share only. It is, calculated by using following formula., Gain ratio = New Ratio - Old Ratio, 5.4 Revaluation of Assets and Liabilities, The assets and liabilities of the partnership firm are revalued on the death of a partner. The, benefit arising out of it are given to representative of deceased partner. Effects of revaluation of, 187
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assets and liabilities are shown in Revaluation Account these are same as given in retirement., The Profit or loss on revaluation is transferred to deceased partner’s capital account to the extent of his share., 5.5 Amount due to deceased Partner’s Executor / Nominee / Administrator, Capital : The capital of the deceased partner is calculated on the basis of balance of capital of, deceased partner shown in the last balance sheet, share of profit or loss on revaluation, general, reserve, accumulated profit or loss, share of goodwill, salary of partner, interest on capital,, interest on drawings, profit up to the date of death etc., 5.6 Settlement of Amount Due, The amount due to deceased partner is transferred to his Executor / Nominee / Administrator’s, loan Account and it is paid to them after completing all legal formalities and procedure., 5.7 Accounting Treatment, The Accounting Treatment for preparing the account of deceased partner is similar to that of, retirement of a partner., , Illustrations, 1., , Rekha, Menaka, Mukta were partners in a business sharing profits and losses in the ratio, of 2:1:1 respectively. Their Balance sheet as on 31st March 2019, Balance Sheet as on 31-03-2019, , Liability, Capital Accounts :, Rekha, Menaka, Mukta, Creditors, Bills payable, General Reserve, , Amt (`), 60,000, 70,000, 34,000, 18,000, 2,000, 16,000, , Assets, Plant & Machinery, Debtors, Furniture, Bank, , 2,00,000, , Amt (`), 60,000, 50,000, 30,000, 60,000, , 2,00,000, , Mukta died on 1st July 2019, 1. Plant & Machinery was to be revalued to ` 70,000 and R.D.D. is to be created of ` 2,000, 2. The drawings of Mukta up to the date of her death amounted to ` 10,000, 3. Charge interest on drawings ` 1,000, 4. Her share of goodwill should be calculated at three year purchase of the profits for the last four, years which were 1 year ` 1,50,000, II year `1,30,000, III year ` 70,000, IV ` 50,000, 5. The deceased partners share of profit upto the date of death to be calculated on the basis of, average profit of last two years. (III & IV year), Prepare : Profit and Loss Adjustment Account, Partners Capital Accounts, Balance sheet, of the continuing firm, Give working Note of Profit of Goodwill., 188
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Solution :, Dr , Particulars, To R.D.D.A/c, To Profit (transfer to, Partners Capital A/c), Rekha, Menka, Mukta, , In the Books of Partnership firm, Profit and Loss Adjustment Account , Particulars, By Plant & Machinery A/c, , Amt (`), 2,000, , 4000, 2000, 2000, , Cr., Amt (`), 10,000, , 8,000, , 10,000, Dr., , 10,000, , Partner’s Capital Account, Particular, , Rekha Menaka Mukta, (`), (`), (`), , Particulars, , Cr., Rekha Menaka Mukta, (`), (`), (`), , To Drawing, 10,000 By Balance b/d, 60,000 70,000, To Interest on, 1,000 By General Reserve, 8,000 4,000, Drawing, By Profit and loss, To Mukta’s Executors, 1,07,750 Adjustment A/c (Profit) 4,000 2,000, Loan A/c, By Goodwill A/c, To Balance c/d, 72,000 76,000, By Profit and Loss, Suspense A/c, 72,000 76,000 1,18,750, , 34,000, 4,000, 2,000, 75,000, 3,750, , 72,000 76,000 1,18,750, , Balance Sheet as on 1st July 2019, Liabilities, Amt `, Creditors, Bills payable, Capital Accounts :, Rekha, Menka, Mukta’s Representive’s, Loan A/c, , Assets, Amt `, 18,000 Plant & Machinery, 2,000 Add: Appreciation, Debtors, 72,000 Less: R.D.D., 76,000 Furniture, 1,07,750 Bank, Profit and Loss Suspense A/c, (3750- 1000 Int), Goodwill, 2,75,750, , 189, , Amt `, 60,000, 10,000, 50,000, 2,000, , Amt `, 70,000, 48,000, 30,000, 50,000, 2,750, 75,000, 2,75,750
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Working Notes:, 1. Calculation of Share of Profit, Profit of current year = Average of the profit of last 2 year, , 70,000 +50,000 1,20,000, =, =, = ` 60,000, 2, 2, Profit for proportionate period from 1st April 2019, to 1st July 2019 = 60,000 ×, , 3 = ` 15,000, 12, , Mukta’s share in proportionate profit = 15,000 × 1 = ` 3,750, 4, 2., , Valuation of Goodwill, Total profit of 4 year = 15,000 + 1,30,000 + 70,000 + 50,000, Average Profit =, , 4,00,000, = ` 1,00,000, 4, , Goodwill = Average Profit × No. of Year Purchases, , 1,00,000 ×, 3, Mukta’s share in Goodwill = 3,00,000 × 1 = ` 75,000, 4, , 2., , Rakesh, Mahesh and Mukesh were partners sharing Profits and Losses in the ratio 3:2:1, respectively. Their Balance Sheet as on 31st March 2019 is as under., Balance Sheet as on 31st March 2019, , Liability, Capital A/c :, Rakesh, Mahesh, Mukesh, Creditors, Bank Loan, Bills Payable, , Amt (`), 30,000, 20,000, 10,000, 8,000, 20,000, 18,000, 1,06,000, , Assets, Plant & Machinery, Motor Truck, Debtors , Less: R.D.D., Investment, Bank, , Amt (`), 40,000, 20,000, 16,000, 2,000, , 14,000, 18,000, 14,000, 1,06,000, , Mukesh died on 30th June 2019 and the following adjustment were made, 1. Assets were revalued as : Plant & Machinery ` 44,000, Motor Truck ` 18,000, Investment, ` 17,000., 2. All Debtors were good., 3. Goodwill of the firm valued at two times the average profits of the last five years. No Goodwill, account to be shown in the books of the firm., 190
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4, 5., 1., , Mukesh’s share of profit up to his death to be calculated on the basis of average profits of last, two years., Five years Profits were I year ` 6,000, II year ` 11,000, III year ` 7,000, IV year ` 12,000,, V year ` 24,000 respectively., Prepare : Profit and loss Adjustment Account , Partners Capital Accounts, Balance Sheet, on 1st July 2019, , Solution:, In the Books of the Partnership Firm, Dr., , Profit and Loss Adjustment Account , , Particular, To Motor Truck, To Investment, To Partners Capital A/c (Profit), Rakesh, 1,500, Mahesh, 1,000, Mukesh, 500, , Amt (`), 2,000, 1,000, , Particulars, By Plant & Machinery, By. R.D.D A/c, , Cr, Amt (`), 4,000, 2,000, , 3,000, 6,000, , Dr., , 6,000, , Partner’s Capital Account, Particular, , Rakesh, (`), , Mahesh, (`), , To Mukesh’s, Capital A/c, , 2,400, , 1,600, , To Mukesh’s, Executors A/c, To Balance c/d, , 29,100, , 31,500, , 19,400, , 21,000, , Mukesh, (`), , Particulars, , Cr., Rakesh Mahesh Mukesh, (`), (`), (`), , By Balance b/d, By Profit and loss, Adjustment A/c, 15,250 (Profit), By Rakesh’s Capital, A/c (Goodwill), By Mahesh’s capital, A/c (Goodwill), By Profit and loss, Suspense A/c, , 30,000, , 20,000, , 10,000, , 1,500, , 1,000, , 500, , 15,250, , 31,500, , 191, , 2,400, 1,600, 750, 21,000, , 15,250
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Balance Sheet as on 1st July 2019, Liabilities, Capital Account :, Rakesh, Mahesh, Mukesh’s Executor’s, Loan A/c, Creditors, Bank Loan, Bills Payable, , Amt `, , Amt `, 29,100, 19,400, 15,250, 8,000, 20,000, 18,000, , Assets, Plant & Machinery, Add : Appreciation, Motor Truck, Less : Depreciation, Debtors, Investment, Less : Reduction, Bank, Profit & Loss Suspense A/c, , Amt `, 40,000, 4,000, 20,000, 2,000, 18,000, 1,000, , 1,09,750, , Amt `, 44,000, 18,000, 16,000, 17,000, 14,000, 750, 1,09,750, , Working Note:, 1. Valuation of Goodwill, , Total Profits = 6,000 + 12,000 + 7,000 + 11,000 + 24,000, , = ` 60,000, 60,000, = ` 12,000, 5, , , , Average Profit =, , , , Goodwill = 12,000 × 2 = ` 24,000, , , , , , 1, Mukesh’s Share in Goodwill = 24,000 × 6 = ` 4,000, Goodwill is divided and debited to Rakesh and Mahesh’s Capital A/c in the ratio of 3:2, 3, Rakesh = 4000 × 5 = ` 2,400, , 2, Mahesh = 4000 × 5 = ` 1,600, 2., , Calculation of Mukesh’s share in profit from 1st April 2019 to 1st July 2019, , Total Profit of current year = Average profit of last 2 years profit, , 12,000 + 24,000 36,000, , =, =, = `18,000, 2, 2, Proportional Profit = 18,000 × 3 = ` 4,500, 12, Mukesh’s share in profit = 4,500 ×, , 1, = ` 750, 6, , 192
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3, , Anita, Sunita and Kavita were partners in a business sharing Profits and Losses in the, ratio of 2:2:1 respectively. Their Balance Sheet as on 31st March 2019 is as under., Balance Sheet as on 31st March, 2019, Liability, , Amt (`), , Capital A/c :, Anita, Sunita, Kavita, Creditors, Bills Payable, Bank Loan, , Assets, , Amt (`), 40,000, 40,000, 20,000, 30,000, 2,000, 8,000, 1,40,000, , Plant & Building, Investment, Furniture, Debtors, Less: R.D.D., Bank, Goodwill, , Amt (`), , 20,800, 800, , Amt (`), 55,800, 30,000, 16,000, 20,000, 8,200, 10,000, 1,40,000, , On 1st July 2019 Kavita died and the following adjustment were made:, 1., All the Debtors were considered as good., 2. A contingent liability for a compensation of ` 900 was provided., 3. Investment were sold out in the market at 10% profit., 4. Loan were paid off., 5. Land and Building were depreciated by ` 800 and Furniture by ` 1100., 6. Goodwill of the firm was valued at ` 15000. It was to be raised in the Books., 7. Kavita was entitled to get her share in the profit upto the date of her death. Profit for 2019-20, was estimated at `10,000., 8. The amount due to Kavita’s executors was paid by NEFT., Prepare : Revaluation Account, Partners Capital Account, Balance sheet of new firm., Solution:, In the Books of the Firm, Dr. Revaluation Account , Particular, , Amt (`), , Particulars, , To Contingent Liability, , 900, , By R.D.D A/c, , To Land and Building, , 800, , By Investments, , To Furniture, , Cr., Amt (`), 800, 3,000, , 1,100, , To Partners Capital A/c (Profit), Anita, , 400, , Sunita, , 400, , Kavita, , 200, , 1,000, 3,800, , 193, , 3,800
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Solution:, Dr., , Partner’s Capital Account, , Particular, , To Kavita’s, Executor’s, Loan A/c, To Balance c/d, , Anita, (`), , Sunita, (`), , 42,400 42,400, , 42,400 42,400, , Kavita, (`), , Cr., , Particulars, , Anita, (`), , Sunita, (`), , Kavita, (`), , By Balance b/d, 21,700 By Revaluation A/c, (Profit), By Goodwill A/c, By Profit and Loss, Suspense A/c, , 40,000, 400, , 40,000, 400, , 20,000, 200, , 2,000, , 2,000, , 1,000, , 21,700, , 42,400, , 42,400, , 500, 21,700, , Balance Sheet as on 1st July 2019, Liabilities, Capital Account :, Anita, Sunita, Creditors, Bills Payable, Contingent Liability, , Amt `, , Amt `, 42,400, 42,400, 30,000, 2,000, 900, , Assets, Land & Building, Debtors, Furniture, Bank, Goodwill, Profit and Loss Suspense A/c, , 1,17,700, , Amt `, , Amt `, 55,000, 20,800, 14,900, 11,500, 15,000, 500, 1,17,700, , Working Note :, 1. Calculation of Kavita’s share in the profit till the date of her death. Kavita died on 1st July, 2019. Profit for 2019-20 is estimated at ` 10,000, 1, 3, × = ` 500, Kavita’s share in it for 3 months is `10,000 ×, 5, 12, 2., , Kavita’s Executors loan account was fully paid, hence it is not transferred to liability side., , 4, , Rohit, Sachin and Virat were sharing profits and losses in the ratio of 7 : 5 : 4 respectively., Their Balance sheet as on 31st March 2017 was as follows., , Dr. , Liabilities, Capital Accounts:, Rohit, Sachin, Virat, Bills Payable, Creditors, Bank Loan, General Reserve, , Balance Sheet as on 31st March 2017, Assets, , Amt `, 23,000, 15,000, 12,000, 2,000, 8,000, 12,000, 16,000, , Stock, Furniture, Land & Building, Bank, , 88,000, , Cr., Amt `, 17,000, 18,000, 16,000, 37,000, , 88,000, 194
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Mr. Virat died on 30 th June 2017 and the following adjustments were agreed as per deed., 1. Stock, Furniture and Land and Building are to be revalued at ` 16, 700, ` 16,200, ` 30,100, respectively., 2, Virat’s share in goodwill is to be valued from firm’s goodwill which was valued at three times of, the average profit of last four years Profit of the last four years : I ` 30,000, II ` 25,000, III ` 25,000,, IV ` 40,000, 3. His Profit up to the death is to be calculated on the basis of profit of last year., 4. Virat was entitled to get a Salary of `1200 per month., 5. Interest on capital at 10% paid to be allowed, 6., Virat’s drawing up to the date of death was ` 900 per month., Prepare : Virat’s Capital Account showing amount payable to his executor., Give working notes for share of Goodwill and Profit., Solution :, In the Books of the Firm, Dr. , Virat’s Capital Account, Particulars, To Drawing A/c, To Executors Loan A/c, , Amt `, 2,700, 45,200, , Particulars, By Balance b/d, By General Reserve, By Profit & Loss Adjustment A/c, By Goodwill A/c, By Profit & Loss Suspense A/c, By Salary A/c, By Interest on Capital A/c, , 47,900, , Goodwill of Firm = Average Profit × No. of Year Purchases, = 30,000 × 3 times, = ` 90,000, , Share of Goodwill to Virat = Goodwill of the firm × Virat’s share, 4, = ` 22,500, , = 90,000 ×, 16, , , c., , 2. Calculation of share of profit due to Virat, , Share of profit = Last year profit × share of profit × period, , , Amt `, 12,000, 4,000, 3,000, 22,500, 2,500, 3,600, 300, 47,900, , Working Note :, 1. Calculation of share of Goodwill, , Total Profit, 1,20,000, a. Average Profit =, =, = ` 30,000, No. of Years, 4, b., , Cr., , 3, = 40,000 × 1 ×, = ` 2,500, 4 12, , 195
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5, , Sonu, Maneka and Karina were partners sharing profits and losses in the ratio 2:2:1 respectively. Their balance Sheet as on 31st March 2018 was as follows., Balance Sheet as on 31st March 2018, , Liabilities, Capital Account :, Sonu, Maneka, Karina, Genral Reserve, Creditors, Bill Payable, Bank loan, , Amt `, 40,000, 40,000, 20,000, 10,000, 10,000, 6,000, 4,000, , Assets, Plant & Machinery, Stock of Goods, Debtors, Less: R. D. D., Investment, Cash, , Amt `, 50,000, 50,000, 22,000, 2,500, , 1,30,000, , 19,500, 10,000, 500, , 1,30,000, , Adjustment :, Karina died on 1st Oct 2018 and the adjustment were agreed as per the deed as follows., 1. Plant & Machinery to be valued at ` 60,000 and all Debtors were good., 2. Stock of Goods to be reduced by ` 3, 000, 3. The drawings of Karina up to the date of her death amounted to ` 400 per month., 4. Interest on capital was to be allowed at 10% p.a., 5, The deceased partners share of Goodwill is to be valued at 2 years purchased of average profit, for last 3 years. The profits were, 2015-16 , ` 15,000 2016-17, ` 17,000, 2017-18 , ` 13,000, 6. The deceased partners share of profit up to the date of her death should be based on average, profit of last two years., Prepare : Profit & Loss Adjustment A/c , Karina’s capital A/c showing the balance payable, to her executors loan account. Working Note for share of Goodwill and Profit up to the, date of death., Solution :, Dr. , Profit and Loss Adjustment A/c, Cr., Particulars, To Stock, To Partners Capital A/c, (Profit), Sonu, Maneka, Karina, , Amt `, 3,000, , 3,800, 3,800, 1,900, , Particulars, By Plant & Machinery A/c, By. R.D.D. A/c, , Amt `, 10,000, 2,500, , 9,500, 12,500, , 12,500, 196
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Dr. , , Karina Capital Account, , Cr., , Particulars, , Amt `, , Particulars, , To Drawings, To Karina’s Executors Loan A/c, , 2,400, 30,000, , By Balance b/d, By General Reserve, By P & L Adjustment A/c (Profit), By Interest on Capital A/c, By Goodwill A/c, By Profit and Loss Suspense A/c, , Amt `, , 32,400, C), , 20,000, 2,000, 1,900, 1,000, 6,000, 1,500, 32,400, , Calculation of Goodwill, , Total Profit, 45,000, 1) a. Average Profit = No. of Years =, = ` 15,000, 3, b. Goodwill of the Firm = Average Profit × No. of Year Purchases, =, ` 15,000 × 2, =, ` 30,000, Share of Goodwill to Karina = Goodwill of the firm × Her share, 1, , = ` 30,000 × = ` 6,000, 5, , , , c., , 2, , Calculation of share of the Profit of Karina, Total Profits, a. Average Profit =, No. of Years, , 17,000 + 13,000, , =, 2, 30,000, =, 2, =, `15,000, b. Share of Profit to Karina = Average Profit × Profit Sharing Ratio × Period, 1, = 15,000 ×, × 6 = ` 1,500, 5 12, 6, Ajay, Sanjay and Vijay were partners sharing profits and losses in the proportion to their, capital. Their Balance Sheet as on 31st March 2019 was as follows., Balance Sheet as on 31st March 2019, Liabilities, Capital Account :, Ajay, Sanjay, Vijay, Creditors, Outstanding Salary, Reserve Fund, , Amt `, 60,000, 40,000, 20,000, 50,000, 6,000, 36,000, 2,12,000, , Assets, Land & Building, Motor Lorry, Debtors , Less: R. D. D., Furniture, Bank, , Amt `, 80,000, 40,000, 32,000, 4,000, , 28,000, 36,000, 28,000, 2,12,000, , 197
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Vijay died on 1 st August 2019 and the following adjustments were made., 1. Assets to be revalued as under Land & Building ` 88,000, Motor Lorry ` 36,000 and Furniture, ` 34,000, 2. All Debtors were good., 3. Goodwill of the firm valued at two times the average profit of the last 4 years profit., 4. Vijay’s share of profit to be calculated on the basis of average profit of last three years., 5. Profit for 4 years were 1st year ` 12,000, 2nd year ` 24,000, 3rd year ` 14,000, 4th year ` 22,000, Prepare : 1. Vijay’s Capital Account, showing amount payable to his executor., , 2. Give working of Vijay’s share of Goodwill and profit upto the date of his death., Solution :, Dr. , Vijay’s Capital Account, Cr., Particular, To Vijay’s Executors Loan A/c, , Amt `, 34,111, , Particular, By Balance b/d, By Reserve Fund A/c, By Profit and Loss Adjustment A/c, By Goodwill A/c, By Profit and Loss Suspense A/c, , 34,111, , 34,111, , Working Note :, Calculation of Vijay’s share of Goodwill, Total Profit, 72,000, 1) a. Average Profit =, = , = ` 18,000, No. of Years, 4, b., , Goodwill of the Firm = Average Profit × No. of Year Purchases, = 18,000 ×, 2, = ` 36,000, , Vijay’s Share of Goodwill = Goodwill of the firm × Vijay’s share, 1, , = 36,000 × = ` 6,000, 6, , , , 3., , c., , Calculation of share of profit due to Vijay, , a. Average Profit =, b., , Amt `, 20,000, 6,000, 1,000, 6,000, 1,111, , Total Profit, 60,000, =, = ` 20,000, No. of Years, 3, , Vijay’s share of profit = Average Profit × Period × Vijay’s share of Profit., = 20,000 × 4 × 1, 12, 6, =, ` 1111, , 198
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7, , Prem, Verma, Sharma were partners sharing profits and losses in the ratio 2:1:1, Their Balance sheet as on 31st March 2019 is as follows., Balance Sheet as on 31st March 2019, Liabilities, , Creditors, Bank Loan, Bill Payable, General Reserve, Capital Account :, Prem, Verma, Sharma, , Amt `, 20,000, 90,000, 10,000, 64,000, , Assets, Premises, Debtors, Furniture, Stock, Cash, , 2,40,000, 2,00,000, 1,76,000, 8,00,000, , 1., 2., , 3., 4., 5., 6., , Amt `, 2,40,000, 2,00,000, 60,000, 1,00,000, 2,00,000, , 8,00,000, , Prem died on 30th June 2019 and the following adjustments were made on the average profit of, the last two years., Prem’s share in the Goodwill of the firm be given him. Goodwill will be valued at three times, of the average profits of the last four years. The profits were., 2015-16 , ` 1,60,000 2016-17, ` 1,20,000, 2017-18 , ` 80,000 2018-19, ` 40,000, Premises be valued at ` 2,80,000 and R.D.D. of ` 8,000 be created on debtors., Drawing of Prem up to the date of his death were ` 15000 per month., Interest on capital is allowed at 10% p.a. and to be charged on drawing at ` 4000, The amount due to Prem be transferred to his executors loan account., Prepare : Prem’s Capital Account, Give working of Prem’s share in Goodwill, and Interest, on capital, , Solution :, Dr. , Particular, To Drawings A/c, To Interest on Drawings, To Prem’s Executors loan A/c, , Prem’s Capital Account, Amt `, 45,000, 4,000, 4,02,500, , Particular, By Balance b/d, By General Reserve A/c, By Profit and Loss Adjustment A/c, By Interest on Capital A/c, By Goodwill A/c, By Profit and Loss Suspense A/c, , 4,51,500, , Cr., Amt `, 2,40,000, 32,000, 16,000, 6,000, 1,50,000, 7,500, 4,51,500, , Working Note :, Calculation of Prem’s share in the goodwill of the Firm, Total Profit 4,00,000, 1) a. Average Profit = No. of Years =, = ` 1,00,000, 4, 199
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b., , Goodwill of Firm = Average Profit × No. of Year Purchases, = 1,00,000 × 3, = ` 3,00,000, , Prem’s Share of Goodwill = Goodwill of the firm × Prem’s share, , = 3,00,000 × 2 = ` 1,50,000, 4, , , c., , 2), , Calculation of Prem’s share in the profit, Average Profit of the last two years, 80,000 + 40,000, Total Profit, =, a. Average Profit =, 2, No. of Years, 1,20,000, =, , 2, b., , 3, , Average Profit = ` 60,000, , =, ` 60,000, , , , 3 months profit is = 60,000 × 3 = ` 15,000, 12, , , , Prem’s share is 2 = 15,000 × 2 = ` 7,500, 4, 4, , Calculation of Interest on Prem’s Capital, Prem died on 30th June 2019, His capital balance is 2,40,00 for three months, 2,40,000 × 10 × 3 = ` 6,000, 100 12, , HHHHHHHHHHHHH EXERCISE - 5 HHHHHHHHHHHHH, Q.1 Objective questions :, A. Select the most appropriate answer from the alternative given below and rewrite the, sentences., 1., Benefit Ratio is the Ratio in which .............................., , a) The old partner gain on admission of a new partner, b) The Goodwill of a new partner on admission is credited to old partners, c) The continuing partners benefits on retirement or death of a partner, d) All partenrs are benefited., 2., , The ratio by which existing partners are benefited .............................. ., a) Gain Ratio, b) Sacrifice Ratio, c) Profit Ratio , d) Capital Ratio, , 3., , Profit and Loss Suspense Account is shown in the new Balance Sheet on .............................., side., a) Debit , b) Credit , c) Asset , d) Liabilities, , 4., , Death is a compulsory, a) Dissolution, b) Admission , , c) Retirement , 200, , d) Winding up
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5., , The balance on the capital account of a partners, on his death is transferred to, .............................. account., a) Relatives , b) Legal Heir’s loan / Executors loan, c) Partner’s capital , d) Partners Loan, , B., , Write a word, term, phrase, which can substitute each of the following statement., 1. Excess of credit side over debit side of profit and loss adjustment account., 2. A Person who represents the deceased partner on the death of the Partner., 3. Accumulated past profit kept in the form of reserve, 4. The Partner who died., 5. The proportion in which the continuing partners benefit due to death of partner., , C., , State whether the following statements are True or False with reasons, 1. A deceased partner is not entitled to Goodwill of the firm, 2. A deceased partner is entitled to his share of General Reserve, 3. If Goodwill is written off a deceased partner’s capital account is debited., 4. After the death of partner, entire amount due to deceased partner is paid to legal rep, representative of the deceased partner., 5. For recording the Profit or Loss upto the date of death, Profit and Loss Appropriation Account, is operated., , D., , Fill in the blanks and rewrite the following sentence., 1. Deceased partner’s executors account is shown on the .............................. side of the Balance, Sheet., 2. On death of a partner, a ratio in which the continuing partners get more share of profits in, future is called as .............................. ratio., 3. Deceased partners share of profit up to the death is shown on ..............................side of, Balance Sheet., 4. Benefit ratio = New Ratio .............................., 5. When Goodwill is raised at its full value and it is written off .............................. account is, to be credited., , E., , Answer in one sentence only., 1. What is gain ratio?, 2. In which ratio General Reserve is distributed on death of a partner?, 3. To whom you distribute General Reserve on death of a partner?, 4. How death of a partner is a compulsory retirement?, 5. To which account Profit is to be transferred upto the date of his death?, , 201
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Practical Problems, 1., , Rajesh, Rakesh and Mahesh were equal Partner on 31st March 2019. Their Balance Sheet, was as follows 31st March 2019, Balance Sheet as on 31st March 2019, , Liabilities, Capital Account :, Rajesh, Rakesh, Mahesh, Sundry creditors, Bills Payable, Bank loan, , Amt `, 5,00,000, 2,00,000, 2,00,000, 90,000, 60,000, 1,50,000, , Assets, Land and Building, Furniture, Debtors, Stock, Cash, , 12,00,000, , Amt `, 4,00,000, 3,00,000, 3,00,000, 1,00,000, 1,00,000, , 12,00,000, , Mr. Rajesh died on 30th June 2019 and the following adjustment were agreed as, 1) Furniture was to be adjusted to its market price of 3,40,000, 2) Land and Building was to be depreciated by 10%, 3) Provide R.D.D 5% on debtors, 4) The Profit upto the date of death of Mr. Rajesh is to be calculated on the basis of last years, profit which was 1,80,000, Prepare 1) Profit and Loss adjustment A/c , 2) Partners capital account, 3) Balance sheet, of the continuing firm, Ans : P & Ajdustment A/c Loss ` 15,000 Balance Sheet Total ` 12,90,000, 2., , Rahul, Rohit and Ramesh are in a business sharing profits and losses in the ratio of 3:2:1, respectively. Their balance Sheet as on 31st March 2017 was as follows., Balance Sheet as on 31st March 2017, , Liabilities, Capital Account :, Rahul, Rohit, Ramesh, creditors, Bills Payable, General Reserve, , Assets, , Amt `, 2,20,000, 2,10,000, 2,40,000, 80,000, 7,000, 96,000, 8,53,000, , Debtors , 1,00,000, Less: R. D. D., 10,000, Plant and Machinery, Investment, Motor lorry, Building, Bank, , Amt `, 90,000, 85,000, 3,50,000, 1,00,000, 80,000, 1,48,000, 8,53,000, , On 1st October 2017 Ramesh died and the Partnership deed provided that, 1, R.D.D. was maintained at 5% on Debtors, 2. Plant and Machinery and Investment were valued at ` 80,000 and ` 4,10,000 respectively., 3. Of the creditors an item of ` 6000 was no longer a liability and hence was properly adjusted., 202
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4., 5., , 6., 7., 8., , Profit for 2017-18 was estimated at `120,000 and Ramesh share in it up to the date of his death, was given to him., Goodwill of the Firm was valued at two times the average profit of the last five years. Which, were, `1,80,000 2013-14, ` 2,00,000, 2012-13 , ` 2,50,000 2015-16, ` 1,50,000, 2014-15 , ` 1,20,000, 2016-2017, Ramesh share in it was to be given to him, Salary 5,000 p.m. was payable to him, Interest on capital at 5% i.e. was payable and on Drawings ` 2000 were charged., Drawings made by Ramesh up to September 2017 were `5,000 p.m., Prepare Ramesh’s Capital A/c showing the amount payable to his executors, Give Working of Profit and Goodwill, Ramesh Capital Balance ` 3,41,000, (Ans : Profit on Adj A/c ` 66000), , 3, , Ram, Madhav and Keshav are partners sharing Profit and Losses in the ratio 5:3:2, respectively. Their Balance Sheet as on 31st March 2018 was as follows., Balance Sheet as on 31st March 2018, , Liabilities, General Reserve, Creditors, Unpaid Rent, Capital Accounts, Ram, Madhav, Keshav, , 1., 2., 3., , 4., 5., 6., , Amt `, 25,000, 1,00,000, 25,000, 1,00,000, 75,000, 50,000, 3,75,000, , Assets, Goodwill, Loose Tools, Debtor, Live Stock, Cash, , Amt `, 50,000, 50,000, 1,50,000, 1,00,000, 25,000, , 3,75,000, , Keshav died on 31st July 2018 and the following Adjustment were agreed by as per, partnership deed., Creditors have increased by 10,000, Goodwill is to be calculated at 2 years purchase of average profits of 5 year., The Profits of the preceding 5 years was, ` 90,000 2014-15, ` 1,00,000, 2013-14 , ` 60,000 , 2016-17, ` 50,000, 2015-16 , ` 50,000 (Loss), 2017-18 , Keshav share in it was to be given to him., Loose Tools and live stock were valued at `80,000 and ` 1,20,000 respectively, R.D.D. was maintained at `10,000, Commission ` 2000 p.m. was payable to Keshav Profit for 2018 -19 was estimated at ` 45000, and keshav’s share in it up to the date of his death was given to him., , 203
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Prepare Revaluation A/c , Keshav’s capital A/c showing the amount payable to his, executors., (Ans : (Revaluation profit ` 30,000, Keshva’s Executors Loan ` 92,000), 4, , Virendra, Devendra and Narendra were partners sharing Profit and Losses in the ratio of, 3:2:1. Their Balance Sheet as on 31st March 2019 was as follows., Balance Sheet as on 31st March 2019, Liabilities, , Amt `, 25,000, 20,000, 5,000, 30,000, , Bank Loan, Creditors, Bills Payable, Reserve Fund, Capital Account :, Virendra, Devendra, Narendra, , 90,000, 60,000, 30,000, 2,60,000, , Assets, Furniture, Land & Building, Motor Car, Sundry Debtors, Bills Receivable, Investments, Cash at Bank, , Amt `, 50,000, 50,000, 20,000, 50,000, 20,000, 50,000, 20,000, 2,60,000, , Mr. Virendra died on 31 August 2019 and the Partnership deed provided that. That the, event of the death of Mr. Virendra his executors be entitled to be paid out., 1. The capital to his credit at the date of death., 2. His proportion of Reserve at the date of last Balance sheet., 3. His proportion of Profits to date of death based on the average profits of the last four years., 4. His share of Goodwill should be calculated at two years purchase of the profits of the last four, years for the year ended 31st March were as follows 2016, ` 40,000 , 2017 ` 60,000 , 2018, ` 70,000 2019 ` 30,000, 5., Mr. Virendra has drawn ` 3000 p.m. to date of death, There is no increase and Decrease the, value of assets and liabilities., Prepare Mr. Virendras Executors A/c, (Ans : Executor’s Loan A/c ` 150417), 5. The Balance Sheet of Sohan, Rohan and Mohan who were sharing profits and Losses in, the ratio of 3:2:1 as follows., Balance Sheet as on 31st March 2019, Liabilities, Assets, Amt `, Amt `, Bank Overdraft, 18,000, Bank, 48,000, Creditors, 85,000, Debtors, 30,000, Bills payable, 40,000, Land and Building, 40,000, Bank Loan, 1,50,000, Machinery, 80,000, Investments, 40,000, General Reserve, 27,000, Capital Account :, Computers, 40,000, Sohan, 20,000, Stock, 90,000, Rohan, 20,000, Patents, 12,000, 20,000, Mohan, 3,80,000, 3,80,000, st, , 204
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Mr. Rohan died on 1 st October 2019 and the following adjustments were made., 1. Goodwill of the firm is valued at 30,000, 2. Land and Building and Machinery were found to be undervalued by 20%, 3. Investments are valued at ` 60,000, 4. Stock to be undervalued by ` 5000 and a provision of 10% as debtors was required., 5. Patents were value less, 6. Mr. Rohan was entitled to share in profits up to the date of death and it was decided that he may, be allowed to retain his drawings as his share of profit. Rohan’s drawings till date of death was, ` 25000, Prepare partners capital accounts., (Ans : Revaluation profit ` 30,000, Rohan’s Executors Loan ` 49,000, Soham ` 63,500,, Mohan ` 34,500.), Activity :, Collect the information of Deceased partners claim from any chartered Accounts. (CA), Visit Life Insurance Company and find out the procedure for obtaining Joint Life Policy for, Partners and also study the process of settlement of claim in case of death of a partner., , bbb, , 205
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6, , Dissolution Of Partnership Firm, , Content, 6.1, 6.2, 6.3, 6.4, 6.5, 6.6, , Introduction, Meaning and Definition of Dissolution of Partnership Firm., Circumstances / Reasons for Dissolution of Partnership Firm., Difference between Dissolution of Partnership and Dissolution of Firm., Effects of Dissolution of Partnership Firm., Accounting Treatment / Settlement of accounts on dissolution of firm., ACCOUNTING PROCEDURE, (A) Simple Dissolution., (B) Dissolution Under Insolvency Situation., , Competency Statements, o, , , , , , , The Students are able to :, Understand the meaning and Reasons of dissolution of partnership firm., Know the effects of dissolution of Partnership firm., Learn various accounting treatment for settlement of accounts., Learn accounting procedure under simple dissolution and insolvency of partner., , 6.1 Introduction :, Dissolution means to windup or to close down. When business relations among the partners in, a Partnership Firm comes to an end, it is known as Dissolution of Partnership. When one or more, partner/partners take decision to close the Partnership Firm, it is known as Dissolution of Partnership, firm. When all partners decide to discontinue from partnership firm, it results in to dissolution of, partnership. The relationship between partners is referred to as Partnership. While all the partners, collectively are called firm. Dissolution of a firm is different from dissolution of partnership., In short, dissolution of partnership may not include dissolution of the firm, but dissolution of the, firm means dissolution of the Partnership., Meaning and Definition :, Meaning - In Legal terms dissolution has multiple meaning. A word “DISSOLUTION” comes from, the Latin word “DISSOLUTION”, means “A dissolving of something”. Dissolution is the last stage, of closure of business., Definition :, 1. Indian Partnership Act 1932, Sec. 39, provides that, “The dissolution of the partnership, between all the partners of a firm is called the dissolution of a firm.” It implies the complete, breakdown of the relation of Partnership between all the partners., 2. “The act or process of ending an official organization or legal agreement.”, 3. “The dissolution of partnership firm indicates the discontinuance function as a firm”., 206
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6.2 Reasons For Dissolution of Partnership Firm :, 1. By Voluntary act of partners themselves., 2. When the period (Duration) of partnership firm is expired., 3. Partnership can be dissolved after the completion of specific Venture for which it was, formed., 4. Insolvency of all partners or all partners except one results in to dissolution., 5. Illegal or unlawful business activity results into dissolution., 6. Partnership at will can be dissolved by giving notice of 14 days., In addition to the above circumstances. Honorable Court can order to dissolve the partnership, on legal grounds. For example - Guilt of misconduct : Partner becomes of unsound mind, breach of, agreement etc., 6.3 Difference Between Dissolution of Partnership and Dissolution of firm., Basic of Comparison, Meaning, Nature, , Dissolution of Partnership, It may or may not involve dissolution, of firm., The nature of Dissolution of Partnership is Voluntary, , Continuation of Business The business continues However the, partnership is reconstituted, Requirements, It requires revaluation of assets and, liabilities for reconstitution of firm., Final closure of Books, Court Order, , It does not require final closure of, the books of accounts., A court order cannot dissolves a, Partnership., , Dissolution of Firm., It implies dissolution of, Partnership, The nature of Dissolution, of firm’s voluntary or, compulsory., The Business discontinues, completely., It requires realization of, assets and liabilities for, closure of the firm., It necessitates final closure, of the books of accounts., A court order can dissolve a, firm., , 6.4 Accounting Treatment / Settlement of accounts on dissolution of firm :, When firm is dissolved all assets are realised and the proceeds from it, are to be paid for the, liabilities of the partnership firm. According to Indian Partnership Act 1932 Sec. 48 the liabilities are, paid as per the order given below., (a) Realisation (Dissolution) expenses to be paid first., (b) Outside liabilities (Third party liabilities) to be paid e. g. Sundry Creditors, Bills payable,, Bank overdraft, Loan from others, Outstanding expenses etc., (c) After paying all outside liabilities, if there is any surplus cash available, to be paid for, loans given by the partners to the firm. If all the partners’ loan are not fully repaid due to, insufficient funds, they are entitled to share proportionately., (d) If still surplus cash remains that should be distributed to the partners’ capital in profit, sharing ratio., 6.5 Accounting Procedure, The dissolution of partnership firm is to be studied under the following two heads., (A) SIMPLE DISSOLUTION., (B) DISSOLUTION UNDER INSOLVENCY SITUATION., 207
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6.5 (A) SIMPLE DISSOLUTION., When all partners of partnership firm are solvent and they decided to dissolve their firm due, to any reason it is called as Simple Dissolution of Partnership Firm. Under simple dissolution of a, partnership firm following accounts are opened in the books of a firm., 1) Realisation Account., 2) Partners Capital Account., 3) Partners Currents Account. (If capital method is fixed.), 4) Partners Loan Account (If necessary)., 5) Cash or Bank Account., 1, Realisation Account : While preparing Realisation account all Sundry assets and all third, party liabilities are transferred. Realisation is the process of converting assets into cash. Assets, realised are credited and liabilities settled are debited to this account. The purpose of this, account is to show the gain (profit) or loss on realisation and is, therefore a Nominal Account., The account is closed by transferring the gain (profit) or loss on realisation to partners Capital, / Current Account in their profit sharing ratio. The debit balance of Realisation A/c is Loss and, credit balance is Profit., 2, , Partners Capital Account : Capital balance of all the partners appearing in the Balance, Sheet should be shown on credit side or debit side to the respective partners capital account as, “By Balance b/d” or “To Balance b/d”, also transfer Reserves, Accumulated Profits or losses,, Realisation Profit or loss. After making all the adjustments the balance represents the amount, due to partners or due from partner. The accounts are closed after the partners receive cash or, pay cash., , 3, , Partners Current Account : All Partners Current Account is opened, when fixed capital, method is given. Current Account shows a Debit Balance or Credit Balance. At the end closing, balances of Parters Current Account are transferred to Partners Capital Account., , 4, , Partners Loan Account : Credit Balance of Partner’s Loan Account is not transferred to, Realisation Account credit side but it is paid off through a separate account after payment of, all the amounts owed to outsiders (third party) of the firm. However debit balance of Partners, Loan should be debited to partners Capital / Current Account directly., , 5, , Cash / Bank Account : Cash / Bank Account is opened in the books of firm. Debit balance of, Cash / Bank appearing in the balance sheet asset side should be shown on cash / Bank Account, debit side as “To Balance b/d”. After incorporating all the amounts to cash or Bank, the balance, of this account must be equal to the amount due to the partners. All cash receipts in process of, dissolution is debited and all payments made by firm are credited to cash / Bank A/c., , Accounting Entries To Close The Books Of Accounts On dissolution of partnership firm, the books of accounts are to be closed permanently, and, Balance Sheet is to be prepared. If the Balance Sheet last drawn and the date of dissolution differs, on the date of dissolution one fresh Balance Sheet is to be prepared for closing books of the partnership firm. If the date of dissolution and the date of Balance Sheet remains the same, one should not, prepare a revised Balance Sheet. The procedure of simple dissolution may be divided into stages as, under., i), Transfer Stage :, Under this stage closing Balance Sheet’s all Assets. (Except cash / Bank debit balance, fictitious, assets viz formation expenses, profit and loss A/c (Debit Balance, advertising suspense etc.) and all, liabilities (except partner’s capital, partners loan and any undistributed profit etc.) are transferred to, 208
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Realisation Account at their Book value or Balance sheet value. All the Assets are transferred on the, debit side and all the Liabilities are transferred on credit side of Realisation Account., Specimen Journal Entries :, 1. For Transferring Assets to Realisation Account :, Realisation A/c. ...............Dr. (With the book value or Balance Sheet value), To Assets A/c (Individually), (Baing transfer of various assets at book value to Realisation Account.), 2., , For Transferring Liabilities to Realisation Account :, All the liabilities to third parties are closed by transfer to Realisation Account., Sundry Creditors A/c.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., At, Bills Payable A/c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., Book, Bank Overdraft A/c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., Values, Outsider’s Loan A/c (other than partner) . . . . . . . . . . . . . . . . Dr., Outstanding Expenses A/c. . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., To Realisation A/c, (Being transfer of liabilities to Realisation Account.), , 3., , For Transfer of Provision against closing Assets :, The various assets against which provision i. e. R. D. D., Provision for Depreciation, Contingency, Reserve etc exist should be transferred separately to the Realisation Account because these are, separate accounts in the Books. The entry will be., Provision for Doubtful Debts A/c. . . . . . . . . . . . . . . . . . . . . . Dr., Provision for Discount A/c . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., (At, Provision for Depreciation A/c. . . . . . . . . . . . . . . . . . . . . . . . Dr., Book, Contingency Reserve A/c . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., Value), Joint Life Policy Reserve A/c. . . . . . . . . . . . . . . . . . . . . . . . . Dr., Investment Fluctuation Fund A/c. . . . . . . . . . . . . . . . . . . . . . . Dr., To Realisation A/c, (Being transfer of various provisions to Realisation Accounts), , 4., , For Transfer of Accumulated Profit and Reserves :, Accumulated profits means undistributed e. g. General Reserve, Reserve Fund, Profit and loss, A/c (credit balance). It should be transferred to Partners Capital Account or Partners Current, Account in their profit sharing ratio. The entry is :, General Reserve A/c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., (In Profit, Reserve Fund A/c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., Sharing, Profit and Loss A/c. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dr., Ratio), To all Partners Capital / Current A/c., (Being accumulated Profit and Reserves transferred to all partners Capital / Current A/c in , their profit sharing ratio.), , 5., , For Transfer of Accumulated Loss :, Accumulated loss are the losses suffered by the partnership firm not distributed among the, partners e. g. Profit and Loss a/c debit balance such Accumulated Loss is transferred to Partners, Capital Account or Partners Current Account. The entry will be :, 209
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All Partner’s Capital / Current A/c ...............................................Dr. , To Profit and Loss A/c (Debit balance), To Advertising Suspense A/c, (Being accumulated loss transfer to all partners Capital Accounts in their Profit Sharing Ratio.), ii), , 1., , 2., , REALISATION / DISPOSAL STAGE :, Under this stage all assets including the unrecorded assets in the Balance Sheet of the firm is, sold out (Realised) or may be taken over by any partner, liabilities and realisation / Dissolution, expenses are paid or any liability taken over by any partner and partners loan is also paid., SPECIMEN JOURNAL ENTRIES :, If the Assets are sold for cash Cash / Bank A/c............................................................................Dr., To Realisation A/c., (Being assets sold for cash.), If the Assets are taken over by any partner Partner’s Capital / Current A/c......................................................Dr., To Realisation A/c., (Being assets taken over by the partner.), , (Selling Price), , (Agreed value), , NOTE : If any assets is taken over by any creditors in part or full payment of the amount due to, him, the value placed on the asset taken over is deducted from the amount due to the creditor and the, balance of the amount due will be paid to him. Entry for the asset taken over by the creditor is not, made but entry for the net payment to the creditor is made., 3. For Payment of Liabilities A) For Payment to outsiders liabilities (Third party), Realisation A/c.....................................................................Dr. (Actual payment.), To Cash / Bank A/c., (Being third party Liabilities paid.), B), , If any partner discharges any liabilities of the firm Realisation A/c......................................................................Dr., To Partners Capital / Current A/c., (Being Liability taken over by a partner.), , (Actual amount paid), , Note: If nothing is mentioned about payment of any liability by then it is paid at Book Value., 4., , For Payment of Realisation Expenses A) Realisation Expenses is borne by firm :, Realisation A/c.....................................................................Dr., To Cash / Bank A/c., (Being Realisation expenses paid by firm.), B), , Realisation Expenses is borne by any Partner :, Realisation A/c.....................................................................Dr., To Concerned Capital / Current A/c., (Being Realisation expenses paid by partner.), , 210, , (Actual expenses.), , (Actual expenses.)
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5., , If commission is given to any Partner for realising assets :, Realisation A/c..............................................................................Dr., To Partner’s Capital / Current A/c., (Being commission paid for realising the assets), , (Agreed value), , 6., , If Any Contingent Liability is paid (i.e. liability not included in Balance Sheet) :, Realisation A/c..............................................................................Dr. (Actual payment), To Cash / Bank A/c., (Being contingent Liability paid.), , 7., , For Payment of Partner’s Loan As per section 48 of the Partnership Act 1932 Partners loan shall be paid after making the, payment to third parties. It should not be transferred to realisation account, the loan due to a, partner is paid and the entry is :, Partner’s Loan A/c........................................................................Dr. (Actual payment), To Cash / Bank A/c., (Being repayment of Partner’s loan.), , iii) DISTRIBUTION STAGE :, Under this stage first realisation account is closed and the profit or loss on realisation account is, transferred to Partner’s Capital / Current Account in their agreed Profit Sharing Ratio. After making, all the adjustments related to all partners Partner’s Capital Account is closed by setting the balance., 1., , For Closing Realisation Account : Realisation Account is a Nominal Account; it is closed to, find out profit or loss made / suffered on realisation of asset and payment of outside liabilities., A), , To All Partner’s Capital / Current A/c.., , B), , To Realisation A/c.., , 2., , For Transfer of Profit on Realisation Account :, If the credit side of the Realisation Account is more than the debit side a Profit has been, made and should be transfer to all Partners Capital / Current Account. The entry is :, Realisation A/c.....................................................................Dr. (In profit sharing ratio), To All Partner’s Capital / Current A/c., (Being Profit on realisation transferred to all partners Capital / Current Account in their, profit sharing ratio), For Transfer of Loss on Realisation Account :, If the debit side of the Realisation Account is more than the credit side a Loss has been, incurred and the entry will be :, All Partner’s Capital / Current A/c.......................................Dr. (In profit sharing ratio), To Realisation A/c., (Being loss on realisation transferred to all partners Capital / Current Account in their, profit sharing ratio), , For Closing Current Accounts : Current Accounts of the partners (if any) should be closed by, transferring the balance to Capital Account of the partners. The entry is :, A) If Current Account shows Credit Balance :, Partner’s Current A/c............................................................Dr., To Partner’s Capital A/c., (Being transfer of credit balance to Partner’s Capital account), 211
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B), , If Current Account shows Debit Balance :, Partner’s Capital A/c.................................................... Dr., To Partner’s Current A/c., (Being transfer of debit balance to Partner’s Capital account), , 3., , For Closing Capital Account :, A) As the Capital Accounts of the partners shows a debit balance partner should bring, in cash to settle his account with the firm. The entry is :, , Cash / Bank A/c............................................................. Dr., To Partner’s Capital A/c., (Being amount due from the partner received), B) If cash paid to Partner to settle the Capital Account :, Partner’s Capital A/c.................................................... Dr., To Cash / Bank A/c., (Being amount due to partners paid as final settlement.), Treatment of Unrecorded (Undisclosed) Assets and Liabilities On the date of dissolution there may be some assets and liabilities which may not be appearing, in the books. Such assets and liabilities have not been recorded in the books, so question of their, transfer to Realisation Account does not arise. But entries are recorded when such assets or liabilities, are realised or paid., 1., , For any unrecorded assets Realised (sold out) Cash / Bank A/c. .................................................................. Dr. (Value realised), To Realisation A/c., (Being unrecorded assets realised.), , 2., , If unrecorded assets are taken over by any partner Partner’s Capital / Current A/c.............................................. Dr. (Agreed value), To Realisation A/c., (Being unrecorded assets taken over by partner.), , 3., , If unrecorded liabilities are paid off by any partner Realisation A/c. .................................................................... Dr. (Actual payment), To Partner’s Capital / Current A/c., (Being unrecorded liabilities paid off by partner.), If unrecorded liabilities are paid by Firm Realisation A/c. .................................................................... Dr. (Actual payment made), To Bank / Cash A/c., (Being unrecorded liabilities paid off by the firm.), , 4., , Treatment of Goodwill on Dissolution There is no need to give a special treatment to Goodwill in case dissolution. It should be treated, as any other asset. If it already appears in books, it will be transferred, like all other assets, to the, debit side of realisation account. If it does not appear, there is no question of transfer on sale the, amounts actually received will be debited to Cash / Bank Account and credited to Realisation Account., 212
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A., , If Goodwill Account Appears in the Balance Sheet :, , 1. Transfer of Goodwill to Realisation Account., Realisation A/c. ........................................................... Dr. , , To Goodwill A/c., (Being goodwill transferred.), 2. If Goodwill is realised on dissolution Cash / Bank A/c............................................................ Dr. , , To Realisation A/c., (Being goodwill realised), B., , If Goodwill Account Does Not Appears in the Balance Sheet:, When goodwill account does not appear in the Balance Sheet, there is no question of transfer, But on sale the amount is actually received, The entry will be :, , 1. Transfer of Goodwill realised on dissolution Cash / Bank A/c............................................................ Dr., To Realisation A/c., (Being goodwill realised), 2. If a Partner Purchases Goodwill Partner’s Capital / Current A/c..................................... Dr., , To Realisation A/c. , , (Being goodwill purchased by a Partner.), PROFORMA OF REALISATION ACCOUNT, Dr. , Realisation Account , Particulars, , Amount, `, , Particulars, , Cr., Amount, `, , To Sundry Assets A/c., (Transferred all assets, excluding, cash, bank, Fictitious assets,, accumulated losses, debit balance of, Partners Capital / Current A/c. Loan, to partner(s)), To Provision on Any liabilities A/c., (Reserve for discount on creditors), To Cash / Bank A/c., (Discharge Sundry liabilities), To Cash / Bank A/c., (Payment of unrecorded liabilities.), To Cash / Bank A/c., (Payment of Dissolution / Realisation Expenses.), , (Book, Value), , By Sundry Liabilities A/c., (Transferred third party liabilities,, (Book, excluding Partners Capital, Reserves, Value), Accumulated Profit, Loan from, partner(s))., (Book By Provision on Any Assets A/c., (Book, Value (Reserve for Doubtful Detts, Value, (R. D. D.), (Agreed- By Cash / Bank A/c., (ReValue) (Received amount on realisation of, alised, Value), assets.), (Agreed- By Cash / Bank A/c., (Actual, Value) (Received amount from unrecorded, Value), assets.), (Agreed- By Partners Capital / Current A/c. (AgreedValue) (Any Assets taken over by a partner, Value, recorded or unrecorded.), 213
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To Partners Capital / Current A/c. (Agreed- By Partners Capital / Current A/c., Value) (Loss on realisation transferred at, (Any liability taken over by a, Profit Sharing Ratio.), Partner.), To Partners Capital / Current A/c., xxx, (Profit on realisation transferred at, xxx, Profit Sharing Ratio.), Total, xxx, Total, , xxx, xxx, , xxx, , Illustrations, 1., , Riddhi and Siddhi are sharing profits and losses in the ratio of 2:1. The following is their, Balance Sheet as on 31st March 2019., Balance Sheet as on 31st March 2019, , Liabilities, Capital A/c :, Riddhi, Siddhi, Reserve Fund, Siddhi’s Loan A/c, Creditors, , Amount `, 80,000, 60,000, 16,000, 4,000, 30,000, , Assets, Building, Furniture, Machinery, Debtors, Less : R. D. D., Stock, Investment, Interest Receivable, Bank, , 1,90,000, , Amount `, 60,000, 24,000, 20,000, 17600, 1,600, , 16,000, 40,000, 8,000, 2,000, 20,000, 1,90,000, , The firm was dissolved on 31st March 2019., 1. Assets realised as follows :, Machinery ` 22,000, Building ` 28,000, Stock ` 38,000 and Debtors ` 15,000., 2. Riddhi took over the Investment at ` 10,000 and Furniture at Book value., 3. Siddhi agreed to accept ` 3,000 in full settlement of her Loan Account., 4. Dissolution Expenses amounted to ` 4,000., 5. Interest Receivable could not be recovered, Prepare Realisation Account, Partners’ Capital Account, Siddhi’s Loan Account and, Bank Account, , 214
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Solution, In the books of Riddhi and Siddhi, Dr. Realisation Account, Particulars, To Sundry Assets A/c, Building, Furniture, Machinery, Debtors, Stock, Investment, Interest Receivable, To Bank A/c, Creditors, Realisation Exp., , Amount Amount, `, , Particulars, , `, , By Sundry Liabilities A/c, 60,000, Creditors, 24,000, By R. D. D., 20,000, By Bank A/c., 17,600, Building, 40,000, Debtors, 8,000, Stock, 2,000 1,71,600 Machinery, By Riddhi’s Capital A/c., 30,000, Investment, 4,000, 34,000 Furniture, By Siddhi’s Loan A/c, By Partner’s Capital A/c., (Loss on Realisation transferred.), Riddhi, Siddhi, , Cr., Amount Amount, `, , `, , 30,000, 1,600, 28,000, 15,000, 38,000, 22,000 1,03,000, 10,000, 24,000, , 24,000, 12,000, , 2,05,600, , 34,000, 1,000, , 36,000, 2,05,600, , Dr. Partners’ Capital Account, Particulars, To Realisation A/c, To Realisation A/c, (Loss on Realisation), To Bank A/c, , Riddhi, , Siddhi, , `, , `, , Particulars, , 34,000, 24,000, 32,667, , By Balance b/d, By Reserve Fund A/c, , Riddhi, , Siddhi, , `, , `, , 80,000, 10,667, , 60,000, 5,333, , 90,667, , 65,333, Cr., , 12,000, 53,333, , 90,667, 65,333, Dr. Bank Account, Particulars, To Balance b/d, To Realisation A/c, , Cr., , Amount `, 20,000, 1,03,000, , Particulars, By Realisation A/c, By Siddhi’s Loan A/c, By Riddhi’s Capital A/c, By Siddhi’s Capital A/c, , 1,23,000, , 215, , Amount `, 34,000, 3,000, 32,667, 53,333, 1,23,000
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Dr. Siddhi’s Loan Account, Particulars, To Bank, To Realisation A/c, 2, , Amount `, 3,000, 1,000, 4,000, , Cr., , Particulars, By Balance b/d, , Amount `, 4,000, 4,000, , A firm consisting of partners Mahesh, Suresh and Yogesh decided to dissolve the partnership. They decided to take over certain assets and liabilities and continue business separately., The Balance Sheet was as under., Balance Sheet as on 31st March 2017, , Liabilities, Capital A/c :, Mahesh, Suresh, Yogesh, Creditors, Loan, , Assets, , Amount `, 55,000, 20,000, 14,000, 12,000, 3,000, 1,04,000, , Furniture, Sundry Assets, Debtors, Less : R. D. D., Stock, Cash, , Amount `, 2,000, 34,000, 48,400, 2,400, , 46,000, 15,600, 6,400, 1,04,000, , It was agreed as under :, 1. Mahesh is to take Furniture at ` 1,600 and the Debtors amounting to ` 40,000 at ` 34,000 only., He accepted the Creditors of ` 12,000 at that figure., 2. Suresh is to take over all Stock at ` 14,000 and Sundry Assets worth ` 16,000 at ` 14,400 only., 3. Yogesh is to takeover the remaining Sundry Assets at ` 16,000 and assume the responsibility, for the discharge of the loan together will accrued interest on loan of ` 60, which has not been, recorded in accounts., 4. The dissolution expenses were ` 540., 5. The remaining Debtors realized ` 4,200 only., 6. The necessary Adjustments were made by partners to settle their accounts., Prepare Realisation Account, Partners Capital Account, and Cash Account, after giving, effect to the above adjustments., , 216
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Solution :, In the books of Mahesh, Suresh and Yogesh, Dr. Realisation Account, Particulars, , Amount Amount, (`), (`), , To Sundry Assets A/c, Sundry Assets, Furniture, Debtors, Stock, To Mahesh’s Capital A/c, (Creditors), To Yogesh’s Capital A/c, Loan, Interest on loan, To Cash A/c, (Dissolution Expenses), , Particulars, , Cr., Amount Amount, (`), (`), , By Sundry Liabilities A/c, Creditors, Loans, , 34,000, 2,000, 48,400, 15,600 1,00,000 By R. D. D., By Mahesh’s Capital A/c, 12,000 Furniture, Debtors, By Suresh’s Capital A/c, 3,000, Stock, 60, 3,060 Sundry Assets, By Yogesh’s Capital A/c, 540 (Sundry Assets), By Cash A/c, (Debtors), By Partners’Capital A/c, (Loan on Realisation, Transferred.), Mahesh, Suresh, Yogesh, , 12,000, 3,000, , 2,400, 1,600, 34,400, , 36,000, , 14,000, 14,400, , 28,400, 16,000, 4,200, , 4,533, 4,533, 4,534, , 1,15,600, Dr. , Particulars, , Mahesh, , (`), (`), To Realisation A/c 36,000 28,400, To Realisation A/c, 4,533 4,533, (Loss), To Cash A/c, , Particulars, , Yogesh, , 13,600, 1,15,600, , Partners’ Capital Account, Suresh, , 15,000, , Cr., Mahesh, , Suresh, , Yogesh, , (`), 16,000 By Balance b/d, 4,534 By Realisation A/c, By Cash A/c, , (`), (`), 55,000 20,000, 12,000, 12,933, , (`), 14,000, 3,060, 3,474, , 20,534, , 67,000 32,933, , 20,534, , 26,467, 67,000 32,933, , 217
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Working Note :, Dr. , Particulars, To Balance b/d, To Realisation A/c, To Suresh’s Capital A/c, To Yogesh’s Capital A/c, 3, , Cash Account, Amount `, 6,400, 4,200, 12,933, 3,474, 27,007, , Cr., , Particulars, By Realisation A/c, By Mahesh’s Capital A/c, , Amount `, 540, 26,467, , 27,007, , Rajiv and Sanjeev are partners Sharing Profits and losses equally. They decided to dissolve their firm on 31st March 2019. The Balance Sheet of the firm on 31st March 2019, was as under., Balance Sheet as on 31st March 2017, , Liabilities, Reserve Fund, Creditors, Bills payable, Capital A/c’s, Rajeev, Sanjeev, , Amount `, 8,000, 12,800, 7,200, 20,000, 24,000, 72,000, , Assets, Building, Furniture, Debtors, Stock, Bills Receivable, Cash, , Amount `, 20,000, 6,000, 18,000, 20,000, 2,000, 6,000, 72,000, , The Assets realised as under :, Stock ` 18,400, Debtors ` 16,600, Bill Receivable ` 1,980. Sanjeev agreed to takeover the Building, for ` 18,000 and Ranjeev agreed to takeover the Furniture for ` 5,400. The realisation expenses, amounted to ` 600., Pass necessary Journal Entries and write up the Realisation A/c and Partners’ Capital A/c., , 218
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Solution :, In the books of Jajeev and Sanjeev., Journal Entries, Date, Particulars, 1. Realisation A/c...................................................................Dr., To Building A/c, To Furniture A/c, To Debtors A/c, To Stock A/c, To Bills Receivable A/c, (Being Sundry Assets transferred to Realisation A/c, 2. Creditors A/c.......................................................................Dr., Bills Payable.......................................................................Dr., To Realisation A/c, (Being Sundry Liabilities transferred to Realisation A/c, 3. General Reserves A/c..........................................................Dr., To Rajeev’s Capital A/c, To Sanjeev’s Capital A/c, (Being General Reserve transferred to Partners Capital A/c), 4. Cash A/c..............................................................................Dr., To Realisation A/c, (Being assets realised.), 5. Sanjeev’s Capital A/c.........................................................Dr., To Realisation A/c, (Being Building taken over by Sanjeev), 6. Rajeev’s Capital A/c...........................................................Dr., To Realisation A/c, (Being Furniture taken over by Rajeev), 7. Realisation A/c...................................................................Dr., To Cash A/c, (Being Sundry Liabilities Paid), 8., , 9., , 10., , Realisation A/c...................................................................Dr., To Cash A/c, (Being Realisation expenses Paid), Rajeev’s Capital A/c ..........................................................Dr., Sanjeev’s Capital A/c.........................................................Dr., To Realisation A/c, (Being Realisation loss transferred to partners Capital A/c, Rajeev’s Capital A/c...........................................................Dr., Sanjeev’s Capital A/c.........................................................Dr., To Cash A/c, (Being final settlement made.), 219, , L.F. Debit (`) Credit (`), 66,000, 20,000, 6,000, 18,000, 20,000, 2,000, 12,800, 7,200, 20,000, 8,000, 4,000, 4,000, 36,980, 36,980, 18,000, 18,000, 5,400, 5,400, 20,000, 20,000, 600, 600, 3,110, 3,110, 6,220, 15,490, 6,890, 22,380
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Dr. , Particulars, , In the books of Jajeev and Sanjeev., Realisation Account, , Amount Amount, (`), (`), , To Sundry Assets A/c, Building, Furniture, , By Sundry Liabilities A/c, Creditors, Bills Payable, , 20,000, 6,000, , Debtors, Stock, Bills Receivable, To Cash A/c, Creditors Bills, Payable, To Cash A/c, (Realisation, Expensesp Paid), , 18,400, 20,000, 2,000, 12,800, 7,200, , Particulars, , By Cash A/c, Stock, 66,000 Debtors, Bill Receivable, By Sanjeev’s Capital A/c, 20,000 (Building taken), 600 By Rajeev’s Capital A/c, (Furniture taken), By Partners ’Capital A/c, (Loss on Realisation, transferred.), Rajeev, Sanjeev, , Cr., Amount Amount, (`), (`), 12,800, 7,200, 18,400, 16,600, 1,980, , Particulars, To Realisation A/c, To Realisation A/c, (Loss on Realisation), To Cash A/c, , Rajeev, (`), 5,400, 3,110, , 3,110, 3,110, , Sanjeev, Particulars, (`), 18,000 By Balance b/d, 3,110 By General Reserve A/c, 6,890, , 24,000, , 28,000, , Working Note :, Dr. Cash Account, Particulars, To Balance b/d, To Realisation A/c, , Amount `, 6,000, 36,980, , 6,220, 86,600, , Partners’ Capital Account, , 15,490, , 36,980, 18,000, 5,400, , 86,600, Dr. , , 20,000, , Particulars, By Realisation A/c, By Realisation A/c, By Rajeev’s Capital A/c, By Sanjeev’s Capital A/c, , 42,980, 220, , Cr., Rajeev, (`), 20,000, 4,000, , Sanjeev, (`), 24,000, 4,000, , 24,000, , 28,000, Cr., Amount `, 20,000, 600, 15,490, 6,890, 42,980
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4, , The following is the Balance Sheet of Swara and Swaraj as on 31st March 2018., Balance Sheet as on 31st March 2018., , Liabilities, Capital Account :, Swara, Swaraj, General Reserve, Swara’s Loan A/c, Creditors, Bills Payable, , Assets, , Amount `, 6,000, 5,000, 2,000, 2,000, 3,000, 1,000, 19,000, , Furniture, Patents, Goodwill, Debtors, Less : R. D. D., Stock, Bank, , Amount `, 6,000, 1,200, 2,000, 3,800, 200, , 3,600, 5,000, 1,200, 19,000, , On 1st April 2018 the firm was dissolved., 1. Swara took over Patents at a value of ` 2,000., 2. The assets were realisaed as under :, Furniture ` 7,000, Goodwill ` 3,000, Stock ` 4,000 and Debtors ` 3,000., 3. Creditors were paid off at a discount of 10% and other liabilities were paid in full., 4. Expenses for realisation amounted to ` 1,500 which is borne by Swaraj., Prepare Realisation A/c, Partnes’ Capital A/c and Bank A/c, Solution 4, In the books of Swara and Swaraj, Dr. Realisation Account, Particulars, To Sundry Assets A/c, Furniture, Patents, Goodwill, Debtors, Stock, To Swaraj’s Capital A/c, (Realisation, Expenses), To Bank A/c, Creditors, Bill Payable, , Amount Amount, (`), (`), 6,000, 1,200, 2,000, 3,800, 5,000, , 2,700, 1,000, , Particulars, , By Sundry Liabilities A/c, Creitors, Bills Payable, By R. D. D., By Swar’s Capital A/c, 18,000 (Partents taken over), 1,500 By Bank A/c :, Furniture, Goodwill, Stock, Debtors, 3,700, 23,200, , 221, , Cr., Amount Amount, (`), (`), 3,000, 1,000, , 7,000, 3,000, 4,000, 3,000, , 4,000, 200, 2,000, , 17,000, 23,200
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Dr. Partner’s Capital Account, Particulars, Particulars, Swara (`) Swaraj (`), To Realisation A/c, 2,000, By Balance b/d, (Parents taken over), By General Reserve, To Bank A/c, 5,000, 7,500 To Realisation A/c, 7,000, 7,500, , Cr., Swara (`) Swaraj (`), 6,000, 5,000, 1,000, 1,000, 1,500, 7,000, 7,500, , Dr. Bank Account, Particulars, To Balance b/d, To Realisation A/c, (Assets Realised), , Cr., , Particulars, Amount (`), 1,200 By Realisation A/c, 17,000 (Creditors & Bill payable paid), By Swara’s Loan A/c, By Swara’s Capital A/c, By Swaraj’s Capital A/c, 18,200, , Working Note :, Dr. Swara’s Loan Account, Particulars, To Bank A/c, , Particulars, Amount `, 2,000 By Balance b/d, , Capital :, Sun, Star, Reserve Fund, Joint Life Policy Fund, Sundry Creditors, Outstanding Rent, , 2,000, , Assets, , Amount `, 35,000, 85,000, 15,000, 30,000, 26,000, 4,000, , Furniture, Goodwill, Joint Life Policy, (At surrendered value), Sundry Debtors, Stock, Cash at Bank, Capital Account : Moon, , 1,95,000, , B., , Amount `, 2,000, , Sun, Moon and Star are partners in a firm sharing Profits and Losses in the ratio of 5:3:2., They agreed to dissolve the firm on 31st March 2019 on which date their Balance Sheet, was as under., Balance Sheet as on 31st March 2019., Liabilities, , A., , 3,700, 2,000, 5,000, 7,500, 18,200, Cr., , 2,000, 5, , Amount (`), , Amount `, 20,000, 13,000, 30,000, 60,000, 22,000, 40,000, 10,000, 1,95,000, , During the dissolution following were the Cash and Non-Cash transactions., Furniture and Stock were taken over by Sun at an agreed value of ` 35,000 and ` 28,000, respectively., Joint Life Policy was surrendered and Sundry Debtors were realised in full after allowing a, discount of 20%, 222
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C., D., , Sundry Creditors were taken over by Moon at ` 24,000., The Realisation Expenses amounted to ` 2,000, You are required to prepare necessary Ledger Account in the Books of firm., , 5, In the books of Sun, Moon and Star, Realisation Account, , Dr. , Particulars, , Swara, (`), , To Sundry Assets A/c, Furniture, Goodwill, Joint Life Policy, Sundry Debtors, Stock, To Moon’s Capital A/c, (Sundry Creditors, taken over), To Bank A/c, Outstanding Rent, Realisation Expenses, To Partner’s Capital A/c :, (Profit on Realisation, transferred.), Sun, Moon, Star, Dr. , Particulars, , 20,000, 13,000, 30,000, 60,000, 22,000, , 4,000, 2,000, , 13,000, 7,800, 5,200, , Swaraj, (`), , Cr., , Particulars, , Swara, (`), , By Sundry Liabilities A/c, Creditors, Joint Life Policy Fund, Outstanding Rent, 1,45000, 24,000 By Sun’s Capital A/c, Furniture, Stock, (taken over), 6,000 By Bank A/c :, Joint Life Policy, Sundry Debtors, , 26,000, 30,000, 4,000, , 60,000, , 35,000, 28,000, , 63,000, , 30,000, 48,000, , 78,000, , 26,000, 2,01,000, , 2,01,000, , Partners’ Capital Account, Sun, (`), , Moon, (`), 10,000, , Star, (`), , Particulars, , To Balance b/d, By Balance b/d, To Realisation A/c 63,000, By Reserve Fund, To Bank A/c, 26,300 93,200 By Realisation A/c, By Realisation A/c, (Profit on Realisation), By Bank A/c, 63,000 36,300 93,200, , 223, , Swaraj, (`), , Cr., Sun, Moon, (`), (`), 35,000, 7,500 4,500, 24,000, , Star, (`), 85,000, 3,000, , 13,000 7,800, 7,500, 63,000 36,300, , 5,200, 93,200
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Dr., , Bank Account, , Particulars, To Balance b/d, To Realisation A/c, To Sun’s Capital A/c, , Amount `, 40,000, 78,000, 7,500, , Cr., , Particulars, By Realisation A/c, By Moon’s Capital A/c, By Star’s Capital A/c, , 1,25,500, 6, , Amount `, 6,000, 26,300, 93,200, 1,25,500, , Nerle and Patil were partners sharing Profit and Losses in the ratio 3:1. They decided to dissolve the partnership on 31st March 2020 on which date their Balance Sheet stood as follows., Balance Sheet as on 31st March 2020., , Liabilities, Capital A/c :, Nerle, Patil, Profit and Loss A/c, Sundry Creditors, , 1., 2., 3., 4., , Assets, , Amount `, 1,14,000, 50,000, 8,000, 32,000, 2,04,000, , Building, Machinery, Stock, Sundry Debtors, Cash at Bank, , Amount `, 60,000, 50,000, 30,000, 44,000, 20,000, 2,04,000, , The firm was dissolved on the above date and the assets were realised as under Nerle took over 50% of the Machinery at a discount of 10% and 1/4th Stock at a discount of 20%, Patil took over Building at ` 70,000 and Debtors worth ` 20,000 at ` 16,000. He also agreed to, pay Creditors at a discount of 5%., Balance of Machinery was sold at a loss of ` 4,000., Balance of Stock was sold at 10% profit and Debtors realised at 95%., You are required to prepare Realisation A/c, Partners Capital A/c and Bank A/c., , 224
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Solution 6, Dr. , Particulars, To Sundry Assets A/c, Building, Machinery, Stock, Sundry Debtors, To Patil’s Capital A/c :, Creditors, To Partner’s Capital A/c, (Profit on Realisation, transferred.), Nerle, Patil, , In the books of Nerle and Patil, Realisation Account, Amount Amount, (`), (`), , Particulars, , Cr., Amount Amount, (`), (`), , By Sundry Liabilities A/c, Creditors, , 60,000, 50,000, 30,000, By Nerle’s Capital A/c :, 44,000 1,84,000 Machinery, Stock, By Patil’s Capital A/c :, 30,400 Building, Debtors, , 488, 162, , By Bank A/c :, 650 Machinery, Stock, Debtors, , 32,000, , 22,500, 6,000, , 28,500, , 70,000, 16,000, , 86,000, , 21,000, 24,750, 22,800, , 68,550, , 2,15,050, Dr. , Particulars, , 2,15,050, , Partner’s Capital Account, , To Realisation A/c, , Nerle, (`), 28,500, , To Bank A/c, , 91,988, , 1,20,488, , Patil, Particulars, (`), 86,000 By Balance b/d, By Profit and Loss A/c, By Realisation A/c, By Realisation A/c (Profit, on realisation), By Bank A/c, , Nerle, (`), 1,14,000, 6,000, 488, , Patil, (`), 50,000, 2,000, 30,400, 162, , 86,000, , 1,20,488, , 3,438, 86,000, , Dr. Bank Account, Particulars, To Balance b/d, To Realisation A/c, To Patil’s Capital A/c, , Cr., , Amount `, 20,000, 68,550, 3,438, 91,988, , Particulars, By Nerle’s Capital A/c, , 225, , Cr., Amount `, 91,988, , 91,988
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Working Note :, 1. Machinery - 50,000, , 50% ` 25,000 (Nerle), (less) 10% ` 2,500 (Discount), , ` 22,500, 2., , 50% ` 25,000 (Realised), (less) ` 4,000 (Loss), ` 21,000, , Stock - 30,000, , , , 1, 4 ` 7,500 (Nerle), (less) 20% ` 1,500 (Discount), , ` 6,000, , 3, 4 ` 22,500 (Realised), (Add) 10% ` 2,250 (Profit), ` 24,750, , 3., , Creditors paid at 5% Discount., 4., Total Debtors (B/S) , ` 44,000, 5, = ` 32,000 × 100 = ` 1,600 , Less : Patil taken over, ` 20,000, , , = ` 32,000 − 1,600 = ` 30,400 Remaining Balance ` 24,000, 95% Debtors Realised, ` 22,800, 6.5 B) Dissolution Under Insolvency Situation :, Insolvency - In legal terminology, the situation where the liabilities of a person or firm exceeds, its assets. In practice however insolvency is the situation where an individual or a firm cannot raise, enough cash to meet its obligations, or to pay debts as they become due for payment., At the time of dissolution if the Partner’s Capital Account shows a debit balance after making, adjustments he is to bring cash in order to settle his account. If he is unable to clear his debit balance, either wholly or in part the unrecoverable portion of the said partner must be borne by the solvent, partners., 6.5 C) Some Important Concepts :, A. Solvent Partner : “A Partner whose assets are more than his liabilities”, A person is said to be solvent, when he is able to pay off his liabilities out of his assets., A solvent partner means a partner who is able to meet his financial obligations., B. Insolvent Partner :, “Insolvent Partner means a partner whose Liabilities are more than his Assets.”, “A person is said to be insolvent when he is unable to satisfy his liabilities out of his assets”., C. Capital Deficiency : Capital deficiency means that one or more partner has a debit balance in, his capital account at the point of final cash distribution. As per Partnership Act 1932 The liability of partners in a firm is unlimited as well as joint and several, so when a partners becomes, insolvent his private property is acquired and sold out. If he is unable to pay his dues to firm his, deficiency is borne by solvent partners in their profit sharing ratio., , 226
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6.5 D) Fixed and Fluctuating Capital Method, Fixed Capital Method : Under Fixed Capital Method a separate Current Account is prepared, for each partner. All the adjustment are made in the Current Accounts. Then the balance on Current, Account is transferred to Capital Account of the partner., 1., , 2., , 3., , 4., , Accounting Procedure :, Transfer the balance on insolvent partner’s Current Account to Capital Account. The entry will, be, Insolvent Partner’s Current A/c................................................Dr., To Insolvent Partner’s Capital A/c......................................Dr., (Being insolvent partners Current A/c transferred to Capital .A/c), Transfer the deficiency on Insolvent Partners Capital account to solvent partners Capital, Accounts in their Profit sharing ratio., Solvent Partners Capital A/c....................................................Dr., To Insolvent Partners capital A/c.......................................Dr., (Being insolvent partners deficiency transferred to solvent partners), Transfer the balance of solvent partners Current Account to their Capital Accounts., Solvent Partners Current A/c....................................................Dr., To Solvent Partners Capital A/c..........................................Dr., (Being Current Account balance transferred.), Final settlement of Solvent Partners Capital account., Solvent Partner’s Capital A/c...................................................Dr., To Cash / Bank A/c.............................................................Dr., (Being Final settlement made by paying cash), , 6.5 E) Fluctuating Capital Method, Under Fluctuation Capital Method, no Current Accounts are opened. All the adjustment are, made in the Capital Account of the partners. Deficiency of insolvent partner’s capital account is transferred to solvent partner’s capital accounts in their Profit Sharing Ratio., Solvent Partner’s Capital A/c...................................................Dr., To Solvent Partners Capital A/c..........................................Dr., (Being insolvent partner’s capital A/c transferred), , 227
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(When one Partner become Insolvent), Illustrations, 1, , Vidya, Sharmila and Megha are partners sharing Profit and Losses in the ratio 5:3:2., Their Balance Sheet as on 31st March 2019 was as under., Balance Sheet as on 31st March 2019., Liabilities, Assets, Amount `, Amount `, Sundry Assets, 1,28,000, Capital A/c, 16,000, 50,000 Bank, Vidya, 26,000, 40,000 Current A/c : Megha, Sharmila, 30,000, Megha, 6,000, Current A/c : Vidya, 6,000, : Sharmila, 28,000, Sundry Creditors, 10,000, Bill Payable, 1,70,000, , 1., 2., 3., 4., 5., , 1,70,000, , They decided to dissolve the partnership firm on the above date as under., Sundry Assets realised at 80% of book value., Unrecorded outstanding expenses ` 8,000 paid off., Realisation expenses amounted to ` 6,000, Sundry Creditors and Bills Payable were paid for ` 34,000., Megha become insolvent and ` 2,000 were recovered from her private estate., Prepare Realisation Account, Partner’s Current Account, Partner’s Capital Account and, Bank A/c, , Solution :, In the books of Vidya, Sharmila and Megha, Dr. , Realisation Account, Particulars, , Amount Amount, Particulars, (`), (`), To Sundry Assets A/c, 1,28,000 By Sundry Liabilities A/c, Creditors, To Bank A/c :, Bills Payable, Creditors and Bills payable 34,000, By Bank A/c, (Sundry Assets), Outstanding Expenses, 8,000 42,000 By Partners’ Current A/c :, To Bank A/c, 6,000 (Loss on Realisation, (Realisation Expenses), transferred.), Vidya, Sharmila, Megha, 1,76,000, 228, , Cr., Amount Amount, (`), (`), 28,000, 10,000, , 17,800, 10,680, 7,120, , 38,000, 1,02,400, , 35,600, 1,76,000
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Dr. , , Partners’ Current Account, , Cr., , Particulars, , Vidya Sharmila Megha Particulars Vidya (`) Sharmila Megha, (`), (`), (`), (`), (`), To Balance b/d, 26,000 By Balance b/d, 6,000, 6,000, To Realisation A/c 17,800, 10,680 7,120 By Partner’s, (Loss), Capital A/c, 11,800, 4,680, 33,120, 17,800, , 10,680 33,120, , Dr. , Particulars, To Partner’s, Current A/c, To Megha’s, Capital A/c, To Bank A /c, , 17,800, , 10,680, , 33,120, , Partners’ Capital Account, , Cr., , Vidya Sharmila Megha Particulars, (`), (`), (`), 11,800, 4,680 33,120 By Balance b/d, By Bank A/c :, 700, 420, By Vidya’s, Capital A/c, 37,500, 34,900, By Sharmila’s, Capital A/c, , Vidya Sharmila Megha (`), (`), (`), 50,000, 40,000, 30,000, 2,000, 700, , 50,000, , 50,000, , 40,000 33,120, , Dr. , Particulars, To Balance b/d, To Realisation A/c, To Megha’s Capital A/c, , 420, , Bank Account, Amount `, 16,000, 1,02,400, 2,000, , Particulars, By Realisation A/c, By Realisation A/c, By Vidya’s Capital A/c, By Sharmila’s Capital A/c, , 1,20,400, Working Note :, Capital Deficiently of Megha Vidya ` 1,220 × 5/8 = ` 700, Sharmila `1,120 × 3/8 = ` 420, , 229, , 40,000, , 33,120, Cr., , Amount `, 42,000, 6,000, 37,500, 34,900, 1,20,400
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2., , Following is the Balance Sheet of Kadam, Shinde and Chavan as on 31st March 2019., They were sharing Profit and Losses in ratio 1/2, 1/6, 1/3., Balance Sheet as on 31 st March 2019., , Liabilities, Capital A/c :, Kadam, Shinde, General Reserve, Kadam’s Loan, Sundry Creditors, Bills Payable, , Amount `, 36,000, 32,250, 18,000, 11,250, 18,750, 11,250, , Assets, Building, Machinery, Furniture, Stock, Debtors, Bills Receivable, Bank, Profit and Loss account, Chavan’s Capital account, , 1,27,500, , Amount `, 28,500, 20,250, 4,500, 30,750, 15,000, 9,000, 4,500, 2,250, 12,750, 1,27,500, , On the above date the firm was dissolved and the assets realised as under., 1. Building ` 27,000, Machinery ` 18,000, Debtors ` 27,500, and Goodwill ` 1,350, 2. Kadam took over Furniture and Stock at ` 30,000 and agreed to pay Cerditors at a discount of, ` 750, 3. Shinde took over Bills Receivable at ` 7,800 and paid Bills Payable in full., 4. Dissolution expenses amounted to ` 2,400, 5. Chavan become insolvent. No amount was recovered from his estate., Show Realisation Account, Partners Capital Account and Bank Account., , 230
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Solution, In the books of Kadam, Shinde and Chavan, Dr. , Realisation Account, Particulars, , Amount Amount, (`), (`), , To Sundry Assets A/c, Building, Machinery, Furniture, Stock, Debtors, Bill Receivable, , 28,500, 20,250, 4,500, 30,750, 15,000, 9,000 1,08,000, , To Kadam’s Capital A/c, (Creditors taken), , 18,000, , To Shinde’s Capital A/c, (Bills payable taken), To Bank A/c, (Realisation Expenses), , 11,250, 2,400, , Particulars, , Cr., Amount Amount, (`), (`), , By Sundry Liabilities A/c, Creditors, Bills payable, By Bank A/c, Building, Machinery, Debtors, Goodwill, By Kadam’s Capital A/c, (Furniture and Stock taken.), By Shinde’s Capital A/c, (Bills Receivable taken), By Partner’s Capital A/c, (Loss transferred to), Kadam, Shinde, Chavan, , 18,750, 11,250, , 30,000, , 27,000, 18,000, 7,500, 1,350, , 53,850, 30,000, 7,800, , 9,000, 3,000, 6,000, , 1,39,650, Dr. , Particulars, To Balance b/d, To Profit and loss A/c, (Loss), To Realisation A/c, (Loss on realisation), To Realisation A/c, To Chavan’s, Capital A/c, To Bank A/c, , 18,000, 1,39,650, , Partners’ Capital Account, Kadam, , Shinde, , (`), , (`), , Particulars, Kadam, Shinde, (`), (`), (`), 12,750 By Balance b/d, 36,000 32,250, 750 By General Reserve 9,000 3,000, , Chavan, , 1,125, , 375, , 9,000, , 3,000, , 6,000 By Realisation A/c, , 30,000, , 7,800, , 10,125, , 3,375, , By Kadam’s, Capital A/c, By Shinde’s, Capital A/c, , 12,750 31,950, 63,000 46,500, , Cr., , 19,500, , 231, , Chavan, , (`), 6,000, , 18,000 11,250, 10,125, 3,375, , 63,000 46,500 19,500
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Dr. Bank Account, Particulars, To Balance b/d, To Realisation A/c, , Amount `, 4,500, 53,850, , Cr., , Particulars, By Realisation A/c, By Kadam’s Capital A/c, By Shinde’s Capital A/c, By Kadam’s Loan A/c, , Amount `, 2,400, 12,750, 31,950, 11,250, , 58,350, , 58,350, , Dr. Kadam’s Loan Account, Particulars, To Bank A/c, , 3., , Cr., , Particulars, Amount `, 11,250 By Balance b/d, 11,250, , Amount `, 11,250, 11,250, , Shubhangi, Manisha and Shital are partners. They share Profit and Losses equally. Their, Balance Sheet as on 31st March 2018 was as follows :, Balance Sheet as on 31 st March 2018., , Liabilities, Capital Account :, Shubhangi, Manisha, Reserve fund, Creditors, Bills Payable, , Assets, , Amount `, 62,500, 37,500, 22,500, 37,500, 12,500, , Machinery, Stock, Debtors, Less R. D. D., Bills Receivable, Cash at Bank, Shital’s Capital, , 1,72,500, , Amount `, 62,500, 37,500, 27,500, 2,500, , 25,000, 22,500, 12,500, 12,500, 1,72,500, , On the above date it was decided to dissolve the firm, The assets realised were as follows :, 1. Stock ` 31, 250, Machinery ` 37,500, Debtors ` 21,250 and Bills Receivable ` 18,000., 2. Creditors were paid at a discount of 2% and Bills Payable were paid in full., 3. Realisation expenses amounted to ` 6,250., 4. Shital was declared insolvent and 50 paise in rupees could be recovered from her private estate., Prepare : Realisation Account, Partner’s Capital Account and Bank Account., , 232
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Solution, In the books of Shubhangi, Mahisha and Shital, Dr. Realisation Account, Particulars, Amount Amount, Particulars, (`), (`), To Sundry Assets A/c, By Sundry Liabilities A/c, Machinery, 62,500, Creditors, Stock, 37,500, Bills payable, Debtors, 27,500, By R. D. D. A/c, Bill Receivable, 22,500 1,50,000 By Bank A/c, To Bank A/c, Stock, Creditors, 36,750, Machinery, Bills Payable, 12,500, 49,250 Debtors, To Bank A/c, Bill Receivable, Realisation Expenses, 6,250 By Partner’s Capital A/c, (Loss transferred to), Shubhangi, Manisha, Shital, , Cr., Amount Amount, (`), (`), 37,500, 12,500, , 31,250, 37,500, 21,250, 18,000 1,08,000, , 15,000, 15,000, 15,000, , 2,05,500, Dr. , Particulars, , To Balance b/d, To Realisation A/c, (Loss on realisation), To Shital’s, Capital A/c, To Bank A/c, , 15,000, 5,000, 50,000, , 70,000, , Manisha, (`), , Shital, (`), , Particulars, , 12,500 By Balance b/d, By General, 15,000 15,000 Reserve, By Bank A/c, 5,000, 25,000, By Shubhangi’s, Capital A/c, By Manisha’s, Capital A/c, 45,000 27,500, , Cr., Shubahngi (`), 62,500, , Manisha, (`), 37,500, , Shital, (`), , 7,500, , 7,500, , 7,500, 10,000, , 5,000, , 70,000, , Dr. Bank Account, Particulars, To Balance b/d, To Realisation A/c, To Shital’s Capital A/c, , Amount `, 12,500, 1,08,000, 10,000, , 45,000, 2,05,500, , Partners’ Capital Account, Shubahngi, (`), , 50,000, 2,500, , Particulars, By Realisation A/c, By Realisation A/c, By Shubhangi’s Capital A/c, By Manisha’s Capital A/c, , 1,30,500, 233, , 45,000, , 5,000, 27,500, Cr., , Amount `, 49,250, 6,250, 50,000, 25,000, 1,30,500
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1, , (When Two Partners become Insolvent), Narendra, Devendra and Mahendra are partners sharing Profit and Losses at 3:3:2. The Business is dissolved on 31st March 2020. When their Balance Sheet stands as below :, Balance Sheet as on 31 st March 2020., , Liabilities, Capital Account:, Narendra, Devendra, Mehendra, Sundry Creditors, , Amount `, 20,000, 80,000, 40,000, 2,00,000, 3,40,000, , Assets, Plant and Machinery, Motor Car, Sundry Debtors, Stock, Cash at Bank, , Amount `, 1,00,000, 20.000, 90,000, 1,20,000, 10,000, 3,40,000, , They decided to dissolve the partnership on the above date as follows., 1. Machinery and Stock are sold for ` 50,000 and ` 36,000 respectively., 2. Debtors realised for ` 40,000, 3. Motor Car is taken by Devendra for ` 26,000., 4. Realisation expenses amounted to ` 2,000., 5. Deficiency of any partner in capital account is to be met by other partners in profit sharing ratio., 6. Narendra became insolvent and Mahendra could bring in ` 10,000 only., Prepare necessary ledger accounts in the books of firm., Solution :, In the books of Narendra, Devendra and Mahendra, Dr. , Realisation Account, Particulars, To Sundry Assets A/c, Plant and Machinery, Motor Car, Sundry Debtors, Stock, , To Bank A/c, Creditors paid, Expenses paid, , Amount Amount, (`), (`), , Particulars, , By Sundry Liabilities A/c :, 1,00,000, Creditors, 20,000, By Bank A/c :, 90,000, Machinery, 1,20000 3,30,000 Stock, Debtors, By Devendra’s, Capital A/c, (Motor car taken), 2,00,000, By Partners’ Capital A/c, 2,000 2,02,000 (Loss on Realisation, transferred.), Narendra, Devendra, Mahendra, 5,32,000, , 234, , Cr., , Amount Amount, (`), (`), 2,00,000, 50,000, 36,000, 40,000 1,26,000, 26,000, , 67,500, 67,500, 45,000 1,80,000, 5,32,000
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Dr. , Particulars, To Realisation A/c, , Partners’ Capital Account, Narendra Devendra Mahendra, (`), (`), (`), , 67,500, , 67,500, , (Loss on, realisation), To Realisation A/c, , 26,000, , To Narendra’s, Capital A/c, To Mahendra’s, Capital A/c, , 28,500, , Particulars, , 45,000 By Balance b/d, By Bank A/c, By Devendra’s, Capital A/c, By Mahendra’s, Capital A/c, By Devendra’s, 19,000 Capital A/c, By Bank A/c, , Cr., Narendra Devendra Mahendra, (`), (`), (`), , 20,000, , 80,000, , 40,000, 10,000, , 28,500, 19,000, 14,000, 56,000, , 14,000, 67,500 1,36,000, , Dr. , Particulars, To Balance b/d, To Realisation A/c, To Mahendra’s Capital A/c, To Devendra’s Capital A/c, , 64,000, , 67,500 1,36,000, , Bank Account, Amount `, 10,000, 1,26,000, 10,000, 56,000, 2,02,000, , Particulars, By Realisation A/c, By Realisation A/c, , 64,000, Cr., , Amount `, 2,00,000, 2,000, , 2,02,000, , Working Note :, 1. Deficiency of Nerandra - Capital Deficiency of Narendra ` 47,500 distributed among Devendra and Mahendra in their profit sharing ratio i.e. 3:2, Devendra ` 47,500 × 3/5 = ` 28,500, Mahendra ` 47,500 × 2/5 = ` 19,000, 2., , Deficiency of Mahendra - Because of payment of Narendra’s Capital Deficiency, Mahendra, become insolvent therefore his Capital Deficiency is borne by Devendra ` 14,000., 6.6 B) (When All Partners Are Insolvent), , If all the partners are insolvent, then the third party liabilities cannot be expected to be paid, in full. All the cash available, together with whatever can be recovered from the private estate of, the partners, will be paid to the third party liabilities after the expenses of realisation are met. The, Realisation Account should be prepared as usual but third party liabilities should not be transferred, to Realisation Account nor will payment to third party liabilities be debited to this account. The loss, on realisation should be transferred proportionately to the Capital Account of partners in the profit, sharing ratio. The available cash should then be paid to the third party liabilities in their liability, ratio. The amount remaining unpaid should be transferred to Deficiency Account. The final balances, of Partners’ Capital Accounts should also be transferred to Deficiency Account. Thus the books will, be closed., , 235
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1., , 2., , For closing the Liabilities A/c, Liabilities A/c....................................................................Dr., To Cash / Bank A/c (Unpaid amount paid), To Deficiency A/c (Unpaid amount), (Being liabilities paid and remaining amount transferred to deficiency A/c.), For closing partner’s Capital A/c, Deficiency A/c...................................................................Dr., To Partner’s Capital Accounts, (Being balance of Partners Capital Account transferred to Deficeiency A/c), , 1., , Recovery from insolvent partner : If any amount is recovered from him by the firm, the entry, will be as follows;, Cash / Bank A/c................................................................Dr., To Insolvent Partners Capital A/c, (Being amount received from insolvent partners), , 2., , Distribution of capital deficiency of insolvent partner : Point to be remembered before, making distribution of capital deficiency of insolvent partners., a. Transfer Sundry assets to Realisation A/c, b. Don’t transfer outside liabilities to Realisation A/c Open Third Party liabilities Accounts, (Sundry Creditors, Bills Payable, Bank Loan etc.) separately, c. Open Deficiency A/c and transfer debit balance of Partners Capital Account to Deficiency, A/c, d. The available cash is to be distributed among third party liabilities, if these are more than, one then in their due proportion. e.g. Creditors 30,000 and Bills Payable 20,000 in this case, the available cash will be distributed in the ratio 3:2. Thus, the third party liabilities are, discharged only up to the possible limit and not fully., , 1, , The Balance Sheet of Rupali, Dipali and Mitali who are sharing Profits and Losses in the ratio, of 2:2:1. was as follows :, Balance Sheet as on 31 st March 2018., Liabilities, , Capital :, Rupali, Dipali, Sundry Creditors, Bank Loan (with a charge on, Stock), , Assets, , Amount `, 60,000, 40,000, 2,40,000, 1,00,000, , Fixed Assets, Goodwill, Stock, Bank, Capital : Mitali, , 4,40,000, , Amount `, 2,18,000, 60.000, 1,20,000, 2,000, 40,000, 4,40,000, , One the above daily the firm was dissolved and assets realised as under., Fixed Assets were sold for ` 1,80,000 and Stock realised ` 1,04,000. Realisation expenses, amounted to ` 6,000., Assuming that all the partners are insolvent. Prepare Realisation A/c, Partners’ Capital A/c,, Bank A/c, Sundry Creditors A/c, Bank Loan A/c, Deficiency A/c, 236
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Solution :, , In the books of Rupali, Dipali and Mitali’s, , Dr. , Particulars, To Sundry Assets A/c, Fixed Assets, Goodwill, Stock, , To Bank A/c, Realisation Expenses, , Realisation Account, , Amount Amount, (`), (`), , Cr., , Particulars, , By Bank A/c, 2,18,000, (Fixed Assets Realised), 60,000, By Bank A/c, 1,20,000 3,98,000 (Stock realised), By Partners’ Capital A/c, (Loss on Realisation, transferred.), Rupali, 6,000, Dipali, Mitali, , Amount Amount, (`), (`), 1,80,000, , 1,04,000, , 48,000, 48.000, 24,000 1,20,000, , 4,04,000, Dr. , Particulars, To Balance b/d, To Realisation /c, (Loss on Realisation), To Deficiency A/c, Dr., Particulars, To Balance b/d, To Realisation A/c, To Realisation A/c, , 4,04,000, , Partners’ Capital Account, Rupali, (`), , Dipali, (`), , Particulars, , Mitali, (`), , Cr., Rupali, (`), , Particulars, To Bank A/c, To Deficiency A/c, , Mitali, (`), , 40,000 By Balance b/d, 48,000 48,000 24,000 By Deficiency A/c, , 60,000 40,000, 8,000, , 64,000, , 12,000, 60,000 48,000 64,000, , 60,000 48,000, , 64,000, , Bank Account, Amount `, 2,000, 1,80,000, 1,04,000, , Particulars, By Realisation A/c, By Bank Loan A/c, By Creditors A/c, , 2,86,000, Dr., , Dipali, `), , Amount `, 6,000, 1,00,000, 1,80,000, 2,86,000, , Creditors Account, Amount `, 1,80,000, 60,000, , Cr., , Particulars, By Balance b/d, , 2,40,000, , 237, , Cr., Amount `, 2,40,000, , 2,40,000
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Dr., , Bank Loan Account, , Particulars, To Bank A/c, (Stock Realised), , Cr., , Particulars, Amount `, 1,00,000 By Balance b/d, , Amount `, 1,00,000, , 1,00,000, Dr., , 1,00,000, , Deficiency A/c, , Cr., , Particulars, To Dipali’s Capital A/c, To Mitali’s Capital A/c, , Particulars, Amount `, Amount `, 8,000 By Rupali’s Capital A/c, 12,000, 64,000 By Creditors A/c, 60,000, 72,000, 72,000, Note : Bank loan charged (secured) on stock, so on dissolution Bank Loan discharged on realisation, of Stock., 2, , Following in the Balance Sheet of M/s Rane, Kane and Mane as on 31st March 2019, Balance Sheet as on 31 st March 2019., Liabilities, , Capital :, Rane, Kane, Sundry Creditors, Rane’s Loan, , Assets, , Amount `, 10,000, 6,000, 80,000, 20,000, , Furniture, Debtors, Stocks, Cash, Capital : Mane, , Amount `, 6,000, 40,000, 48,000, 2,000, 20,000, , 1,16,000, , 1,16,000, , Due to the inability to pay the creditors, the firm is dissolved, Kane and Mane cannot pay anything., Rane can contribute only ` 3,000 from his private estate. Stock realised ` 30,000. Debtors realised, ` 32,000 and Furniture is sold for ` 2,000. Realisation Expenses amounted to ` 6,000., Prepare necessary Ledger Account to close the books of the firm., Solution No. 2, In the books of Rane, Kane and Mane, Dr. Realisation Account, Particulars, Amount Amount, Particulars, (`), (`), To Sundry Assets A/c, By Cash A/c, Furniture, 6,000, Stock, Debtors, 40,000, Debtors, Stock, 48,000, 94,000 Furniture, By Partners’ Capital A/c, To Cash A/c, 6,000 (Loss on Realisation, (Realisation Expenses paid), transferred.), , 1,00,000, 238, , Cr., Amount Amount, (`), (`), 30,000, 32,000, 2,000, , Rane, , 12,000, , Kane, Mane, , 12,000, 12,000, , 64,000, 1,04,000, , 36,000, 1,00,000
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Dr. , Particulars, , Partners’ Capital Account, Rane, (`), , To Balance b/d, To Realisation A/c 12,000, (Loss on, Realisation), To Deficiency A/c 21,000, 33,000, Dr., , 12,000, , 12,000, , Mane, Particulars, (`), 20,000 By Balance b/d, 12,000 By Rane loan A/c, By Cash A/c, By Deficiency A/c, , Rane, (`), 10,000, 20,000, 3,000, , 32,000, , 33,000, , Kane, (`), 6,000, , Mane, (`), , 6,000, , 32,000, , 12,000, , 32,000, , Cash Account, , Particulars, To Balance b/d, To Rane’s Capital A/c, To Realisation A/c, Dr., , Cr., , Particulars, Amount `, 2,000 By Realisation A/c, 3,000 By Creditors A/c, 64,000, 69,000, , Amount `, 6,000, 63,000, 69,000, , Creditors Account, , Particulars, To Cash A/c, To Deficiency A/c, Dr., , Cr., , Particulars, Amount `, 63,000 By Balance b/d, 17,000, 80,000, , Amount `, 80,000, 80,000, , Deficiency A/c, , Particulars, To Kane’s Capital A/c, To Mane’s Capital A/c, , 3, , Kane, (`), , Cr., , Cr., , Particulars, Amount `, 6,000 By Rane’s Capital A/c, 32,000 By Creditors A/c, 38,000, , Amount `, 21,000, 17,000, 38,000, , Dinesh, Mangesh and Ramesh are partners sharing Profits and Losses in the ratio 2:2:1., They decided to dissolved the firm on 31st March 2018. When their position was as under., Balance Sheet as on 31st March 2018., Liabilities, , Capital :, Dinesh, Mangesh, Ramesh, Creditors, Bill Payable, , Assets, , Amount `, 26,000, 22,000, 18,000, 80,000, 40,000, 1,86,000, , Building, Computer, Debtors, Goodwill, Bank, , Amount `, 78,000, 45,000, 20,000, 35,000, 8,000, 1,86,000, , The firm was dissolved on above date and the following is the result of realisation., 1. The assets were realised as Building ` 40,000, Computer ` 30,000, Debtors ` 10,000., 2. Realisation expenses amounted to ` 2,000., 239
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3., , All partners were insolvent. The following amount was recovered from them Dinesh ` 2,000, and Mangesh ` 2,000., Prepare necessary ledger account to close the books of the firm., , Solution :, In the books of Dinesh, Mangesh and Ramesh, Dr. , Realisation Account, Particulars, , Amount Amount, (`), (`), , To Sundry Assets A/c, Building, Computer, Debtors, Goodwill, , 78,000, 45,000, 20,000, 35,000, , To Bank A/c, (Realisation, Expenses paid), , Particulars, , Cr., Amount Amount, (`), (`), , By Bank A/c, Building, Computer, Debtors, 1,78,000 By Partners’ Capital A/c, 2,000 (Loss on Realisation, transferred.), Dinesh, Mangesh, Ramesh, , 40,000, 30,000, 10,000, , 40,000, 40,000, 20,000 1,00,000, , 1,80,000, Dr. , Particulars, To Realisation A/c, (Loss on, Realisation), , 1,80,000, , Partners’ Capital Account, Particulars, , Dinesh Mangesh Ramesh, (`), (`), (`), , 40,000, , 40,000, Dr., Particulars, To Balance b/d, To Dinesh’s Capital A/c, To Mangesh’s Capital A/c, To Realisation A/c, Dr., Particulars, To Bank A/c, To Deficiency A/c, , 40,000, , 40,000, , 80,000, , Cr., Dinesh, (`), , Mangesh, (`), , Ramesh, (`), , 20,000 By Balance b/d, 26,000, By Bank A/c, 2,000, By Deficiency A/c 12,000, 20,000, 40,000, , 22,000, 2,000, 16,000, 40,000, , 18,000, , Bank Account, Amount `, 8,000, 2,000, 2,000, 80,000, 92,000, , Particulars, By Realisation A/c, By Creditors A/c, By Bills Payable A/c, , Cr., Amount `, 2,000, 60,000, 30,000, 92,000, , Creditors Account, Amount `, 60,000, 20,000, 80,000, , 2,000, 20,000, , Particulars, By Balance b/d, , 240, , Cr., Amount `, 80,000, 80,000
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Dr., , Bills Payable Account, , Particulars, To Bank A/c, To Deficiency A/c, Dr., , Amount `, 30,000, 10,000, 40,000, , Particulars, By Balance b/d, , Cr., Amount `, 40,000, 40,000, , Deficiency A/c, , Particulars, To Dinesh’s Capital A/c, To Mangesh’s Capital A/c, To Ramesh’s Capital A/c, , Amount `, 12,000, 16,000, 2,000, 30,000, , Particulars, By Creditors A/c, By Bills Payable A/c, , Cr., Amount `, 20,000, 10,000, 30,000, , HHHHHHHHHHHHH EXERCISE - 6 HHHHHHHHHHHHH, Q. 1 Objective Questions :, A) Select most appropriate answer from the alternatives given below and rewrite the sentences., 1) In case of dissolution, assets and liabilities are transferred to ............. Account., (a) Bank Account, (b), Partner’s Capital Account, (c) Realisation Account, (d), Partner’s Current Account, 2), , Dissolution expenses are credited to ............. Account., (a) Realisaton Account, (b), Cash / Bank Account, (c) Partner’s Capital Account, (d), Partner’s Loan Account, , 3), , Deficiency of insolvent partner will be suffered by solvent partners in their ............. ratio., (a) Capital ratio, (b), Profit sharing ratio, (c) Sale ratio, (d), Liquidity ratio, , 4), , If any asset is taken over by partner from firm his capital account will be ............., (a) Credited, (b), Debited, (c) Added, (d), Divided, , 5), , If any unrecorded liability is paid on dissolution of the firm ............. account is debited., (a) Cash / Bank Account, (b), Realisation Account, (c) Partners capital Account, (d), Loan Account, , 6), , Partnership is completely dissolved when the partners of the firm become ............., (a) Solvent, (b), Insolvent, (c) Creditor, (d), Debtors, , 7), , Assets and liabilities are transferred to Realisation account at their ............. values., (a) Market, (b), Purchases, (c) Sale, (d), Book, , 8), , If the number of partners in a firm falls below two, the firm stands ............., (a) Dissolved, (b), Established, (c) Realisation, (d), Restructured, 241
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9), , Realisation account is ............. on realisation of asset., (a) Debited, (b), Credited, (c) Deducted, (d), Closed, , 10) All activities of partnership firm ceases on ............. of firm., (a) Dissolution, (b), Admission, (c) Retirement, (d), Death, B), , Give the word / term / phrase which can substitute each of the following statement., 1. Debit balance of Realisation account., 2. Winding up of partnership business., 3. An account opened to find out the Profit or Loss on realisation of Assets and settlement of, Liabilities., 4. Debit balance of an Insolvent Partner’s Capital Account., 5. Credit balance of Realisation Account., 6. Conversion of asset into cash on dissolution of firm., 7. Liability likely to arise in future on happening of certain event., 8. Assets which are not recorded in the books of account., 9. The Accounts which show realisation of Assets and discharge of Liabilities., 10. Expenses incurred on dissolution of firm., , C), , State whether the following statements are True of False with reasons., 1) The firm must be dissolved on the retirement of a partner., 2) On dissolution Cash / Bank Account is closed automatically., 3) On dissolution Bank Overdraft is transferred to Realisation Account., 4) A solvent partner having debit balance to his capital account does not share the deficiency, of insolvent partners capital account., 5) At the time of dissolution of partnership firm all assets should be transferred to Realisation, account., 6) Debit balance of insolvent partner’s capital account is known as capital deficiency., 7) At the time of dissolution, Loan from partner will be transferred to Ralisation account., 8) Dissolution takes place when the relation among the partner’s comes to an end., 9) The insolvency Loss at the time of dissolution of the firm is shared by the solvent partner’s, in their profit sharing ratio., 10) Realisation Loss is not transferred to insolvent partner’s capital account., , D), , Calculate the following :, 1) Vinod, Vijay and Vishal are partners in a firm, sharing profit & Losses in the ratio 3:2:1., Vishal becomes insolvent and his capital deficiency is ` 6,000. Distribute the capital, deficiency among the solvent partners., 2) Creditors ` 30,000, Bills Payable ` 20,000 and Bank Loan ` 10,000. Available Bank, Balance ` 40,000 what will be the amount that creditors will get in case of all partners, insolvency., 3) Insolvent Partners Capital A/c debit side total is ` 10,000 & Credit side total is ` 6,000, Calculate deficiency, 242
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4), , 5), , Insolvent partners capital A/c Debit side is ` 15,000 & insolvent partner brought cash, ` 6,000. Calculate the amount of Insolvency Loss to be distributed among the solvent, partners., Realisation profit of a firm is ` 6,000, partners share Profit & Loss in the ratio of 3:2:1., Calculate the amount of Realisation Profit to be credited to Partners Capital A/c, , E), , Answer in one sentence only., 1. What is dissolution of partnership firm?, 2. When is Realisation Account opened?, 3. Which accounts are not transferred to Realisation account?, 4. Who is called Insolvent person?, 5. What is capital deficiency?, 6. In what proportion is the balance on Realisation A/c transferred to Partners capital / Current, Account?, 7. Who should bear the capital deficiency of insolvent partner?, 8. Which account is debited on repayment of Partner’s Loan?, 9. Which account is debited on payment of dissolution expenses?, , F), , Complete the table., , 1), , , Debit side total, Credit side total , Loss on, of Realisaton A/c, of Realisation A/c , Realisations, ` 20,000, ?, ` 4,000, , , , 2), , Creditors , Bills Payable , Third Party Liabilities, ` 16,000, ` 12,000, ?, , , , 3), , , Credit side total , Debit side total , Profit ion, of Realisaton A/c , of Realisation A/c , Realisation, ` 21,000, ` 16,000, ?, , , , 4), , , Debit side total , Credit side total , of Capital A/c , of Capital A/c , ` 51,000, ?, , , , Cash brought, by partner, ` 17,000, , 5), , , Insolvent, Loss , ` 21,000, , , , Capital , Deficiency , ?, , , , Cash brought , by Insolvent Partner , ` 7,000, , 243
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Practical Problems, (Simple Dissolution), 1., , Ganesh and Kartik are partners sharing Profits and Losses equally. They decided to dissolve the firm on 31st March 2018. Their Balance Sheets was as under :, Balance Sheets as on 31st March 2018., Liabilities, , Creditors, Bills Payable, Reserve Fund, Capital A/c :, Genesh, Kartik, , Amount `, 18,400, 5,600, 20,000, 40,000, 80,000, , Assets, Building, Furniture, Debtors, Stock, Bills Receivable, Cash, , 1,64,000, , Amount `, 88,000, 12,000, 32,000, 24,000, 4,000, 4,000, 1,64,000, , Assets were realised as under :, Building ` 82,000, Debtors ` 22,000, Stock ` 20,000. Bills Receivable ` 3,200 and Ganesh, agreed to take over Furniture for ` 10,000. Realisation Expenses amounted to ` 2,000., Show Realisation A/c, Partners’ Capital A/c and Cash A/c., (Ans : Realisation Loss - ` 24,800, Cash A/c total ` 1,31,200,, Amount paid to Ganesh - ` 27,600 and Kartik ` 77,600), 2., , Leela, Manda and Kunda are partners in the firm ‘Janki Stores’ sharing Profits and Losses in the ratio of 3:2:1 respectively. On 31st March 2018 they decided to dissolve the firm, when their Balance Sheet was as under., Balance Sheets as on 31st March 2018., Liabilities, , Creditors, Bills Payable, Capital A/c’s, Leela, Manda, Kunda, , Amount `, 28,800, 21,600, 2,27,160, 1,44,000, 1,08,000, , Assets, Building, Machinery, Motor Car, Goodwill, Investment, Debtors, Stock, Bank, , 5,29,560, , Amount `, 1,02,000, 73,000, 1,67,600, 45,600, 62,400, 30,600, 45,000, 3,360, 5,29,560, , Leela agreed to take over the Building at ` 1,23,600. Manda took over Goodwill, Stock and, Debtors at Book values and agreed to pay Creditors and Bills payable. Motor Car and Machinery, realised ` 1,51,080 and ` 31,680 respectively. Investments were taken by Kunda at an agreed value, of ` 55,440. Realisation expenses amounted to ` 6,800, , 244
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Pass necessary entries in the books of ‘Janki Stores.’, Ans : (Reaslistion Loss 50,000, Amount to Leela - ` 78,560, Manda - ` 56,533 and, Kunda - ` 44,227.), 3., , Shailesh and Shashank were partners sharing Profits and Losses in the ratio of 3:2. Their, Balance Sheet as on 31st March 2019 was as follows :, Balance Sheets as on 31st December 2019., , Liabilities, Capital Account :, Shailesh, Shashank, Current Account :, Shailesh, Shashank, Creditors, Bills payable, , Assets, , Amount `, 10,000, 6,000, 3,000, 2,000, 17,400, 2,600, 41,000, , Amount `, 7000, 9,000, 14,000, 5,000, 6,000, , Building, Plant, Debtors, Stock, Bank, , 41,000, , The firm was dissolved on the above date and the assets realised as under., 1. Plant ` 8,000, Building ` 6,000, Stock ` 4,000 and Debtors ` 12,000., 2. Shailesh agreed to pay of the Bills Payable., 3. Creditors were paid in full., 4. Dissolution expenses were ` 1,400., Prepare Realisation A/c, Partners Current A/c, Partners Capital A/c and Bank A/c, (Ans : Realisation Loss - ` 6,400, Bank A/c Total - ` 36,000., Amount to Shailesh ` 11,760 and Shashank - ` 5,440), 4., , Asha, Usha and Nisha were partners sharing Profits and Losses in the ratio of 2:2:1. The, following is the Balance Sheet as on 31st March 2019., Balance Sheets as on 31st March 2019., , Liabilities, Capital Accounts :, Asha, Usha, Nisha, General Reserve, Creditors, Asha’s Loan A/c, Bills payable, , Assets, , Amount `, 1,20,000, 40,000, 40,000, 12,000, 80,000, 16,000, 28,000, 3,36,000, , Machinery, Investment, Debtors, Less : R. D. D., Stock, Profit and Loss A/c, Bank, , Amount `, 1,00,000, 48,000, 1,10,000, 6,000, , 1,04,000, 40,000, 36,000, 8,000, 3,36,000, , 245
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On the above date the partners decided to dissolve the firm., 1. Assets were realised as under Machinery ` 90,000, Stock ` 36,000, Investment ` 42,000, and Debtors ` 90,000., 2. Dissolution expenses were ` 6,000., 3. Goodwill of the firm realised ` 48,000., Pass Journal Entries to close the books of firm. :, (Ans : Realisation Profit - ` 8,000, Asha - ` 1,13,600, Usha -` 33,600 and Nisha - ` 36,800), 5, , Seeta and Geeta are partners in the firm sharing Profits and Losses in the ratio of 4:1., They decided to dissolve the partnership on 31st March 2020 on which date their Balance, Sheet stood as follows., Balance Sheets as on 31st March 2020, Liabilities, , Capital, Seeta, Geeta, Sundry Creditors, Bank Loan, , Assets, , Amount `, 90,000, 40,000, 35,000, 15,000, , Furniture, Plant, Trademark, Sundry Debtors, 48,000, Less - R. D. D., 3,000, Stock, Cash in hand, Advertisement Suspense, , 1,80,000, , Amount `, 14,000, 65,000, 8,000, 45,000, 30,000, 10,000, 8,000, 1,80,000, , Additional Information :, 1. Plant and Stock taken over by Seeta ` 78,000, and ` 22,000 respectively, 2. Debtors Realised 90% of the Book Value and Trademark at ` 5,000. and Goodwill was realised, for ` 27,000., 3. Unrecorded assets estimated ` 4,500 was sold for ` 1,500., 4. ` 1,000 Discount were allowed by creditors while paying their claim., 5. The Realisation Expenses amounted to ` 3,500, You are required to prepare Realisation A/c, Cash A/c and Partners Capital A/c, (Ans : Realisation Loss - ` 7,800, Cash A/c Total - ` 89,340,, Amount paid to Geeta - ` 36,840. Amount received from Sita - ` 26,640), 6., , Sangeeta, Anita and Smita were in partnership sharing Profits and Losses in the ratio, 2:2:1. Their Balance Sheet as on 31st March 2019 was as under :, , 246
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Balance Sheets as on 31st March 2019., Liabilities, , Assets, , Amount `, , Capital :, Sangeeta, Anita, Smita, Sangeeta’s Loan A/c, Sundry Creditors, Bills Payable, , 60,000, 40,000, 30,000, 1,20,000, 1,20,000, 20,000, , Land, Plant, Goodwill, Debtors, Loans and Advances, Bank, , 3,90,000, 1., 2., 3., 4., 5., , 7., , Amount `, 2,10,000, 20,000, 15,000, 1,25,000, 15,000, 5,000, 3,90,000, , They decided to dissolve the firm as follows :, Assets realised as; Land recovered ` 1,80,000; Goodwill for ` 75,000; Loans and Advances, realised ` 12,000; 10% of the Debts proved bad;, Sangeeta took Plant at book value., Creditors and Bills payable paid at 5% discount., Sandhya’s Loan was discharged along with ` 6,000 as Interest., There was a contingent Liability in respect of bills of ` 1,00,000 which was under discount. Out, of them, a holder of one bill of ` 20,000 became insolvent., Show Realisation Account, Partners Capital Account and Bank Account., (Ans : Realisation Loss - ` 4,500, Bank - ` 3,84,500,, Amount paid to Sangeeta - ` 38,200, Anita ` 38,200, Smita ` 29,100.), Saiesh, Sumit and Hemant were in partnership sharing Profits and Losses in the ratio, 2:2:1. They decided to dissolve their partnership firm on 31st March 2019 and their Balance Sheet on that date stood as;, Balance Sheets as on 31st March 2019., , Liabilities, Capital :, Saiesh, Sumit, Hemant, Loan, Sundry Creditors, Bank Overdraft, , Assets, , Amount `, 90,000, 60,000, 30,000, , Plant, Debtors, Stock, 1,80,000, 12,000, 9,000, 39,000, 2,40,000, , Amount `, 1,20,000, 45,000, 75,000, , 2,40,000, , It was agreed that;, 1. Saiesh to discharge Loan and to take Debtors at book value., 2. Plant realised ` 35,000., 3. Stock realised ` 72,000., 4. Creditors were paid off at a discount of ` 45, Show Realisation A/c, Partners’ Capital A/c and Bank A/c, (Ans : (Realisation Profit - ` 12,045, Bank - ` 2,07,000,, Amount paid to Saiesh - ` 61,818, Sumit ` 64,818, Hemant ` 32,409.), 247
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(When one Partner Became Insolvent), 8. Sitaram, Gangaram and Rajaram are partners sharing Profits and Losses in the ratio of, 4:2:3. On. 1st April 2019 they agreed to dissolve the partnership, their Balance Sheet was, as follows :, Balance Sheets as on 31st March 2019, Liabilities, Assets, Amount `, Amount `, 55,000, Building, Captital :, 25,000, 65,000 Machinery, Sitaram, 12,000, 45,000 Furniture, Gangaram, 15,000, 7,000 Investment, Rajaram, 3,500, 18,000 Bills Receivable, Reserve Fund, 21,000, 5,400 Sundry Debtors, Profit and Loss Account, 28,000, 10,000 Stock, Loan from Tukaram, 5,500, 12,000 Cash in hand, Sundry Creditors, 2,000, 4,600 Cash at Bank, Bills Payable, 1,67,,000, 1,67,000, The assets realised : Building ` 46,750 Machinery ` 18,550 Furniture ` 9,600; Investment, ` 10,650 Bill Receivable and Debtors ` 20,750; All the liabilities were paid off. The cost of realisation, was ` 800. Rajaram becomes bankrupt and ` 1,100 only was recovered from his estate., Show Realisation Account, Bank Account and Capital Account of the partners., (Ans : Realisation Loss - ` 54,000, Bank - ` 1,14,900,, , Amount paid to Sitaram - ` 50,000, Gangaram ` 37,500), 9., , Following is the Balance Sheet of Vaibhav, Sanjay and Santosh, Balance Sheets as on 31st March 2019, , Liabilities, Captital Accounts :, Vaibhav, Sanjay, Creditors, Bank Overdraft, , Assets, , Amount `, 36,000, 27,000, 12,000, 18,000, , Machinery, Goodwill, Stock and Debtors, Profit and Loss Account, Santosh’s Capital, , 93,000, , Amount `, 6,000, 9,000, 57,000, 18,000, 3,000, 93,000, , Santosh is declared insolvent so firm is dissolved and assets realised as follows :, 1. Stock and Debtors ` 54,000, Goodwill - NIL, Machinery at Book value., 2. Creditors allowed discount at 10%., 3. Santosh could pay only 25 paise in rupee of the balance due., 4. Profit sharing ratio was 8:4:3., 5. A contingent liability against the firm ` 9,000 is cleared., Give Ledger Account to close the books of the firm., (Ans : (Realisation Loss - ` 19,800, Bank - ` 62,640,, , Amount to Vaibhav - ` 10,560, Sanjay ` 14,280), 248
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(When Two Partners become Insolvent), 10. Shweta, Nupur and Sanika are partners sharing Profits and Losses in the ratio of 3:2:1., Their Balance Sheet as on 31st March 2019 was as follows :, Balance Sheets as on 31st March 2019., Liabilities, Captital A/c, Shweta, Nupur, Sundry Creditors, , Amount `, 65,000, 15,000, 95,000, 1,75,000, , Assets, Sundry Assets, Cash at Bank, Capital A/c : Sanika, , Amount `, 1,60,000, 5,000, 10,000, 1,75,000, , The firm is dissolved as on 31st March 2019. Sundry Assets realised @ 60% of its book value., Realisation expenses ` 2000 paid by Shweta, Nupur and Sanika both are insolvent., Nupur’s private estate has got a surplus of ` 3,000 and that of Sanika ` 8,000., Show necessary ledger accounts to close the books of the firm., (Ans : Realisation Loss - ` 66,000, Bank - ` 1,12,000, Deficiency of Nupur - ` 4,000, , Sanika ` 13,000, Amount paid to Sweta - ` 17,000), (When All partner become insolvent), 11. Following is the Balance Sheet as on 31st March, 2019 of a firm having Three equal partners, Priti, Priya and Prachi., Balance Sheets as on 31st March 2019., Liabilities, Assets, Amount `, Amount `, Machinery, 23,000, Capital, 16,000, 40,000 Furniture, Priti, 47,000, 35,000 Stock, Priya, 10,000, 25,000 Cash at Bank, Prachi, 84,000, 50,000 Profit and Loss Account, Trade Creditors, 30,000, Loan (secured by, Machinery), 1,80,000, 1,80,000, The firm was dissolved due to insolvency of all the partners. Machinery was sold for ` 18,000,, while Furniture fetched ` 14,000, Stock realised ` 35,000. Realisation expenses amounted to ` 2,000., Nothing could be recovered from Priya and Prachi, but ` 3,400 could be collected from Priti’s private, estate., Close the books of accounts of the firm., (Ans. : Realisation Loss - ` 21,000, Bank - ` 80,400, Deficiency of Priti - ` 8,400,, Prachi ` 10,000), , 249
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12. Shashwat and Shiv are equal partners. Their Balance Sheet stood as under :, Liabilities, Shaswat’s Captital A/c, Creditors, , Balance Sheets as on 31st March 2019., Assets, Amount `, 6,000 Plant and Machinery, 39,000 Furniture, Debtors, Stock, Cash at Bank, Shiv’s Capital, 45,000, , Amount `, 14,750, 4,000, 5,000, 6,250, 3,000, 12,000, 45,000, , Due to weak financial position all partners were declared bankrupt., The Assets were realised as follows :, Stock ` 3,500, Furniture ` 2,000, Debtors ` 5,000 and Machinery ` 7,000, The cost of collection and distributing the estate amounted to ` 1,500. Shashwat’s private estate, in not sufficient even to pay his private debts, whereas in Shiv’s private estate there is a surplus, of ` 500, Prepare necessary ledger accounts to close the books of the firm., (Ans : Realisation Loss - ` 14,000, Bank - ` 21,000,, , Deficiency of Shashwat- ` 1,000, Prachi ` 18,500), Activity :, 1. Visit any Chartered Accountant’s (C. A.) office and collect the information about the procedure of dissolved partnership firm., 2. Visit any Chartered Accountant (C. A.) office to know the practical reasons of dissolution, and its impact on Accounting., 3. Write a report on settlement of Liabilities and its sequence in case of dissloution of a firm., , bbb, , 250
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7, , Bills of Exchange, , Content, 7.1 Introduction Necessity, Meaning, Definition of Bill of Exchange, 7.2 Draft, Format of Bill of exchange, Parties to the bill of exchange, acceptance of bill, term of, bill, days of grace, date of maturity, due date, types of bills., 7.3 How Using of bill, Dishonor of bill, noting & protesting of bill, Notary public & Noting, charges., 7.4 Accounting treatment of bill by the drawer/holder, drawee in the following cases., A. Retaining the bill till due date. Honour /dishonour Insolvency of drawee / acceptor., B. Endorsement of the bill. Honour / dishnour Insolvency drawee / acceptor., C. Discounting the bill with the bank. Honour/dishonour insolvency of drawee/acceptor., D. Sending the bill to the bank for collection. Honour/dishonour, insolvency of drawee/, acceptor., E. Renewal of bill-reasons for renewal of the bill with or without charging interest., F. Making Part Payment of the basic amount interest and noting charges & drawing of, new bill., G. Honour/Dishonour of new bill., H. Insolvency of the acceptor & settlement of his account., I., Retirement of bill., J. Journal entries & Ledger (Only Drawer’s A/c / Drawee’s A/c.), Competency Statements, o, , , , , , , , Students are able to :, Know the meaning of bill of exchange, Understand the different concepts used in bills of exchange., Prepare a draft of bill of exchange & know the various types of bills of exchange, Understand retaining, sending bill for collection, discounting, endorsing, honour, renewal & , retiring of the bill., Learn various accounting treatment of bills of exchange., , 7.1 Introduction :, The ability of a customer to obtain goods or services before payment, based on trust. When, goods or services are obtained and payment will be made in the future it is known as credit, transaction. Credit transaction play a significant role in the world of business. Credit motivates, the customers to increase the amount of their spending. Moreover, business enterprises offer, credit to gain a competitive advantage in the market. To balance the potential for increased, sales with the risk of decreased cash flow and large outstanding debts the seller requires some, 251
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sort of commitment or promise from the costumer that he would pay the amount of goods,, due from him on a particular date in future. To avoid any conflict or misunderstanding about, payments, instruments of credit like Bill of Exchange and Promissory Notes are issued. In India, instruments of credit have been in use a long time and are popularly known as Hundies., 7.1 a., , , Necessity :, Commercial practice has flourished to treat bill of exchange and promissory notes as, valuable instruments of credit to an extent that when a written promise is made in proper, form and on proper stamp paper it is understood that the customer has discharged his debt, and the seller has received payment. Also, these written promises are accepted by bank, and money is advanced against it. Moreover, the instruments being negotiable instruments, can be transferred from one person to another., , 7.1 b., , , Meaning :, Negotiable instrument Act, 1881 states that Negotiable instrument means promissory, note, bill of exchange or cheque payable either to order or bearer. A bill of exchange is a, written acknowledgment of debt and also a promise to pay the debt according to the terms, of the bill. A bill of exchange is generally drawn by the creditor on his debtor and should, be accepted by the debtor., , 7.1 c., , , , Definition of Bill of Exchange and Promissory Note :, Section 5 of the Negotiable Instruments Act, 1881 defines Bill of Exchange as :, “A bill of exchanges is an instrument in writing containing an unconditional order, signed, by the maker, directing a certain person to pay certain sum of money only to, or to the, order of a certain person, or to the bearer of the instrument”., , Features of Bill of Exchange :, 1., It should be in writing., 2., It must be stamped as per the Indian Stamp Act, 1899., 3. It must be dated., 4. It must contain an order to pay certain sum of money., 5. The order must be unconditional., 6. The amount must be payable either to a certain person or his order to the bearer of the bill., 7. It must be signed by the maker., Section 4 of he Negotiable instruments Act, 1881defines Promissory Note as :, “A Promissory Note is defined as an instrument in writing, not being a bank note or a currency, note, containing an unconditional undertaking signed by the maker, to pay a certain sum money, only to or to the order of certain person, or the bearer”., 7.2 Parties to a Bill Exchange :, 1. Drawer : Drawer is person who draws or makes the bill and signs on it. He is the creditor,, who is entitled to receive the money from debtor. For the Drawer the instrument is his, “Bills Receivable”, since he has to receive the amount of the bill., 2. Drawee : Drawee is the person on whom the bill is drawn. He has to accept the bill drawn, on him. He is the debtor who has to pay money to creditor. For the Drawee the instrument, is his “Bills payable”, since he has to pay the amount of the bill., 3. Payee : Payee is the person to whom the payment is to be made., , 252
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Parties to a Promissory Note :, 1., , Maker or Drawer : He is person who draws the promissory note. He is the one who promises, to pay a certain amount as specified in the promissory note. He is also called the promiser., , 2., , Drawee or Payee : He is the person in whose favor the promissory note is drawn. He is also, called the promisee., , Additional Information, There are varieties of hundies used in our country like Shahjog hundi, Darshani hundi,, Muddati hundi, Nam-jog hundi, Dhani-jog-hundi, Jawabee Hundi etc., Contents of format of Bill of Exchange :, 1., , 2., 3., 4., 5., 6., , 7., , Date : The date on which bill has been drawn must be written at the top right-hand corner below, the address of Drawer. Date of bill is essential for calculation of maturity date. A bill without, date has no meaning., Term : Term of bill must be specified in months or in days., Amount : Amount of bill in figures should be specified below the stamp and amount in words, must be specified in the body of the bill., Stamp : Stamp of proper value according to Indian Stamp ACT, 1889 should be affixed., Parties : Name of the Drawer, Drawee and Payee and their addresses must be mentioned in the, bill of exchange., ‘For value received’ : Law does not consider agreements that are made without consideration., Consideration means in lieu of, and in context of bill of exchange, it means that the bill is issued, in exchange of some benefit received., Acceptance : A bill of exchange drawn by Drawer is termed as draft. It must be presented to the, Drawee of acceptance. When Drawee signs with his name along with date across the face of the, bill, with the words “Accepted”, the bill is said to be accepted and this act of Drawee is called, acceptance of bill. Drawee cannot be made liable for payment of bill before the acceptance of, bill. Only on acceptance the draft becomes a bill of exchange., , Additional Information, The Indian stamp Act of 1899 of the Government of India is in force for the charging, stamp Duty on instruments recording transactions., , 253
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Specimen of a bill of exchange :, BILL OF EXCHANGE, , STAMP, , (Drawer’s Name), , , , (Drawer’s Address), , , , (Date of bill drawn), `, (Amount in figures) ......., , after date, pay Mr. /Ms., (Period of bill), , (Name and address of payee), or his / her order, the sum of Rupees, only for the value received., , (Amount in words), , , , Sd. /(Drawer’s Name ), , (Drawee’s Name), , (Accepted), , , (Drawee’s Address), , , (Drawee’s Name), Date of bill accepted, , Types of Acceptance :, a., , General Acceptance : When the Drawee accepts the draft without any charges or condition,, it is called general acceptance. It is also known as unconditional acceptance., , b., , Qualified Acceptance : When Drawee accepts the bill with certain qualifications, to the order, of the Drawer it is called qualified acceptance., , Following are the types of qualified Acceptance :, i), , Qualified as to time : When Drawee accepts the bill subject to change in tenure or term of bill, it is known as qualified acceptance as to time., , ii), , Qualified as to Place : When the Drawee mentions that bill will be payable at a particular, place only, it is known as qualified acceptance as to place., , iii) Qualified as to amount : When the Drawee accepts the bill, for a part of the amount of the bill, it is known as qualified as to amount., 254
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iv), , Qualified as to parties : When the Drawee is not ready to pay the amount of bill to the payee, named in the bill, it is known as qualified acceptance as to parties., , v), , Qualified as to condition : When the Drawee accepts the bill subject to certain conditions, being fulfilled by the Drawer it is known as qualified acceptance as to conditions., , Illustration 1. (Format of After Date Bill with General Acceptance), From the following details prepare a format of bill of exchange., 1. Drawer : Mr. Prakash Rao, 648, Coral Plaza, S. B. Road, Pune, 2., , Drawee : Mr. Rahul Deo, 236, Rajapur Road, Jalgaon., , 3., , Amount ` 44,500., , 4., , Tenure or term :Three months., , 5., , Date of Bill : 3rd June, 2019., , 6., , Date of acceptance : 7th June, 2019., , Bill of Exchange, STAMP Mr. Prakash Rao,, 648 A, Coral Plaza,, S. B. Road, Pune., Date : 3rd June, 2019., , ` 44,500 , , Three months after date pay to me or my order the sum of Rupees Forty Four Thousand Five, Hundred only, for the value received., , , Sd/ , (Prakash Rao), To,, Rahul Deo,, 236, Rajapur Road,, Jalgaon., “Accepted”, Sd/(Mr. Rahul Deo), Date : 7th June, 2019., , 255
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Illustration 2. (Format of After Date Bill with General Acceptance and Payee’s name is given), From the following details prepare a format of bill of exchange., 1., , Drawer : Mr. Mukund Desai, No.14, Heritage Heights, Nagpur., , 2., , Drawee : Mr. Yogesh Tilak, Narayan Peth, Pune., , 3., , Amount ` 30,000., , 4., , Tenure or term :90 days., , 5., , Date of Bill : 16th July, 2019., , 6., , Date of acceptance : 20th July, 2019., , 7., , Payee : Shravan Dave, Panvel., , Bill of Exchange, STAMP, , Mr. Mukund Desai,, , , , No. 14, Heritage Heights,, , , , Nagpur, , ` 30,000, , Date : 16th July, 2019., , Ninety days after date pay to Shravan Dave, Panvel, or his order the sum of Rupees Thirty, Thousand Only, for the value received., , , Sd/ (Mr. Mukund Desai), , To,, Mr. Yogendra Tilak,, Narayan Peth,, Amravati., , “Accepted”, Sd/(Mr. Yogendra Tilak), Date : 20th July, 2019., , 256
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Illustration 3. (After Sight Bill), Anuratha Patil, 37-A ICC Towers, Goregaon, Mumbai drew a bill on 23rd January, 2020 for, 57,450 Bill was drawn for 2 months ‘After Sight’ on Shanti Vishwakarma, No. 43, Bhosalenagar,, Solapur, payable to Shyamala Kate, Nashik. The bill was accepted on 27th January, 2020., From the above details prepare the format of bill of exchange., , Bill of Exchange, STAMP , , Anuratha Patil,, , , , 37-A ICC Towers,, , , , Goregaon, Mumbai., , ` 57,450 , , Date : 23rd January, 2020., , Two months after sight pay to Shyamala Kate, Nashik, or her order a sum of Rupees Fifty, Seven Thousand Four Hundred and Fifty only, for the value received., , Sd/ (Anuradha Patil), To,, Shanti Vishwakarma,, No. 43, Bhosalenagar,, Solapur,, “Accepted”, Sd/(Shanti Vishwakarma), Date : 27th Januay, 2020., , 257
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Illustration 4. (Qualified Acceptance as to Amount), Prepare a format bill of exchange from the following details., Mr. Amol Sane, 42, Gangadham, M. G. Road, Ratnagiri draws a 45 days bill on Mrs. Sagarika, Mane, 345, Kumthekar Road, Pune, for ` 18,750 on 1st March, 2020 which was accepted on, 4th March, 2020 for ` 15,000 only, by Mrs. Sagarika Mane., , Bill of Exchange, STAMP, , Mr. Amol Sane,, , , , 42, Gangadham,, , , , M. G. Road, Ratnagiri, ` 18,750, , Date : 1st March, 2020., , Forty Five days after date pay to me or my order a sum of Rupees Eighteen Thousand Seven, Hundred and Fifty only, for the value received., , , , , Sd/(Amol Sane), , To,, Mrs. Sagarika Mane,, 345, Kumthekar Road,, Pune,, Accepted for ` 15,000 only, Sd/(Sagarika Mane), Date : 4th March, 2020., , 258
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Illustration 5. (Qualified Acceptance as to time), Partners of Neerja Publishing House, Nariman Point, Mumbai, Sameer Gupta, draws a bill, of exchange for 1 month on 9th February, 2020 for ` 62,000 on Namrata Kokil, Panvel Road,, Kharghar, payable to M/s Vidya Traders, Lonavala. The bill was accepted on the same day for, 2 months., From the above details prepare a format of bill of exchange., , Bill of Exchange, STAMP, , Neerja Publishing House,, , , , Nariman Point,, , , , Mumbai, , ` 62,000, , Date : 9th February, 2020., , One month after date pay to M/S Vidya Traders, Lonavala, or their order a sum of Rupees, Sixty Two Thousand only, for the value received., , , , , , , Sd/(Sameer Gupta), Partner for Neerja Publishing House, , To,, Namrata Kokil,, Panvel Road,, Kharghar, , , Accepted for Two months, Sd/(Namrata Kokil), Date : 9th February, 2020., , 259
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Illustration 6. (Demand Bill), Prepare a format of bill of exchange from the following details., 1., 2., , Drawer : Kedar Pandit, 22/1, Kalpataru Estate, Pirangut, Pune., Drawee : Gauri Mulay, Vashi, Navi Mumbai., , 3., , Date of Bill : 14th August, 2019., , 4., , Date of acceptance : 17th August, 2019., , 5., , Amount ` 38,740, Bill of Exchange, STAMP , , Kedar Pandit,, , , , 22/1, Kalpataru Estate,, , , , Pirangut, Pune., , ` 38,740 , , Date : 14th August, 2019., , On demand pay to me or my order a sum of Rupees Thirty Eight Thousnad Seven Hundred, and Forty only, for the value received., , , , Sd/-, , , , (Kedar Pandit), , To,, Gauri Mulay,, Vashi,, Navi Mumbai., Date 17th August, 2019., Accepted, Sd/(Gauri Mulay), Date 17th August, 2019., (Note : Period of bill is not mentioned in a Demand Bill. Amount is to be paid by the acceptor, on presentation of bill by the Drawer), , 260
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Format of Promissory Note, , Promissory Note, STAMP, , Mamta Samant,, , , , 13/A, Business Centre,, , , , L. B. S. Road, Mulund,, , , , Mumbai., ` 20,000, , Date : 10th January, 2019., , Three months after date I promise to pay Beena Sharma or her order a sum of Rupees Twenty, Thousand only, for the value received., , , , Sd/-, , , , (Mamta Samant), , To,, Sunita Karve,, M. G. Road,, Surat., Important trems of Bill of Exchange :, 1., 2., 3., , 4., , Term or Tenor or Tenure of bill : The term of bill is period of time after which a bill becomes, payable. Term of bill may be in months or days., Draft : A bill before acceptance is known as draft., Days of grace : Three extra days allowed by law over and above the term of bill to the Drawee, in order to make arrangement for payment of the amount of the bill is known as days of grace., However, days of grace is not allowed for bill payable on ‘Demand’ or ‘At Sight’., Date of maturity or Due date of bill : The date on which a bill falls due for payment is known, as date of maturity or due date., If the due date falls on a public holiday the payment of bill is to be made on the preceding, working day. For example, if the due date of a bill is 26th January or 15th August which is a, public holiday then the payment of the bill be made on the preceding day i.e. 25th January or, 14th August., However, if the due date for some reason has been declared as emergency holiday the payment, of bill must be made on the immediate or next working day., 261
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Types of due date :, a., , Nominal Due Date : Date which is calculated without adding days of grace to the period of bill, is known as nominal due date., , b., , Legal Due Date : Date which is arrived at after adding three days of grace to nominal due date, is known as legal due date., , Calculation of due date :, A), , In case of Bills Payable ‘After Date’, , i), , Tenure of bill given in months :, , A bill dated 12th June, 2019 is payable 2 months after date. Calculate the due date of the bill., Date of Bill, (+) Tenure of bill, Nominal due date, (+) Days of grace, Legal due date, , DAY, 12, 12, 3, 15, , MONTH, 6, 2 (months), 8, , YEAR, 2019, , 8, , 2019, , 2019, , i.e. 15th August, 2019, Since 15th August is a public holiday on account of Independence Day the bill will fall due for, payment on 14th August 2019., ii), , Tenure of bill given in days :, , A bill dated 14th December, 2019 is payable 90 days after date. Calculate the due date of the bill., MONTH, December 2019, January 2020, February 2020, March 2020, , Actual days, 31, 31, 29, 31, , Unexpired Days, (31-14), 17, 31, 29, 13, Total, 90 days, , Thus, Nominal due date, = 13th March, 2020, (+) Grace days , +3, th, Therefore, Legal due date, = 16 March, 2020, B) In case of Bills Payable ‘After Sight’ :, Method of calculation of due date is same of ‘After Date’ and ‘After Sight’ bill. The only difference, is that the term of bill is counted from the date of acceptance and not from the date of drawing in case, of Bills Payable ‘After Sight’., A bill dated 27th December, 2019 is payable 2 months after sight. It was accepted on, 31st December, 2019. Calculate the due date of the bill., Date of acceptance = December, 2019, 262
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Therefore, 31st December, 2019 to 31st January, 2020 = 1 month, 31st January, 2020 to 29th February, 2020 = 2 months, , Nominal due date is 29th February, 2020, , (+) Grace days = 3 days of March, Therefore, Legal due date is 3rd March, 2020., 5., , Holder: Any person who is in possession of bill of exchange, and is entitled in his own right to, receive the amount thereon is known as holder., , 6., , Holder in due course : A holder in due course is a person who obtains a negotiable instrument,, i), for valuable consideration,, ii) in good faith and, iii) before maturity., , 7., , Types of Bill of Exchange :, i), , Trade Bill : A bill of exchange which is drawn by a creditor on his debtor with valuable, consideration is known as trade bill. It is a bill drawn and accepted for genuine trade, transactions., , ii), , Accommodation Bill : A bill of exchange which has been drawn for mutual financial, accommodation of parties involved in is known as accommodation bill. Such bills are, drawn and accepted without any valuable consideration. The main objective of such bill, is to oblige friends., , iii) Inland Bill : A bill of exchange which is drawn between two parties that are located or, reside in the same country and thus, are made payable in the same country is known as, inland bill of exchange., iv), , Foreign Bill : A bill which is drawn in one country and made payable in another country, is known as foreign bill. For example, a bill drawn in India and is made payable in Australia or vice versa., A further classification of Bill of Exchange are as follows :, , i), , After Date Bill : After date bill is payable at a fixed period. The due date of this bill is, calculated from the date of drawing. Grace period of three days are allowed on these bills., , ii), , After Sight Bill : The due date of this bills calculated from the date of acceptance. Grace, period of three days are allowed on these bills., , iii) Bill payable on Demand or At sight : These bills are payable immediately on presentation to the Drawee. Time period is not mentioned for these bills. Also grace days are not, allowed for such bills., 7.3 Honouring of Bill of Exchange : A bill of exchange drawn for a certain period becomes due, for payment on the due date. If the Acceptor or Drawee pays the amount of the bill on the due, date it is known as honouring of bill. The bill must be presented by the holder to the acceptor for, payment on or before the due date. Failing to do so discharges the acceptor and every endorser, of bill from the liability to pay the amount of the bill., Dishonouring of Bill of Exchange : If the accepter does not or is not able to pay the amount of, bill to the holder of the bill it is known as dishonour of bill., A bill may be dishonoured in two ways;, 263
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i), Dishonour by non-acceptance : i.e. when Drawee does not accept the bill., ii) Dishonour by non-payment : i.e. when Drawee makes default in payment on due date., On dishonour of bill acceptor becomes liable to pay the amount along with legal expenses if, any incurred by the holder on account of dishonour., Noting of dishonour : Noting means recording of the fact of dishonour of bill of exchange, by a Notary Public. When a bill of exchange is dishonoured the holder can, after giving due notice, of dishonour, sue the Drawee. But before filling such a suit holder will require some authenticated, proof of the fact to be put up before the court that the bill is actually dishonoured. The holder takes, the bill to the Notary Public who in turn makes a demand for acceptance or payment upon the, Drawee formally and on his refusal to do so, notes the same on the bill. Noting should be done within, reasonable time after dishonour., Protesting : After getting the fact of dishonour of bill authenticated by getting it noted the, Notary Public then certifies the same. This certificate is known as protest. Thus, protest is a certificate, which is formal in nature and attests the fact of dishonour of a bill based on noting., Notary Public : A Notary Public is a legal practitioner or other public servant appointed by, Central or State Government under Section 3 of the Notaries Act, 1952. He is entrusted with the, power of attestation of foreign documents and of noting and protesting of dishonoured bills exchange, and promissory notes., Noting Charges : The holder of the bill has to get the fact of dishonour noted by the Notary, Public. Noting of bill is done by recording the fact of dishonour, date of dishonour and reasons, of dishonour. For this the Notary Public, charges certain fees which is known as Noting Charges., Noting Charges are initially paid by the holder of the bill, who gets the bill noted for dishonour and, subsequently recovers the amount from the person from whom the bill has been received. Noting, Charges are ultimately borne by the person who is primarily liable for it. Thus, Noting Charges are, paid by the holder and borne by the Drawee., Classification of Bills for Accounting :, Bills Receivable : A bill of exchange is treated as Bills Receivable by the person who draws the, bill. Bills Receivable is an asset for the Drawer., Bills Payable : A bill of exchange is treated as Bills Payable by the person who accepts the bill, drawn on him. Bills Payable is a liability to the Drawee., Specimen of Bills Receivable Book, No., Date, Date From, of received, of, whom Drawer Acceptor Where Term, Bill, Bill received, payable, , Due, date, , Ledger Amount, `, folio, , Cash, Book, Folio, , Remarks, , Specimen of Bills Payable Book, No., of, Bill, , Date, of, Bill, , To, whom, given, , Drawer Payee, , Where Term Due, payable, Date, , Ledger, folio, , Amount, Date, paid, `, , 264, , Cash, Book, Folio, , Remarks
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Accounting treatment of Bill of Exchange, Bills Receivable being an asset can be dealt in the following ways by the Drawer :, 1. Retaining, the bill till, the due date, , 4. Sending, the bill to, bank for, collection., , Treatment, of Bill of, Exchange by, Drawer., , 2. Discounting, the bill with, the bank, , 3. Endorsing, the bill to the, creditor for, settlement of, account., Fig.7.3 (a), 1., , Retaining the bill till the due date : Drawer can retain the bill till the due date. On the due, date he presents the bill to the Drawee for payment which can be honoured or dishonoured by, the Drawee., Sells Goods on Credit, Buyer, , Seller, , Draws the Bill, Creditor or Drawer, , Drawee accepts the Bill, and send it to Drawer, Holder, , , Holder, , , Debtor or Drawee, , Acceptor, , Presents the bill for payment, Acceptor, Drawee or acceptor, honours the bill on due date, Acceptor, , Holder, 265
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Accounting treatment in the books of Drawer and Drawee :, Transaction, 1, , 2, , 3, , 4, , 5, , Books of Drawer / Creditor, , Books of Drawee / Debtor, , Creditor sells goods on Debtor’s A/c, Dr., credit, To Sales A/c, (Being goods sold on credit), , Purchases A/c, Dr., To Creditor’s A/c, (Being goods purchased on, credit), Creditor or Drawer draws a Bills Receivable A/c, Dr., Drawer’s A/c, Dr., bill and acceptance, To Drawee’s A/c, To Bills Payable A/c, received, (Being bill drawn and accep- (Being acceptance given), tance received), Retained bill honoured on Cash / Bank A/c, Dr., Bills Payable A/c, Dr., the due date., To Bills Receivable A/c, To Cash / Bank A/c, (Being retained bill duly, (Being our acceptance, honoured on the due date, honoured ), Retained bill dishonoured Drawee’s A/c, Dr., Bills Payable A/c, Dr., on the due date., To Bills Receivable A/c, To Drawee’s A/c, (Being retained bill dishonoured (Being our acceptance, on the due date.), dishonoured on the due, date), Retained bill dishonoured Drawee’s A/c, Dr., on the due date and noting, To Bills Receivable A/c, charges paid by Drawer., To Cash A/c, (Being retained bill dishonoured, on the due date and Noting, Charges paid, , Bills Payable A/c, Dr., Noting Charges A/c, Dr., To Drawer’s A/c, (Being our acceptance, dishonoured and Noting, Charges payable), , When retained bill is dishonoured, the duty of establishing the fact that the bill was presented, to Drawee for payment is of the Drawer. Drawer pays the Noting Charges which will ultimately, be recovered from Drawee., Illustration on Retained Bill, On 1st June, 2019 Pratap sold goods to Sujit worth ` 82,000. Sujit accepted a bill drawn upon him, by Pratap for 2 months for ` 82,000. Give Journal entires in the book of Pratap and Sujit for the, following cases :, a) Bill is honoured on the due date., b) Bill is dishonoured on the due date., c) Bill is dishounoured on the due date and Noting charges ` 250 paid by Pratap., , 266
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In the books of Pratap, Journal, Date, , Particulars, , L. F., , 2019, June 1, , Sujit’s A/c.............................................................Dr., To Sales A/c, (Being goods sold on credit), , June 1, , Bills Receivable A/c............................................Dr., To Sujit’s A/c, (Being bill drawn and acceptance received), Cash / Bank A/c...................................................Dr., To Bill Receivable A/c, (Being Sujit’s acceptance honoured on the due date), Sujit’s A/c..............................................................Dr, To Bills Receivable A/c, (Being Sujit’s acceptance dishonoured on the due, date), Sujit’s A/c.............................................................Dr., To Bills Receivable A/c, To Cash A/c, (Being Sujit’s acceptance dishonoured and Noting, charges paid), , a) Aug. 4, , b) Aug. 4, , c) Aug. 4, , Debit, Amount `, 82,000, , Credit, Amount `, 82,000, , 82,000, 82,000, 82,000, 82,000, 82,000, 82,000, , 82,250, 82,000, 250, , In the books of Sujit, Journal, Date, 2019, June 1, June 1, , a) Aug. 4, , b) Aug. 4, , c) Aug. 4, , Particulars, , L. F., , Purchases A/c......................................................Dr., To Pratap’s A/c, (Being goods purchased on credit), Pratap’s A/c.........................................................Dr., To Bills Payable A/c, (Being our acceptance given), Bills Payable A/c.................................................Dr., To Cash / Bank A/c, (Being our acceptance honoured on the due date), Bills Payable A/c.................................................Dr., To Pratap’s A/c, (Being our acceptance dishonoured on the due date), Bills Payable A/c.................................................Dr., Noting Charges A/c, To Pratap’s A/c, (Being our acceptance dishonoured and Noting, charges paid), , 267, , Debit, Amount `, 82,000, , Credit, Amount `, 82,000, , 82,000, 82,000, 82,000, 82,000, 82,000, 82,000, 82,000, 250, 82,250
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2., , Discounting the Bill of Exchange : A bill is drawn for a particular term and the acceptor pays, the amount of bill on the due date. Drawer or Holder can obtain payment from bank before, its due date by discounting the bill. Discounting is a device to convert the bill into its present, value. A bill can be generally discounted with the bank where the Drawer has an account. Bank, deducts certain amount of bill for the services rendered which is known as discounting charges., Discount being an expense for Drawer is debited in his books of accounts., Sells the goods on credit, , Seller / Creditor, , Buyer / Debtor, , Draws the bill, , Drawer, , Drawee, , Drawee accepts the bill, , Holder / Payee, , Acceptor, , Cas, Dis, , h r, ece, ive, d, , wit, , cou, , h th, , nts, , eb, , the, , ank, , he, ts t, , sen, , Pre, , bill, , on, , BANK, , due, , bill, e, , dat, , ash, , C, ved, , ei, , Rec, , Calculation of Discount, Illustration 1 :, Rahul draws a bill on Atul for ` 15,000 on 1st April, 2019 payable after 4 months. Calculate the, amount of discount in the following cases :, i), The bill has been discounted @ 10% p.a. on 1st April, 2019., ii) The bill has been discounted @ 10% p.a. on 1st June, 2019., Solution :, , Unexpried months, Rate, ×, 100, 12, 10, , = 15,000 ×, × 4, 100 12, = ` 500, (Note: The bill is with the bank for 4 months), i), , Discount = Amount of Bill ×, , Unexpried months, Discount = Amount of Bill × Rate ×, 100, 12, 2, 10, = 15,000 ×, ×, 12, 100, = ` 250, (Note : The bill is with the bank for 2 months only), , ii), , 268
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Illustration 2 :, Shivam drawn a bill on Ganesh for 21,900 on 15th May, 2019 for 60 days. He discounts the bill on, the same day with his Bank at 8% p.a. Calculate the amount of discount., Solution :, , Unexpried days, Discount = Amount of Bill × Rate ×, 100, 365, 8, 60, = 21,900 ×, ×, 100 365, = ` 288, Illustration 3 :, Pankaj drawn a bill on Sanjay for ` 25,620 on 1st March, 2020 for 90 days. He discounts the bill on, the same day with his back at 10% p.a. Calculate the amount of discount., Solution :, , Unexpried days, Discount = Amount of Bill × Rate ×, 100, 366, = 25,620 × 10 × 90, 100, 366, = ` 630, (Note 2020 is a leap year, therefore it is 366 days), , Accounting Treatment in the Books of Drawer and Drawee :, 1, , 2, , 3, , 4, , Transaction, Books of Drawer, Drawer discount the bill Bank A/c, Dr., with the bank, Discount A/c, Dr., To Bills Receivable A/c, (Being Drawee’s acceptance, discounted with the bank), Discounted bill honoured There will be no entry because, on the due date, Drawer has already received the, Cash, , Books of Drawee, There will be no entry, because Drawee is not a, party to the, transaction., , Bills Payable A/c, Dr., To Cash / Bank A/c, (Being our acceptance, honoured), Discounted bill dishonoured Drawee’s A/c, Dr. Bills PayableA/c, Dr., on the due date, To Bank A/c, To Drawer’s A/c, (Being discounted bill, (Being our acceptance, dishonoured), dishonoured on the due date), Dr., Discounted bill dishonoured Drawee’s A/c, Dr. Bills Payable A/c, and noting charges paid by, Noting Charges A/c, Dr., To Bank A/c, bank, To Drawer’s A/c, (Being discounted bill, dishonoured on the due date and (Being our acceptance, dishonoured and Noting, Noting Charges paid by bank), Charges payable), Amount = Amount of bill +, Noting Charges), , 269
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Additional Information, A bill broker is a discount house, a firm which buys and sells bills of exchange for a fee., Illustration on Discounting the bill with the bank, Ajinkya owes ` 45,000 to Ashwin. On 12th July, 2019 Ashwin received a crossed cheque of ` 15,000, from Ajinkya and for the balance ` 30,000 Ajinkya accepted a bill for 3 months. Ashwin got the bill, discounted with his bank at 15% p. a. on the same day. Give journal entries in the books of Ashwin, and Ajinkya for the following cases :, a) Bill honoured on due date., b) Bill dihonoured on due date., c) Bill dishonoured on due date and noting charges ` 300 paid by bank., In the books of Ashwin, Journal, Date, 2019, July 12, , July 12, , a) Oct. 15, b) Oct. 15, , c) Oct. 15, , Particulars, , L. F., , Bank A/c.............................................................Dr., Bill Receivable A/c..............................................Dr., To Ajinkya’s A/c, (Being cheque received and for balance bill drawn, and acceptance received), Bank A/................................................................Dr., Discount A/c.........................................................Dr., To Bills Receivable A/c, (Being Ajinkya’s acceptance discounted with the, bank), No Entry, Ajinkya’s A/c.......................................................Dr., To Bank A/c, (Being Ajinkya’s acceptance discounted with bank, dishonoured), Ajinkya’s A/c.......................................................Dr., To Bank’s A/c, (Being Ajinkya’s acceptance discounted with bank, dishonoured and Noting charges paid by Bank), , 270, , Debit, Amount `, 15,000, 30,000, , Credit, Amount `, , 45,000, , 28,875, 1,125, 30,000, , 30,000, 30,000, , 30,300, 30,300
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Note : Noting Charges paid by bank is added to the amount., In the books of Ajinkya, Journal, Date, 2019, July 12, , July 12, , b) Oct. 15, , c) Aug. 4, , 3., , Particulars, , L. F., , Debit, Amount `, 45,000, , Ashwin’s A/c.......................................................Dr., To Bank A/c, To Bills payable A/c, (Being paid by cheque and accepted a bill for, balance), Bills payable A/c.................................................Dr., To Cash/Bank A/c, (Being our acceptance dishonoured on the due date), Bills payable A/c.................................................Dr., To Ashwin’s A/c, (Being our acceptance dishonoured), Bills payable A/c ................................................Dr., Noting charges A/c..............................................Dr., To Ashwin’s A/c, (Being our acceptance dishonoured and Noting, charges payable), , Credit, Amount `, 15,000, 30,000, , 30,000, 30,000, 30,000, 30,000, 30,000, 300, 30,300, , Endorsement of Bill of Exchanges :, A further use of exchange is to settle a debt that Drawer or holder owes to their creditors., Endorsement is words written at the back of the bill of exchange along with signature of, transferor for transferring the title of bill. A bill of exchange being negotiable instrument can be, transferred from one person to another in due course. The holder who transfers the title of the, bill is called endorser and the person in whose favor the bill is transferred is called endorsee., The process of endorsement may continue till the due date, Sells the goods on credit, , Seller / Creditor, , Buyer / Debtor, , Draws the bill, , Drawer, , Drawee, , Drawee accepts the bill, , Holder, , Acceptor, , and returns it to Drawer, End, , ors, , es t, , he, , he, ts t, , sen, , Pre, , bill, , on, , ENDORSEE, , 271, , due, , bill, e, , dat, , h to, , s, e ca, , s th, y, a, P, ee, ors, d, n, e
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Accounting Treatment in the Books of Drawer, Drawee and Endorsee :, 1, , 2, , 3, , 4, , Drawer endorses the bill to Endorsee, Books of Drawer /, Books of Drawee, Books of Endorsee, Endorser, Endorsee’s A/c, Dr. There will be no entry as, Bills Receivable A/c Dr., To Endorser’s A/c, To Bills Receivable A/c Drawee is not a party, (Being Drawee’s, to the transaction, (Being Bills Receivable, acceptance endorsed to, received from our debtor), our creditor), Endorsed bill honoured on the due date, Books of Drawer /, Books of Drawee, Books of Endorsee, Endorser, There will be no entry as, Bills Payable A/c, Dr., Cash / Bank A/c, Dr., Drawer is not a party to, To Cash / Bank A/c, To Bills Receivable, the, A/c, (Being our acceptance, transaction, (Beign Bills Receivable, honoured), received honoured), Endorsed bill dishonoured on the due date, Books of Drawer /, Books of Drawee, Books of Endorsee, Endorser, Drawee’s A/c, Dr, Bills Payable A/c, Dr. Endorser’s A/c, Dr., To Endorsee’s A/c, To Drawer’s A/c, To Bills Receivable, A/c, (Being endorsed bill, (Being our acceptance, (Being Bills Receivable, dishonoured on the due, dishonoured), date), received dishonoured), Endorsed bill dishonoured and noting charges paid by Endorsee, Books of Drawer /, Books of Drawee, Books of Endorsee, Endorser’s A/c, Dr., Dr., Drawee’s A/c, Dr. Bills Payable A/c, To Bills Receivable, Noting Charges A/c, Dr., To Endorsee’s A/c, A/c, To Drawer’s A/c, (Being endorsed bill, To Cash A/c, (Being our acceptance, dishonoured and Noting, (Being Bills Receivable, Charges paid by endorsee) dishonoured and Noting, received dishonoureed, (Amount = Amount of bill Charges payable), and Noting Charges paid), and Noting Charges), , Illustration on Endorsement of Bill, Pallavi sold goods of ` 25,000 to Vandana at 10% Trade discount on 16th Feb. 2019. On the same, day Vandana accepted a bill drawn on her for the amount due for 3 months. Pallavi endorsed the bill, to her creditor Purva on 18th Feb. 2019., Give journal entries in the books of Pallavi, Vandana and Purva for the following :, a) Bill was honoured on the due date, b) Bill was dishonoured on the due date, c) Bill was dihonoured on the due date and noting charges paid by Purva ` 175., 272
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In the books of Pallavi, Journal, Date, 2019, Feb. 16, Feb. 16, , Feb. 18, , Particulars, , L. F., , Vandana’s A/c.....................................................Dr., To Sales A/c, (Being goods sold on credit at 10% Trade Discount), Bills Receivable A/c............................................Dr., To Vandana’s A/c, (Being bill drawn and acceptance received), Purva’s A/c.........................................................Dr., To Bills Receivable A/c, (Being Vandana’s acceptance endorsed), , Debit, Amount `, 22,500, , Credit, Amount `, 22,500, , 22,500, 22,500, 22,500, 22,500, , a) May 19 No Entry, b) May 19 Vandana’s A/c.....................................................Dr., To Purva’s A/c, (Being Vandana’s acceptance endorsed dishonoured), , 22,500, 22,500, 22,675, , c) May 19 Vandana’s A/c.....................................................Dr., To Purva’s A/c, (Being Vandana’s acceptance endorsed dishonoured, and noting charges paid by Purva), , 22,675, , In the books of Vandana, Journal, Date, , Particulars, , 2019, Feb. 16, , Purchases A/c .................................................... Dr., To Pallavi’s A/c, (Being goods purchased on credit at 10% Trade, Discount), Pallavi’s A/c ....................................................... Dr., To Bills Payable A/c, (Being our acceptance given), , Feb. 16, , L. F., , Debit, Amount `, 22,500, , 22,500, 22,500, 22,500, , a) May 19 Bills Payable A/c ............................................... Dr., To Cash / Bank A/c, (Being our acceptance honoured on the due date), , 22,500, , b) May 19, , 22,500, , Bills Payable A/c................................................ Dr., To Pallavi’s A/c, (Being our acceptance dishonoured on the due date), , c) May 19 Bills Payable A/c ................................................ Dr., Noting Charges A/c.............................................. Dr., To Pallavi’s A/c, (Being our acceptance dishonoured and Noting, Charges payable, 273, , Credit, Amount `, , 22,500, , 22,500, 22,500, 175, 22,675
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In the books of Purva, Journal, Date, , Particulars, , L. F., , Debit, Amount `, 22,500, , 2019, Feb. 18, , Bills Receivable A/c............................................Dr., To Pallavi’s A/c, (Being Bills Receivable received ), a) May 19 Cash / Bank A/c...................................................Dr., To Bills Receivable A/c, (Being cash received on Bills Receivable), b) May 19 Pallavi’s A/c.........................................................Dr., To Bills Receivable A/c, (Being Bills Receivable dishonoured), , 22,500, 22,500, 22,500, 22,500, 22,500, , c) May 19 Pallavi’s A/c.........................................................Dr., To Bills Receivable A/c, To Cash A/c, (Being Bills Receivable dishonoured and Noting, Charges paid), 4., , Credit, Amount `, , 22,675, 22,500, 175, , Bills sent to Bank for Collection, Holder of the bill can send the bill to bank for collection. In business enterprises a large number, of bills receivable are received regularly and it is difficult to remember to present various bill to, different Drawees on different due dates. In such cases the Drawer sends the bill to his/her bank, who will collect the amount of these bills on due date on behalf of the Drawer. For this service, bank charges certain fees known as Bank Charges. Drawer opens a temporary account for this, purpose known as “Bill sent for collection A/c”. This account closes on the due date of the Bill., Sells the goods on credit, , Seller / Creditor, , Buyer / Debtor, , Draws the bill, , Drawer, , Drawee, , Accepts the bill, , Holder, , Sen, , he, , k fo, , t, , ts i, , ds t, , Ban, , Acceptor, , r co, , bill, llec, , n, rese, , P, to t, , on, , he, , tion, , due, , 274, , the, , o, , sh t, , ca, ays, , P, , BANK, , e, , dat, , k, , ban
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Accounting Treatment in the Books of Drawer and Drawee :, 1, , 2, , Transaction, Books of Drawer, Bill sent to bank for Bill sent for collection A/c....Dr., collection, To Bills Receivable A/c, (Being bill sent to bank for, collection), Bill sent to bank for Bank A/c................................Dr., collection honoured on the Bank Charges A/c..................Dr., due date and Bank charges, To Bill sent for collection A/c, debited by bank., (Being bill honoured), , 3, , Bill sent to bank for Drawee’s A/c..........................Dr., collection dishonoured on, To Bill sent for collection, the due date, (Being bill sent for collection, dishonoured), , 4, , Bill sent to bank for Drawee’s A/c..........................Dr., collection, dishonoured, To Bill sent for collection A/c, on due date and Noting, To Bank A/c, Charges paid, (Being bill sent for collection, dishonoured and Noting Charges, paid), , Books of Drawee, There will be no entry, because Drawee is not a, party to the, transaction., Bills Payable A/c .........., Dr., To Cash / Bank A/c, (Being our acceptance, honoured), Bills PayableA/c............, Dr., To Drawer’s A/c, (Being our acceptance, dishonoured), Bills Payable A/c, Dr., Noting Charges A/c, Dr., To Drawer’s A/c, (Being our acceptance, dishonoured and, Noting Charges payable), , Illustration on Bill sent to the Bank for collection, Anita sold goods to Nita ` 33,500 8th May 2019. On the same day Anita draws a bill of ` 22,500 on, Nita for 4 months was accepted by Nita. On 4th April 2019 Anita sent the bill to bank for collection., a) Bill is honoured on the due date and Anita paid bank charges ` 200., b) Bill is dishonoured on the due date., c) Bill is dishonoured on the due date and noting charges paid ` 150., , 275
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Date, 2019, Mar. 8, Mar. 8, , Apr. 4, , a) Jul. 11, , b) Jul. 11, , c) Jul. 11, , Date, 2019, Mar. 8, Mar. 8, , a) Jul. 11, , b) Jul. 11, , c) Jul. 11, , In the books of Anita, Journal, Particulars, , L. F., , Nita’s A/c............................................................Dr., To Sales A/c, (Being goods sold for cash), Bills Receivable A/c ...........................................Dr., To Nita’s A/c, (Being bill drawn and acceptance received), Bill sent to Bank for Collection A/c....................Dr., To Bills Receivable A/c, (Being bill sent to bank for collection), , 22,500, 22,500, 22,500, 22,500, 22,300, 200, 22,500, 22,500, 22,500, , Nita’s A/c.............................................................Dr., To Bill sent to Bank for Collection A/c, To Cash / Bank A/c, (Being bill sent to bank for collection dishonoured, and Noting Charges paid, , Purchases A/c .....................................................Dr., To Anita’s A/c, (Being goods purchased on credit), Anita’s A/c A/c.....................................................Dr., To Bills Payable A/c, (Being our acceptance given), Bills Payable A/c...............................................Dr., To Cash A/c, (Being our acceptance hounoured on the due date), Bills Payable A/c...............................................Dr., To Anita’s A/c, (Being our acceptance dishounoured on the due date), Bills Payable A/c...............................................Dr., Noting Charges A/c..............................................Dr., To Anita’s A/c, (Being our acceptance dishounoured and Noting, Charges payable), 276, , Credit, Amount `, 33,500, , Bank A/c..............................................................Dr., Bank Charges A/c...............................................Dr., To Bill sent to Bank for Collection A/c, (Being bill honoured and bank charges paid), Nita’s A/c............................................................Dr., To Bill sent to Bank for Collection A/c, (Being bill sent to Bank for collection dishonoured), , In the books of Nita, Journal, Particulars, , Debit, Amount `, 33,500, , 22,650, 22,500, 150, , L. F., , Debit, Amount `, 33,500, , Credit, Amount `, 33,500, , 22,500, 22,500, 22,500, 22,500, 22,500, 22,500, 22,500, 150, 22,650
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Renewal Bill of Exchange, Cancellation of bill on maturity in return of a new bill for an extended period of credit is known as, renewal of bill of exchange. When the acceptor of the bill after acceptance has some doubt that he, would not be able to honour the bill on the due date, he requests the Drawer to cancel the original, bill and to draw a fresh bill on him for a further period of time. If the Drawer agrees to such on offer, the Drawee gets extra time of credit for which Drawee has to pay interest. Amount of interest can be, paid along with part payment or with the new bill., Steps in Renewal of Bill, i., Cancellation or Dishonour of old bill., ii. Interest due on balance., iii. Receiving / Paying of part payment., iv. Drawing and acceptance of new bill., Accounting Treatment in the Books of Drawer and Drawee :, 1, , 2, , 3, , 4, , Note :, , , , , , Transaction, Books of Drawer, Cancellation of old Drawee’s A/c............................. Dr., bill or, To Bills Receivable A/c or, Dishonour of bill, To Bank A/c or, To Bill Sent for Collection A/c or, To Endorsee’s A/c, (Being old bill cancelled for, renewal), Interest, due, on Drawee’s A/c............................. Dr., balance amount, To Interest A/c........................ Dr., (Being Interest due), Receving / Paying Cash / Bank A/c.......................... Dr., part payment, To Drawee’s A/c, (Being part payment received along, with interest), (Amount of interest will be, added to this amount if interest is, received along with part, payment), Drawing, and Bills Receivable A/..................... Dr., acceptance of new, To Drawee’s A/c, bill, (Being new bill drawn and, acceptance received), (Amount of interest will be added to, this amount if interest is receivable, along with new bill), , Books of Drawee, Bill Payable A/c............. Dr., To Drawer’s A/c, (Being, our, acceptance, cancelled for renewal), , Interest A/c...................... Dr, To Drawer’s A/c, (Being Interest due), Drawer’s A/c.................. Dr., To Cash / Bank A/c, (Being part payment made, along with interest), , Drawer’s A/c.................. Dr., To Bills Payable A/c, (Being new bill accepted for, the balance), , Whenever the bill is dishonoured Drawee’s account is always debited., Bills Receivable account is credited if the bill is retained., Bank account is credited if the bill is discounted with the bank., Bill sent for collection account is credited if the bill is sent to bank for collection., Endorsee’s account is credited if the bill is endorsed., 277
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Different ways to pay interest, part payment and acceptance of new bill., a. Amount of interest paid in cash., New bill drawn and accepted for full amount., b., , Part payment including interest., New bill drawn and accepted for the balance amount., , c., , Part payment excluding interest., New bill drawn and accepted for the balance amount along with interest., , Alternate Accounting Treatment (When interest paid in cash immediately), 1, , 2, , 3, , Transaction, Cancellation of old bill, , Books of Drawer, Drawee’s A/c, Dr., To Bills Receivable A/c or, To Bank A/c or, To Bill sent for collection A/c, or, To Endorsee’s A/c, (Being old bill cancelled for, renewal), Interest paid in cash along Cash / Bank A/c, Dr., with part payment, To Drawee’s A/c, To Interest A/c, (Being part payment received, along with interest), New bill drawn for the bal- Bill Receivable A/c, Dr., ance and acceptance reTo Drawee’s A/c, ceived, (Being new bill drawn and, acceptance received), , Books of Drawee, Bill Payable A/c, Dr., To Drawer’s A/c, (Being our acceptance cancelled for renewal), , Drawee’s A/c, Dr., Interest A/c, Dr., To Cash / Bank A/c, (Being part payment made, along with Interest), Drawer’s A/c, Dr., To Bill payable A/c, (Being acceptance given), , Retirement of Bill under Rebate :, Making payment of bill well before the date of maturity is known as retirement of bill. When the, acceptor of bill makes payment to the holder before the due date it is known as retiring a bill. Drawer, allows some Discount or Rebate to the Drawee for the unexpired period. This rebate in an expense, to the Drawer or Holder and income to the Drawee or Acceptor., Accounting Treatment in the Books of Drawer and Drawee :, Books of Drawer, Cash / Bank A/c, Rebate / Discount A/c, To Bills Receivable A/c, (Being bill retired and rebate allowed), , Dr., Dr., , Books of Drawee, Bills Payable A/c, Dr., To Cash / Bank A/c, To Rebate / Discount A/c, (Being our acceptance retired and rebate, received), , Insolvency of Drawee :, Person whose liabilities are more than the assets and is not in a position to pay off his liabilities is, known as insolvent person. When the Acceptor or Drawee is declared insolvent by the court, bills, 278
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accepted by him will obviously be dishonoured. In this case entry for cancellation of bill will be, passed in the books of Drawer and Drawee. Drawer may receive some amount from the Drawee’s, estate which is called final dividend. The amount which is not recoverable will be written off in the, books of Drawer as bad debts. The same amount will appear in the books of Drawee as deficiency., Accounting Treatment in the Books of Drawer and Drawee :, 1, , 2, , Transaction, Cancellation of old bill, , Books of Drawer, Drawee’s A/c, Dr., To Bills Receivable A/c or, To Bank A/c or, To Bill sent for collection, A/c or, To Endorsee’s A/c, (Being old bill cancelled), Receiving final, Cash / Bank A/c, Dr., dividend and bad debts Bad Debts A/c, Dr., written off, To Drawee’s A/c, (Being final dividend received, and bad debts written off), , Books of Drawee, Bill Payable A/c, Dr., To Drawer A/c, (Being our acceptance cancelled), , Drawer’s A/c, Dr., To Cash / Bank A/c, To Deficiency A/c, (Being final dividend paid, and balance credited to, deficiency account), , Illustrations, 1., , (Honour of bill under different circumstances), , a), b), c), d), , Akash drew a bill on Deepak for 25,000 on 23rd December, 2019, for 3 months. Deepak accepted the same and returned it to Akash. On the due date the bill was duly honoured by Deepak., Give journal entires in the books of Akash and Deepak under each to the following cases :, If Aksah retained the bill till maturiry., If Akash discounted the bill with the bank at 6% p.a. on the same day., If Akash sent the bill to bank for collection on 23rd December, 2019., If Akash endorsed the bill to his creditor Viren., , 279
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In the books of Akash, Journal, Date, 2019, Dec. 23, , a) 2020, Mar. 26, , b) 2019, Dec. 23, , c) 2019, Dec. 23, , 2019, Mar. 26, d) 2019, Dec. 23, , Particulars, , L. F., , Bills Receibable A/c...........................................Dr., To Deepak’s A/c, (Being bill drawn on Deepak for 3 months adn, acceptance received), Cash / Bank A/c...................................................Dr., To Bills Receivable A/c, (Being Deepak’s acceptance hounoured on the due, date), Bank A/c..............................................................Dr., Discount A/c.........................................................Dr., To Bills Receivable A/c, (Being Deepak’s acceptance disounted with the bank, at 6% p.a. for 3 months), Bill sent for collection A/c .................................Dr., To Bills Receivable A/c, (Being Deepak’s acceptance sent to the bank for, collection), Bank A/................................................................Dr., To Bill sent for Collection A/c, (Being bill honoured on the due date), , Debit, Amount `, 25,000, , Credit, Amount `, 25,000, , 25,000, 25,000, , 24,625, 375, 25,000, , 25,000, 25,000, , 25,000, 25,000, , Viren’s A/c .........................................................Dr., To Bill Receivable A/c, (Being Deepak’s acceptance endorsed to Viren), , 25,000, 25,000, , In the books of Deepak, Journal, Date, 2019, Dec. 23, 2020, Mar. 26, , Particulars, , L. F., , Akash’s A/c ........................................................Dr., To Bill Payable A/c, (Being bill accepted), Bill Payable A/c...................................................Dr., To Cash / Bank A/c, (Being our acceptance honoured on the due date), , Debit, Amount `, 25,000, , 25,000, 25,000, , Note : In case of b, c and d enties in the Books of Drawee will be same as above., , 280, , Credit, Amount `, , 25,000
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2., , a), b), c), d), , (Dishonour of bill under different circumstances), Gautam sold goods of ` 40,000 to Harsh on 1st May 2019. For this purpose, Gautam drew a bill, on Harsh for 2 months. Harsh accepted the same and returned it to Gautam. On matutity the bill, was dishonoured by Harsh. Give journal entries in the books of Gautam and Harsh under, the following circumstances :, If Gautam retained the bill till maturiry., If Gautam discounted the bill with the bank at 12% p.a. on 1st June, 2019., If Gautam sent the bill to bank for collection on 15th May, 2019., If Gautam endorsed the bill to his creditor Arnav., In the books of Gautam, Journal, Date, Particulars, L. F., Debit, Credit, Amount ` Amount `, , 2019, May 1, May 1, , a) Jul. 4, , b) i), May 1, , b) ii), Jul. 4, c) i), May 15, c) ii), Jul. 4, d) i), May 1, c) ii), Jul. 4, , Harsh’s A/c ........................................................Dr., To Sales A/c, (Being goods sold on credit), Bills Receivable A/c ...........................................Dr., To Harsh’s A/c, (Being bill drawn and accepted by Harsh for 2, months), Harsh’s A/c ........................................................Dr., To Bills Receivable A/c, (Being Harsh’s acceptance dishonoured on the due, date), Bank A/c .............................................................Dr., Discount A/c .. ......................................................Dr., To Bills Receivable A/c, (Being Harsh’s acceptance Discounted with the bank, at 12% p.a. for 2 months), Harsh’s A/c, To Bank A/c ...................................................Dr., (Being Harsh’s acceptance discounted with the Bank, dishonoured), Bill sent for collection A/c ..................................Dr., To Bill Receivable A/c, (Being Harsh’s acceptance sent to the bank for, collection), Harsh’s A/c ........................................................Dr., To Bill sent for collection A/c, (Being Harsh’s acceptance sent to bank for collection dishonoured), Arnav’s A/c .........................................................Dr., To Bill Receivable A/c, (Being Harsh’s acceptance endorsed to Arnav), Harsh’s A/c, Harsh’s A/c ........................................................Dr., To Arnav’s A/c, (Being Harsh’s acceptance endorsed dishonoured on, the due date, 281, , 40,000, 40,000, 40,000, 40,000, 40,000, , 40,000, , 39,600, 400, 40,000, , 40,000, 40,000, 40,000, 40,000, 40,000, 40,000, 40,000, 40,000, 40,000, 40,000
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In the books of Harsh, Journal, Date, 2019, May 1, 2019, May 1, a) 2019, July 4, , Particulars, , L. F., , Purchases A/c ......................................................Dr., To Gautam’s A/c, (Being good purchased on credit), Gautam’s A/c ......................................................Dr., To Bills Payable A/c, (Being bill accepted), Bills Payable A/c ................................................Dr., To Gautam’s A/c, (Being our acceptance dishonoured), , Debit, Amount `, 40,000, , Credit, Amount `, 40,000, , 40,000, 40,000, 40,000, 40,000, , Note : In case of b, c and d entries in the Books of Drawee will be same as above., 3., , Kabir owes Rahul ` 37,000 on 1st Dec. 2019, Kabir accepts a three months bill for ` 35,500 in, full settlement. On the due date the bill is dishonoured by Kabir and Rahul paid noting charges, ` 500. Give journal entries in the book of Kabir and Rahul. Also prepare Kabir’s A/c in the, books of Rahul and Rahul’s A/c in the books of Kabir., In the books of Rahul, Journal, Date, , 2019, Dec. 1, , 2020, Mar. 4, , Particulars, , L. F., , Bills Receivable A/c ...........................................Dr., Discount A/c ........................................................Dr., To Kabir’s A/c, (Being bill drawn in full settlement and acceptance, received), Kabir’s A/c ..........................................................Dr., To Bills Receivable A/c, To Discount A/c, To Cash A/c, (Being Kabir’s acceptance dishonoured and noting, charges paid), , Note : Discount previously allowed has been cancelled on dishonour., , 282, , Debit, Amount `, 35,500, 1,500, , Credit, Amount `, , 37,000, , 37,500, 35,500, 1,500, 500
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In the books of Rahul, Kabir’s A/C, Dr. , Date, 2019, Dec.1, 2020, Mar.4, Mar.4, Mar.4, Mar.4, , Particulars, , To Balance b/d, To Bills Receivable A/c, , To Discount A/c, To Cash A/c, To Balance b/d, , 2020, Mar. 4, , Particulars, , 2019, 37,000 Dec.1 By Bills Receivable A/c, Der. 1 By Discount A/c, 35,500 2020, 1,500 Mar.4 By Balance c/d, 500, 74,500, 37,500, In the books of Kabir, Journal, Particulars, , Date, 2019, Dec. 1, , Date, , J.F. Amount, (`), , Cr., J.F. Amount, (`), , L. F., , Rahul’s A/c.........................................................Dr., To Discount A/c, To Bills Payable A/c, (Being bill accepted in full settlement), Bills Payable A/c................................................Dr., Discount A/c.........................................................Dr., Noting Charges A/c..............................................Dr., To Rahul A/c, (Being our acceptance dishonoured and noting, charges payable), , 35,500, 1,500, 37,500, 74,500, , Credit, Debit, Amount ` Amount `, 37,000, 1,500, 35,500, 35,500, 1,500, 500, 37,500, , In the books of Kabir, Rahul’s A/C, Dr. , Date, 2019, Dec.1, Dec.1, 2020, Mar.4, , Particulars, , To Discount A/c, To Bills Payable A/c, , To Balance c/d, , Date, , J.F. Amount, (`), , 2019, 1,500 Dec.1, 35,500 2020, Mar.4, 37,500 Mar.4, Mar.4, , Particulars, , Cr., J.F. Amount, (`), , By Balance c/d, , 37,000, , By Bills Payable A/c, By Discount A/c, By Noting Charges A/c, , 35,500, 1,500, 500, , 74,500, , 74,500, Mar.4 By Balance b/d, , 283, , 37,500
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4., , Sneha receives Magha’s acceptance for ` 15,000. Before due date of the bill Megha approaches, Sneha with a request to accept ` 5,000 and draw a fresh bill on her for the balance for 3 months, including interest at 8% p.a. Sneha agrees and draws a fresh bill which was duly accepted by, Megha., On the due date Megha meets the bill., Give journal entires in the books of Sneha and prepare Sneha’s account in the books of, Megha., In the books of Sneha, Journal, Date, , Particulars, , 1., , Bills Receivable A/c........................................... Dr., To Megha’s A/c, (Being bill drawn and acceptance received), Megha’s A/c........................................................ Dr., To Bills Receivable A/c, (Being Megha’s acceptance cancelled for renewal), Megha’s A/c........................................................ Dr., To Interest A/c, (Being interest due on balance), Cash / Bank A/c...................................................Dr., To Megha’s A/c, (Being part payment received), Bills Receivable A/c............................................Dr., To Megha’s A/c, (Being new bill drawn along with interest and, acceptance received), Cash / Bank A/c...................................................Dr., To Bills Reveivable A/c, (Being new bill duly honoured on the due date), , 2., , 3., , 4., , 5., , 6., , L. F., , Debit, Amount `, 15,000, , Credit, Amount `, 15,000, , 15,000, 15,000, 200, 200, 15,000, 5,000, 10,200, 10,200, , 10,200, 10,200, , In the books of Megha, Sneha’s A/C, Dr. , Date, , Cr., Particulars, To Bills Payable A/c, To Cash/Bank A/c, To Bills Payable A/c, , J.F. Amount Date, Particulars, (`), 15,000, By Balance b/d, 5,000, By Bills Payable A/c, 10,200, By Interest A/c, 30,200, , 284, , J.F. Amount, (`), 15,000, 15,000, 200, 30,200
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Working Note :Calculation of interest and amount of new bill., Amount of old bill = ` 15,000, , Part Payment, , ` 5,000, , , Balance (New Bill), ` 10,000, ` (+) 200, `, , , , 10,200, , 8, 3, Interest on Balance = 10,000 × 100 ×, 12, = ` 200 (added to new bill), , 5., , Amol draws a bill on Atul for ` 24,000 on 6th Oct. 2019 for 3 months. Atul accepts the bill on the, same date. Amol sends the bill to Bank for collection on 20th Oct. 2019. Before due date Atul, finds himself unable to make the payment of bill and request Amol to renew it. Amol agrees, to the proposal on condition that Atul should pay ` 10,000 in cash along with interest ` 800 and, accept a new bill for 2 months for the balance. Atul retired the bill on 12th Jan. 2020 by paying, ` 13,500., , Give journal entires in the books of Amol., In the books of Amol, Journal, Date, 2019, Oct. 6, Oct. 20, , 2020, Jan. 9, Jan. 9, , Jan. 9, , Jan. 9, , Particulars, , L. F., , Bills Receivable A/c............................................Dr., To Atul’s A/c, (Being bill drawn and acceptance received), Bill sent for collection A/c...................................Dr., To Bills Receivable A/c, (Being Atul’s acceptance sent to bank for collection), Atul’s A/c.............................................................Dr., To Bill sent for collection A/c, (Being Atul’s acceptance cancelled for renewal), Atul’s A/c, To Interest A/c, (Being interest due), Cash / Bank A/c...................................................Dr., To Atul’s A/c, (Being part payment received along with interest), Bills Reveivable A/c............................................Dr., To Atul’s A/c, (Being new bill drawn and acceptance received), 285, , Debit, Amount `, 24,000, , Credit, Amount `, 24,000, , 24,000, 24,000, 24,000, 24,000, 800, 800, 10,800, 10,800, 14,000, 14,000
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Mar. 12, , Cash / Bank A/c...................................................Dr., Discount / Rebate A/c..........................................Dr., To Bills Receivable A/c, (Being Atul’s acceptance retired and rebate allowed), , 13,500, 500, 14,000, , Alternate entry for Renewal (When interest is received in cash), Date, 2019, Oct. 6, Oct. 6, , 2020, Jan. 9, Jan. 9, , Jan., , Mar. 12, , 6., , Particulars, , L. F., , Bills Receivable A/c............................................Dr., To Atul’s A/c, (Being bill drawn and acceptance received), Bill sent for collection A/c...................................Dr., To Bills Receivable A/c, (Being Atul’s acceptance sent to bank for collection), Atul’s A/c.............................................................Dr., To Bill sent for collection A/c, (Being Atul’s acceptance cancelled for renewal), Cash / Bank A/c...................................................Dr., To Atul’s A/c, To Interest A/c, (Being part payment and interest received), Bills Receivable A/c............................................Dr., To Atul’s A/c, (Being new bill drawn and acceptance received), Cash / Bank A/c...................................................Dr., Discount / Rebate A/c..........................................Dr., To Bills Receivable A/c, (Being Atul’s acceptance retired and rebate allowed), , Debit, Amount `, 24,000, , Credit, Amount `, 24,000, , 24,000, 24,000, 24,000, 24,000, 10,800, 10,000, 800, 14,000, 14,000, 13,500, 500, 14,000, , Nisha sold good to Asha worth ` 34,000, Asha paid ` 10,000 immediately and accepted the bill, for the balance ` 24,000 at 2 months. Nisha discounted the bill with Bank of Maharashtra after, one month at 15% p. a. The bill was dishonoured on the due date and Asha requested Nisha, to accept ` 4,000 and interest in cash on remaining amount at 11% p.a. for 3 months. Nisha, agreed and for the balance Asha accepted a new bill at 3 months. But Asha became insolvent, and only 40% could be recovered her estate., Prepare Journal of Nisha., , 286
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In the books of Nisha, Journal, Particulars, , Date, 1., 2., , 3., , 4., 5., 6., 7., , 8., 9., , L. F., , Asha’s A/c...........................................................Dr., To Sales A/c, (Being goods sold on credit), Bills Receivable A/c............................................Dr., Cash A/c...............................................................Dr., To Asha’s A/c, (Being part of the amount received in cash and for, balance bill drawn and acceptance received), Bank of Maharashtra A/c....................................Dr., Discount A/c.........................................................Dr., To Bills Receivable A/c, (Being Asha’s acceptance discount for 1 month @, 15% p.a.), Asha’s A/c............................................................Dr., To Bank of Maharashtra A/c, (Being Asha’s acceptance dishonoured), Asha’s A/c............................................................Dr., To Interest A/c, (Being interest due from Asha), Cash / Bank A/c...................................................Dr., To Asha’s A/c, (Being part payment received along with interest), Bills Receivable A/c............................................Dr., To Asha’s A/c, (Being new bill drawn for balance and, acceptance received), Asha’s A/c...........................................................Dr., To Bills Receivable A/c, (Being Asha’s acceptacne dishonoured), Cash / Bank A/c...................................................Dr., Bad Debts A/c......................................................Dr., To Asha’s A/c, (Being amount received in full settlement, and bad debts written off), , Working Note :Calculation of interest and amount of new bill., Amount of old bill = ` 24,000, Part Payment , Balance (New Bill), ` 4,000 , ` 20,000, (+), ` 550 Interest, ` 4,550, , Debit, Amount `, 34,000, , Credit, Amount `, , 24,000, 10,000, , 23,700, 300, , 24,000, 550, 4,550, 20,000, , 20,000, 8,000, 12,000, , 11, 3, ×, 100 12, = ` 550 (added to part payment), , Interest on Balance = ` 20,000 ×, , 287, , 34,000, , 34,000, , 24,000, , 24,000, 550, 4,550, 20,000, , 20,000, , 20,000
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7., , On 15th September, 2019 Kunal purchased goods from Kishorilal for ` 38,000 and Kunal gave, his acceptance after sight for 60 days on18th September, 2019 for the amount due. Kishorilal, deposited the bill into bank for collection on the same day. Kunal honoured his acceptance on, the due date. Bank charged ` 150 as bank charges., Give journal entries in the books of Kishorilal and Kunal., In the books of Kishorilal, Journal, Date, , 2019, Sept. 15, Sept. 18, , Sept. 18, , Nov. 20, , Particulars, , L. F., , Kunal’s A/c.........................................................Dr., To Sales A/c, (Being goods sold on credit), Bills Receivable A/c............................................Dr., To Kunal’s A/c, (Being after sight bill drawn and acceptance received), Bills sent for collection A/c.................................Dr., To Bills Receivable A/c, (Being Kunal’s acceptance sent to bank for collection), Bank A/c..............................................................Dr., Bank Charges A/c...............................................Dr., To Bill sent for collection A/c, (Being bill sent for collection honoured on the due, date and bank charges debited), , Debit, Amount `, 38,000, , Credit, Amount `, 38,000, , 38,000, 38,000, , 38,000, 38,000, , 37,850, 150, 38,000, , In the books of Kunal, Journal, Date, 2019, Sept. 15, Sept. 18, , Nov. 20, , Particulars, , L. F., , Purchases A/c...................................................... Dr., To Kishorilal’s A/c, (Being goods purchased on credit, Kishorilal’s A/c................................................... Dr., Bills Payable A/c, (Being acceptance given to bill drawn on us), Bills Payable A/c................................................ Dr., To Cash / Bank A/c, (Being our acceptance duly honoured on the due, date), , 288, , Debit, Amount `, 38,000, , Credit, Amount `, 38,000, , 38,000, 38,000, 38,000, 38,000
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8., , Shalini owes ` 26,000 to Anand. Anand draws a bill for ` 21,000 on Shalini for 3 months period and received the balance by a crossed cheque. The bill was duly accepted and returned, to Anand. On the same day Anand endorsed Shalini’s acceptance to Vikram. On the due date, Vikram informed Anand that Shalini dishonoured her acceptance and noting charges ` 280, were paid. Anand then drew a new bill for 1 month on Shalini including noting charges and, interest ` 650. On the due date Shalini honoured her acceptance by cheque., Give journal entries in the books of Anand and prepare Anand’s account in the books of, Shalini., In the books of Anand, Journal, Date, , Particulars, , 1., , Bills Receivable A/c............................................Dr., Bank A/c..............................................................Dr., To Shalini’s A/c, (Being cheque and acceptance of bill received), Vikram’s A/c...................................................... Dr., To Bills Receivable A/c, (Being Shalini’s acceptance endorsed in favour of, Vikram), Shalini’s A/c....................................................... Dr., To Vikram’s A/c, (Being endorsed bill dishonoured), Shalini’s A/c....................................................... Dr., To Interest A/c, (Being interest due), Bills Receivable A/c......................................... Dr., To Shalini’s A/c, (Being new bill drawn along with noting charges and, interest and acceptance received), Bank A/c............................................................. Dr., To Bills Receivable A/c, (Being Shalini’s acceptance duly honoured on the, due date), , 2., , 3., , 4., , 5., , 6., , L. F., , Debit, Amount `, 21,000, 5,000, , Credit, Amount `, , 26,000, 21,000, 21,000, , 21,280, 21,280, 650, 650, 21,930, 21,930, , 21,930, 21,930, , In the books of Shalini, Anand’s Account, Dr. , Date, , Cr., Particulars, To Bank A/c, To Bills Payable A/c, To Bills Payable A/c, , J.F. Amount Date, Particulars, (`), 5,000, By Balance b/d, 21,000, By Bills Payable A/c, 21,930, By Noting Charges A/c, By Interest A/c, 47,930, 289, , J.F. Amount, (`), 26,000, 21,000, 280, 650, 47,930
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9., , On 3rd July, 2019 Ravi drew a bill of ` 12,000 for 90 days after date on Dhruv which was accepted, by Dhruv. On 9th July, 2019 Ravi endorsed the bill to Harish in full settlement of his account, ` 12,750. On the same day Harish discounted the bill with bank for ` 11,750., Government declared emergency holiday on the due date and as per the provisions of Negotiable, Instruments Act the bill was duly met by Dhruv., Give journal entries in the books of Ravi, Dhruv and Harish., In the books of Ravi, Journal, Date, , 2019, July 3, July 9, , Particulars, , L. F., , Bills Receivable A/c........................................... Dr., To Dhruv’s A/c, (Being bill drawn and acceptance received), Harish ’s A/c...................................................... Dr., To Bills Receivable A/c, To Discount A/c, (Being bill endorsed in full settlement), , Debit, Amount `, 12,000, , Credit, Amount `, 12,000, , 12,750, 12,000, 750, , In the books of Dhruv, Journal, Date, 2019, July 3, Oct. 5, , Particulars, , L. F., , Ravi’s A/c ......................................................... Dr., To Bills Payable A/c, (Being our acceptance given), Bills Payable A/c ............................................... Dr., To Cash / Bank A/c, (Being our acceptance honoured), , Debit, Amount `, 12,000, , Credit, Amount `, 12,000, , 12,000, 12,000, , In the books of Harish, Journal, Date, 2019, July 3, , July 9, , Particulars, , L. F., , Bills Receivable A/c........................................... Dr., Discount A/c........................................................ Dr., To Ravi’s A/c, (Being Bills Receivable received in full settlement, and Discount allowed), Bank A/c ........................................................... Dr., Discount A/c ....................................................... Dr., To Bills Receivable A/c, (Being bill discounted with the bank), 290, , Debit, Amount `, 12,000, 750, , Credit, Amount `, , 12,750, , 11,750, 250, 12,000
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Calculation of due date :, Bill drawn on 3rd July for 90 days., Unexpired days of July = 28, No. of days in Aug., = 31, No. of days in Sep., = 30, No. of days in Oct., = 01, , , 90, 1st Oct. 2019 + 3 days of grace = 4th Oct. 2019, But 4th Oct. 2019 has been declared emergency holiday therefore, the due date will be the next, Working date i.e. 5th Oct. 2019., 10. On 18th June, 2019 Rohan sold goods on credit for ` 40,000 to Navin. Rohan draws a bill for the, amount due for 3 months on the same day. Navin accepted the bill and returned it to Rohan. On, 19th June, 2019 Rohan discounted the bill with the bank at 15% p. a., On the due date Navin dishonoured his acceptance and bank paid noting charges ` 350. Navin then, requested Rohan to renew the bill. Rohan agreed on the condition that Navin should pay interest on, balance at 12% p.a. plus noting charges by cheque and should accept a new bill for the balance for, 2 months., These arrangements were carried through. But before the due date Navin was declared insolvent., Rohan received 60 paise in a rupee as first and final dividend from the private estate of Navin on, 23rd Dec. 2019., Give journal entires in the books of Navin., , 291
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In the books of Navin, Journal, Date, 2019, June 18, June 18, , Sep. 21, , Sep. 21, , Sep. 21, , Sep. 21, , Nov. 24, , Dec. 23, , Particulars, , L. F., , Purchases A/c.......................................................Dr., To Rohan’s A/c, (Being goods bought on credit), Rohan’s A/c.........................................................Dr., To Bills Payable A/c, (Being our acceptance given), Bills Payabe A/c..................................................Dr., Noting Charges A/c..............................................Dr., To Rohan’s A/c, (Being our acceptance dishonoured and noting, charges payable), Interest A/c...........................................................Dr., To Rohan’s A/c, (Being interest due), Rohan’s A/c..........................................................Dr., To Bank A/c, (Being interest and Noting charges paid to Rohan), Rohan’s A/c..........................................................Dr., To Bills Payable A/c, (Being acceptance given to new bill drawn), Bills Payable A/c.................................................Dr., To Rohan’s A/c, (Being our acceptance dishonoured due to, insolvency), Rohan’s A/c..........................................................Dr., To Cash A/c, To Deficiency A/c, (Being 60% paid as full and final settlement and, amount credited to deficiency account), , Debit, Amount `, 40,000, , Credit, Amount `, 40,000, , 40,000, 40,000, 40,000, 350, 40,350, , 800, 800, 1,150, 1,150, 40,000, 40,000, 40,000, 40,000, , 40,000, 24,000, 16.000, , 11. Nishant draws a bill for ` 25,000 on Abhinav for 3 months on 17th July, 2019. Nishant discounts, the bill with his Bankers at 12.5% p.a. on the same day. On the due date of bill Abhinav, requested Nishant to accept a crossed chequee of ` 5,800 including ` 1,800 for interest and to, draw bill for the balance for 3 months. Nishant agrees to this proposal. Before due date of new, bill Abhinav retires the bill for ` 20,250 one month before the due date., Pass necessary journal entries in the books of Nishant., , 292
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In the books of Nishant, Journal, Date, 2019, July 17, July 17, , Oct. 20, , Oct. 20, , Oct. 20, , Oct. 20, , Dec. 20, , Particulars, , L. F., , Bills Receivable A/c............................................Dr., To Abhinav’s A/c, (Being bill drawn and acceptance received), Bank A/c.............................................................Dr., Discount A/c.........................................................Dr., To Bills Payable A/c, (Being Abhinav’s acceptance discounted with bank, at 12.5% p.a. for 3 months), Abhinav’s A/c..................................................... Dr., To Bank A/c, (Being discounted bill dishonoured), Abhinav’s A/c......................................................Dr., To Interest A/c, (Being interest due), Bank A/c..............................................................Dr., To Abhinav’s A/c, (Being Cheque received), Bills Receivible A/c.............................................Dr., To Abhinav’s A/c, (Being acceptance given to new bill drawn), Cash / Bank A/c..................................................Dr., Rebate / Discount A/c..........................................Dr., To Bills Receivable A/c, (Being new bill retired one month before due date, and, rebate allowed), , Debit, Amount `, 25,000, , Credit, Amount `, 25,000, , 24,219, 781, 25,000, , 25,000, 25,000, 1,800, 1,800, 5,800, 5,800, 21,000, 21,000, 20,250, 750, 21,000, , 12. Sanjay sold goods of ` 45,000 to Govind at 10% Trade discount. Govind paid 1/3rd of the, amount immediately at a cash discount of ` 1,000 and for the balance accepted a bill for 3, months. Sanjay endorsed the bill to Aadesh on the same day in full settlement of his account `, 27,500. On the due date the bill was dishonoured by Govind and noting charges paid by Aadesh, ` 450. Govind requested Sanjay to renew the bill. Sanjay agreed on condition that Govind, should pay ` 5,250 immediately along with noting charges and for the balance Govind should, accept a new bill for 2 months alosg with interest ` 1,500. Govind agreed to these contritions, and these arrangements were carried through. Sanjay paid Aadesh balance due to him. On the, due date of the new bill Govind dishonoured the bill., Give journal entries in the books of Sanjay and prepare Sajnay’s account in the books of, Govind., , 293
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In the books of Sanjay, Journal, Date, , Particulars, , 1., , Govind’s A/c........................................................Dr., Cash A/c..............................................................Dr., Discount A/c.........................................................Dr., To Sales A/c, (Being goods sold on credit and cash subject to Trade, discount and cash discount), Bills Receivable A/c...........................................Dr., To Govind’s A/c, (Being acceptance received), , 2., , 3., , 4., , 5., , 6., , 7., , 8., , 9., , L. F., , Aadesh’s A/c........................................................Dr., To Bill Receivable A/c, To Discount A/c, (Being Govind’s acceptance endorsed in full, settlement), Govind’s A/c........................................................Dr., Discount A/c, To Aadesh’s A/c, (Being Govind’s acceptance endorsed in full, settlement dishonoured and discount cancelled), Govind’s A/c........................................................Dr., To Interest A/c, (Being interest due), Cash / Bank A/c...................................................Dr., To Govind’s A/c, (Being cash received along with noting charges), Bills Receivable A/c............................................Dr., To Govind’s A/c, (Being new bill drawn along with interest and, acceptance received), Aadesh’s A/c........................................................Dr., To Cash / Bank A/c, (Being cash paid to Aadesh), Govind’s A/c........................................................Dr., To Bills Receivable A/c, (Being Govind’s acceptance dishonoured), , 294, , Debit, Amount `, 27,000, 12,500, 1,000, , Credit, Amount `, , 40,500, 27,000, 27,000, 27,500, 27,000, 500, 27,450, 500, 27,950, 1,500, 1,500, 5,700, 5,700, 23,250, 23,250, 27,950, 27,950, 23,250, 23,250
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In the books o Govind, Sanjay’s Account, Dr. , Date, , Cr., Particulars, To Bills Payable A/c, To Cash A/c, To Bills Payable A/c, To Balance c/d, , J.F. Amount, (`), 27,000, 5,700, 23,250, 23,250, , Date, , Particulars, By Purchases A/c, By Bills Payable A/c, By Noting Charges A/c, By Interest A/c, By Bills Payable A/c, , 79,200, , J.F. Amount, ( `), 27,000, 27,000, 450, 1,500, 23,250, 79,200, , By Balance b/d, , 23,250, , Problems on single Drawer and multiple Drawees, 13., 1., 2., 3., 4., , Give journal entries the books of Bipin., Sonal’s acceptance for 3 months of ` 20,000 was discounted with Bank of India at ` 19,750., Brinda’s acceptance of ` 14,400 retired one month before the due date at rebate of 12% p.a., Rekha’s acceptance of ` 8,500 is endorsed in favour of Gayatri in full settlement of her account, ` 8,650., Sold goods to Vinaya ` 20,000 at 8% Trade Discount. Received half the amount immediately, on which 10% Cash Discount was allowed. For the balance a bill was drawn on Vinaya which, was accepted by her., In the books of Bipin, Journal, Date, , Particulars, , 1., , Bank of India’s A/c..............................................Dr., Discount A/c.........................................................Dr., To Bills Receivable A/c, (Being Sonal’s acceptance discounted with the Bank), Cash A/c...............................................................Dr., Discount A/c.........................................................Dr., To Bills Receivable A/c, (Being Brinda’s retired at 12% p.a. for one month), Gayatri’s A/c........................................................Dr., To Bill Receivable A/c, To Discount A/c, ., (Being Rekha’s acceptance endorsed in full, settlement), , 2., , 3., , L. F., , 295, , Debit, Amount `, 19,750, 250, , Credit, Amount `, , 20,000, 14,256, 144, 14,400, 8,650, 8,500, 150
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4. (a), , 4.(b), , Vinaya’s A/c.........................................................Dr., Discount A/c.........................................................Dr., Cash A/c...............................................................Dr., To Sales A/c, (Being goods sold on cash and credit), Bill Receivable A/c..............................................Dr., To Vinaya’s A/c, (Being bill drawn and acceptance received), , 9,200, 920, 8,280, 18,400, 9,200, 9,200, , Calculation for transaction No. 4, Gross Price, = ` 20,200, (-) 8% T. D., = ` 1,600, , , ` 18,400, , (50%), , (-) C.D.10%, Cash received, , Cash, ` 9,200, `, 920, `, , Credit (50%), ` 9,200, , 8,280, , 14. Jouranlise the following transactions in the books of Mayur., 1. Vishwas renewed his acceptance to Nitesh for ` 22,000 by paying ` 12,000 in cash and accepting a fresh bill for the balance with interest @12% p.a. for 2 months., 2. honoured our acceptance to Ashwin of ` 17,750 by endorsing Hari’s acceptance of ` 17,500 in, full settlement., 3. Prakash who accepted Mayur’s bill for ` 21,000 was declared insolvent and only 25% of the, amount could be recovered from his esatae., 4. Bank informed us that Shailaja’s acceptance for ` 32,000 sent to bank for collection had been, dishonoured and noting charges paid were ` 275., In the books of Mayur, Journal, Date, 1. (a), , (b), , (c), , Particulars, , L. F., , Vishwas’s A/c.......................................................Dr., To Bills Payable A/c, (Being bill cancelled for renewal, Vishwas’s A/c.......................................................Dr., To Interest A/c, (Being part payment received), Bank A/c..............................................................Dr., Vishwas’s A/c, (Being part payment received), 296, , Debit, Amount `, 22,000, , Credit, Amount `, 22,000, , 200, 200, 12,000, 12,000
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(d), , 2, , 3 (a), , (b), , 4., , Bill Receivable A/c..............................................Dr., To Vishwas’s A/c, (Being new bill drawn and acceptance received along, withe interest), Bill Payable’s A/c................................................Dr., To Bill Receivable A/c, To Discount A/c, (Being our acceptance honoured by giving acceptance received from Hari and discount received), Prakash’s A/c.......................................................Dr., To Bill Receivable A/c, (Being Prakash’s acceptance cancelled on account of, insolvency), Bank A/c..............................................................Dr., Bad Debts A/c......................................................Dr., To Prakash’s A/c, (Being 25% received in final settlement and bad, debts written off), Shailaja’s A/c.......................................................Dr., To Bill sent for collection A/c, To Bank A/c, (Being bill sent for collection dishonoured and noting, charges paid), , 10,200, 10,200, , 17,750, 17,500, 250, , 21,000, 21,000, , 5,250, 15,750, 21,000, , 32,275, 32,000, 275, , 15. Jouranlise the following transactions in the books of Aaditya., a) Bank informed that Surya’s acceptance for ` 15,750 sent to bank for collection has been honored and bank charges debited ` 150., b) Asha informs Aditya that Nisha’s acceptance for ` 23,000 endorsed to Asha, has been, dishonoured. Noting charges paid by Asha amounted to ` 330., c) Bank informed that Jaydeep’s acceptance of ` 32,400 which was discounted with bank was, dishonoured, bank paid Noting charges ` 460., d) Shrikant’s acceptance of ` 19,800 was honoured which was deposited with bank for collection., , 297
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In the books of Aditya, Journal, Date, , Particulars, , a), , Bank A/c..............................................................Dr., Bank Charges A/c................................................Dr., To Bill sent for collection A/c, (Being bill sent to bank for collection honoured and, bank charges paid), Nisha A/c.............................................................Dr., To Asha’s A/c, (Being ednorsed bill dishonoured and noting charges, paid by Asha), Jaydeep’s A/c.......................................................Dr., To Bank A/c, (Being Jaydeep’s acceptance discounted with bank,, dishonoured and bank paid noting charges), Bank A/c.............................................................Dr., To Bill sent for collection A/c, (Being bill sent to Bank for collection honoured on, the due date), , b), , c), , d), , L. F., , Debit, Amount `, 15,600, 150, , Credit, Amount `, , 15,750, , 23,330, 23,330, , 32,860, 32,860, , 19,800, 19,800, , 16. Journalise the following transactions of Arvind as on 24th October, 2019., a) Renewed Sainath’s acceptance of ` 18,000 with interest of ` 380 for 2 months., b) Sahil informs Arvind that Meenal’s acceptaance of ` 13,000 endorsed to Sahil was dishonoured, and noting charges paid ` 195., c) Accepted a bill of ` 16,400 at 2 months drawn on Chand and Sons for the amount due to them, ` 19,000 and balance paid in cash., d) Bank informed that Vidya’s acceptance of ` 14,000 which was discounted was dishououred, and bank paid noting charges ` 105. Renewed bill on Vidya’s request for 2 months with interest, ` 295., e) Nandita retired her acceptance to Arvind of ` 13,550 by paying cash ` 13,000., , 298
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In the books of Arvind, Journal, Date, , Particulars, , L. F., , 2019 a), i) Oct. 24, , Sainath’s A/c........................................................Dr., To Bills Receivable A/c, (Being Sainath’s acceptance cancelled), ii) Oct. 24 Sainath’s A/c........................................................Dr., To Interst A/c, (Being interest due), iii) Oct. 24 Bills Receivable A/c............................................Dr., To Sainath’s A/c, ., (Being new bill drawn along with interest for 2, months and acceptance received), b) Oct. 24 Meenal’s A/c........................................................Dr., To Sahil’s A/c, (Being endorsed bill dishonoured and noting charges, paid), c), Chand and Sons A/c............................................Dr., To Bills Payable A/c, To Cash A/c, (Being bill accepted and cash paid), d), Vidya’s A/c...........................................................Dr., i), To Bank A/c, (Being discounted bill dishonoured and noting, charges paid), ii), Vidya’s A/c...........................................................Dr., To Interest A/c, (Being Interest due), iii), Bills Receivable A/c............................................Dr., To Vidya’s A/c, (Being bill drawn along with interest and acceptance, received), e), Cash A/c...............................................................Dr., Rebate / Discount A/c..........................................Dr., To Bills Receivable A/c, (Being Nandita’s acceptance retired and rebate, allowed), , 299, , Debit, Amount `, 18,000, , Credit, Amount `, 18,000, , 380, 380, 18,380, 18,380, , 13,195, 13,195, , 19,000, 16,400, 2,600, 14,105, 14,105, , 295, 295, 14,400, 14,400, , 13,000, 550, 13,550
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17. Journalise the following transactions in the books of Apoorva., a) Prashant’s acceptance for 60 days ` 12,750 deposited into bank for collection., b) Apoorva sold goods to Kirti for ` 20,000 and received her acceptance for the same amount for, 2 months. The bill was endorsed to Rekha., c) Received 30% of the amount due from the private estate of Mukta who was declared insolvent., Mukta had dishonoured her acceptance of ` 23,850 and noting charges paid were ` 150., d) Apoorva renews her acceptance of 36,000 to Anuradha by paying cheque of 6,000 and accepting, a new bill for 2 months for balance along with interest @ 14.5% p. a., In the books of Apoorva, Journal, Date, , Particulars, , a), , Bill sent for collection A/c...................................Dr., To Bills Receivable A/c, (Being bill deposited into bank for collection), Kirti’s A/c.............................................................Dr., To Sales A/c, (Being goods sold on credit), Bill Receivable A/c..............................................Dr., To Kirti’s A/c ., (Being drawn and accepted), Rekha’s A/c..........................................................Dr., To Bills Receivable A/c..................................Dr., (Being Kirti’s acceptance endorsed), Mukta’s A/c..........................................................Dr., To Bills Receivable A/c, To Cash A/c, (Being Mukta’s acceptance dishonoured and Noting, Charges paid), Cash / Bank A/c..................................................Dr., Bad Debts A/c.....................................................Dr., To Mukta’s A/c, (Being amount received and bad debts written of on, account of insolvency), Bills Payable A/c.................................................Dr., To Anuradha’s A/c, (Being our acceptance dishonoured), Interest A/c...........................................................Dr., To Anuradha’s A/c, (Being Interest due), , b) i), , ii), , iii), , c) i), , ii), , d) i), , ii), , L. F., , 300, , Debit, Amount `, 12,750, , Credit, Amount `, 12,750, , 20,000, 20,000, 20,000, 20,000, 20,000, 20,000, 24,000, 23,850, 150, , 7,200, 16,800, 24,000, , 36,000, 36,000, 725, 725
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iii), , iv), , Anuradha’s A/c....................................................Dr., To Cash Bank A/c, (Being part payment paid), Anuradha’s A/c....................................................Dr., To Bills Payable A/c, (Being acceptance given to new bill drawn along, with interest), , 6,000, 6,000, 30,725, 30,725, , HHHHHHHHHHHHH EXERCISE - 7 HHHHHHHHHHHHH, Objective Questions, A. Select the correct option and rewrite the sentence:1) The person on whom a bill is drawn is called a, a) Drawee b) Payee, c) Drawer, d) Acceptor., 2), 3), , ., , Before acceptance the bill is called a, ., a) Order , b) Request, c) Draft, d) Instrument., When the due date of bill drawn falls due on a public holiday, the payment must, be made on the, day., a) Same , b) preceding c) next , d) any., , 4), , The due date of the bill drawn for 2 months on 23rd Nov. 2019 will be, a) 23rd Jan. 2020 b) 25th Jan. 2019, c) 26th Jan. 2019, d) 25th Jan. 2020., , 5), , Nothing charges are borne by, a) Notary Public , b) Drawee, , 6), , There are, a) five , , b) four , , c) Drawer, , ., d) Endorsee., , parties to bill of exchange., c) three, d) two., , 7), , When a bill is drawn for 2 months after date on 3rd Jan. 2020, its due date will be, ., a) 3rd Jan. 2020 , b) 3rd Mar. 2020, c) 5th Mar. 2020, d) 6th Mar. 2020., , 8), , Notary Public is, a) Govt. Officer , , 9), , ., b) Drawer , , c) Payee , , When Acceptor or Drawee does not pay the amount of bill to the holder on the due date it, is known as, the bill., a) returning , b) discounting , c) honouring d) dishonouring., , 10) The person who accepts the bill treats the bill as, a) Bills Payable , b) Promissory note c) Draft, B., , d) Endorsee, , ., d) Bills Receivable., , Give one word / phrase / term which can substitute each of the following ststements:1) Three extra days which are allowed over and above the term of bill., 2) Fees charged by Notary Public for getting the fact of dishonour noted., 3) A person who is entitled to receive the amount of bill of exchange., 4) A person in whose favour a bill endorsed., 301
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5), 6), 7), 8), 9), 10), C., , Officer appointed by goverment for noting of dishonour of bill., Cancellation of bill on maturity in return of a new bill for extended period of credit., Bill of exchange drawn and accepted without any valuable consideration., Person who is in possession of Bill of Exchange., Conversion of Bill of Exchange into its present value., Amount which is not recoverable from Drawee on account of insolvency., , State True or False with reasons:1) Inland bill is one which is drawn in one country and payable in another country., 2) Retirement of bill means payment of the bill before due date., 3) Drawee can transfer the ownership of Bill., 4) Acceptance of bill without making any changes in the terms of bill is called qualified, acceptance., 5) Discounting is a device to convert the bill into its present value., 6) A bill of exchange must be presented to the acceptor on the due date., 7) If a bill is discounted by the holder, no entry is passed in his book when bill is honoured, on the due date., 8) Noting charges are to be borne by the drawer., 9) If a bill is drawn payable “on demand” no grace days are allowed., 10) There are three parties to a Promissory Note., , D., , Find the odd one:1) a) Retaining , , c) Discounting , , b) Noting , d) Endorsing, , 2), , , a) Trade bill , c) After date bill , , b) Accommodation bill, d) Demand bill., , 3), , , a) Notary Public , c) Drawee , , b) Drawer , d) Payee., , 4), , , a) Discounting charges, c) Bank charges , , b) Rebate , d) Noting charges., , 5) a) Stamp b) Acceptance , c) Draft d) Amount., E., , Complete the sentence:1) Making payment of bill before the due date of maturity is known as .................... ., 2) Person whose liabilities are more than his assets and is not in position to pay off his, liabilities is .................. ., 3) Amount that cannot be paid by acceptor on account of inslovency is known as ...................., 4) A bill of exchange payable after certain period is known as .................... ., 5) A bill which is drawn and accepted with valuable consideration is known as ....................., 6) A person who draws the bill of exchange is known as .................... ., 7) A bill whose due date is calculated from the date of acceptance is known as ....................., 302
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8) Recording the fact of dishonour of Bill is known as .................... ., 9) When Drawee accepts the bill payable at a particular place only, it is known as ...................., 10) Fees charged by the bank for collection of bill on behalf of holder is .................... ., F., , Answer in sentence:1) What do you mean by bill of exchange?, 2) What are days of grace?, 3) What do you mean by discounting a bill of exchange?, 4) What is noting of the bill?, 5) What are noting charges?, 6) What is relationship between Drawer and Drawee?, 7) Who is payee of the bill?, 8) What do you mean by rebate?, 9) What is legal due date?, 10) What is bills payable on demand?, , G., , Do you agree or disagree with the following statements:1) A bill of exchange is a conditional order., 2) The party which is ordered to pay the amount is known as payee., 3) The person in whose favour the bill is endorsed is known as endorsee., 4) Rebate or discount given on retiring a bill is an income to the Drawee., 5) A bill from the point of view of debtor is called Bills payable., 6) In case of bill drawn payable ‘on demand’ no grace days are allowed., 7) A bill is required to be accepted by Drawer., 8) A bill of exchange need not be dated., 9) A bill before acceptance is called Promissory Note., 10) Renewal is request by Drawee to extend the credit period of the bill., , H., , Calculations:1) Ganesh draws a bill for ` 40,260 on 15th Jan. 2020 for 50 days. He discounted the bill with, Bank of India @15% p.a. on the same day. Calculate the amount of discount., 2), , Shefali Traders drew a bill on Maya for ` 30,000 on 1st Oct. 2019 payable after 3 months., Calculate amount of discount in the following cases:i) Shefali Traders discounted the bill on the same day @ 12% p.a., ii) Shefali Traders discounted the bill on 1st Nov. 2019 @ 12% p.a., iii) Shefali Traders discounted the bill on 1st Dec. 2019 @ 12% p.a., , 3), , Veena who had accepted Sudha’s bill for ` 28,000 was declared bankrupt and only 35, paise in a rupee could be recovered from her estste. Calculate the amount of bad debts., , 4), , Nitin renewed his acceptance for ` 72,000 by paying ` 22,000 in cash and accepting a new, bill for the balance plus interest @ 18% p.a. for 4 months. Calculate the amount of new, bill., , 5), , Nisha’s acceptance for ` 16,850 sent to bank for collection was honoured and bank charges, debited were ` 125. Find out the amount actually received by Drawer., 303
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6), , A bill of ` 16,000 was drawn by Keshav on Gopal on 12th June 2019 for 2 months. What, will be the due date, if all of sudden, the legal due date is declared as emergency holiday?, , I., 1), , Prepare the following Specimens :Prepare a bill of exchange form the following information :, Drawer : Shankar, Vadodara, Gujrat., Drawee : Vinayak, Somwarpeth, Pune., Amount : ` 16,000, Period : 3 months, Date of Bill : 6th Sept. 2019., Date of acceptance : 11th Sept. 2019., , 2., , Prepare a bill of exchange from the following information :, Drawer : Dinesh, P. R. Road, Andheri West., Drawee : Mahesh, L. B. S. Road, Mulund., Payee : Amit, Thane West., Amount : ` 9,500, Period of Bill : 4 months after sight., Date of Bill : 26th Nov. 2019., Date of acceptance : 29th Nov. 2019., , 3., , Kantilal, 343/D, Palm Heights, Jogeshwari, drew a bill on 10th Oct. 2019 for ` 63,490 for 45, days after date on Shantilal, B2, Himalaya Towers, Baramati, payable to Priyanksa, Satara.\, The bill was accepted on 13th Oct. 2019 for 60 days., Prepare a format of bill of exchange from the above detalis., , 4., , Prepare a format of bill exchange from the following details :, Rahul Sane, 86-D, Raviwar Peth, Nagpur accepted the bill drawn on him by Prithviraj, Icon, Heights, Wardha for ` 87,000 on 30th July 2019., The bill was drawn on 26th July 2019 for ` 1,00,000 for 90 days after date., , 5., , Prepare a format of bill of exchange from the followings., Drawer : Kashmira Shah, Partner M/S Shah and Shah, 2-C, Matruchaya Building, Akola., Drawee : Dhanashree Traders, Bangalore Road, Belgaum. (Signed by Jayashree, Partner), Payee : M/S Janki Traders, Akola., Amount : ` 64,500, Period of Bill : 3 months, Date of drawing : 12th Sept. 2019, Date of acceptance : 15th Sept. 2019, , 6., , Prepare a demand bill with imaginary Drawer, Drawee, Address , Amount and Date., , 304
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J., , Complete the following Table, , 1., , Date of Drawing, , Date of Acceptance, , Payable, , i., , 30.1.2019, , 1.2.2019, , 60 days after date, , ii., , 17.8.2019, , 21.8.2019, , 3 months after sight, , iii., , 23.12.2019, , 26.12.2019, , 1 months after date, , iv., , 28.1.2019, , 28.1.2020, , 1 months after date, , v., , 30.6.2019, , 2.7.2019, , 45 days after date, , Due Date, , 2., Sr., No., , DATE OF DRAWING, , Date of acceptance, , Tenure, , i), , 3rd January, 2020, , 5th January,2020, , 45 days, , ii), , 9th April, 2019, , 12th April, 2029, , 4 months, , iii), , 23rd November 2019, , 23rd November, 2029, , 2 months, , iv), , 16th August, 2019, , 20th August, 2019, , 4 months, , v), , 23rd December, 2018, , 24th December, 2018, , 60 days, , Type, , after, date, After, sight, after, date, After, sight, after, date, , Nominal, due, date, ?, , Legal, due, date, , ?, , ?, , ?, , ?, , ?, , ?, , ?, , ?, , ?, , Practical Problems, 1., , On 1st Jan. 2020 Hemant sold goods of ` 18,500 to Nitin. On the same date Hemant drew a bill, of exchange for ` 18,500 at 2 months. On the due date the bill was duly honoured., Give Journal Entries in the Books of Hemant and Nitin. Prepare Hamant’s account in the, books of Nitin., , 2., , Neha sold goods to Rohan ` 42,000 on 6th Sept. 2019. Neha drew a bill of exchange at 3, months for the amount which was accepted by Rohan. Neha disounted the bill with her bankers, at ` 41,000. On the due date of the bill Rohan dishonoured the bill and bank paid ` 300 as, Noting Charges., Show Journal Entries in the Books of Neha and Rohan., , 3., , Jyoti owes ` 31,000 to Swati for which was draws a bill on Jyoti for 2 months. The bill was duly, accepted by Jyoti. Swati sends the bill to bank for collection. Jyoti honoured the bill on the due, date and bank charges ` 475 as bank charges., Give Journal Entries in the Books of Swati., , 305
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4., , Pankaj purchased goods of ` 20,000 from Omprakash on credit on 15th April 2019. Omprakash, draws After Sight bill for the amount due on Pankaj for 3 months which was accepted by, Pankaj on 18th April, 2019. On 20th April, 2019 Omprakash endorsed the bill to his creditor, Jagsish in full settlement of his amount ` 21,000. On the due date the bill was dishonoured by, Pankaj., Give Journal Entires in the Books of Omprakash, Pankaj and Jagdish., , 5., , Siddhant sold goods to Sudhir of ` 43,800 on 18th March, 2019. Siddhant draws a bill on Sudhir, on the same day for ` 43,800 for 3 months which was duly accepted by Sudhir. Siddhant, discounted the bill on the same day at 8% p.a. the bill was dishonoured on the due date and, Sudhir requested Siddhant to accept ` 13,800 and interest in cash on remaining amount at 12%, p.a. Siddhant agreed and for the balance amount accepted a new bill at 2 months. Before the, due date of new bill Sudhir retired the bill by paying ` 29,700., Pass necessary Journal Entries in the Books of Siddhant., , 6., , Sangeeta accepted a bill for ` 18,000 drawn by Geeta at 3 months. Geeta discounted the bill, for ` 17,400. Before the due date Sangeeta approached Geeta for renewal of the bill. Geeta, agreed on the condition that Sangeeta should pay ` 6,000 immediately and for the balance she, should accept a new bill for 4 months along with interest ` 550. The arrangements were carried, through. But on the due date of new bill Sangeeta became insolvent and 35 paise in a rupee, could be recovered from her estate., Give Journal Entries in the Books of Sangeeta and prepare Sangeeta’s account in the, books of Geeta., , 7., , Priyanka owed Meena ` 18,000, Priyanka accepted a bill drawn Meena for the amount at, 4 months. Meena endorsed the same bill to Sagar. Before due date Priyanka approached Meena, for renewal of bill. Meena agreed on condition that ` 6,000 be paid immediately together with, interest on the remaining amount of 8 % p. a. for 3 months and Priyanka should accepte a new, bill for the balance amount. These arrangements were carried through. However, before the, due date Priyanka became insolvent and only 50 % of the amount could be recovered from her, estate., Give Journal Entries in the Books of Meena., , 8., , Seema purchased goods from Roma on credit on 1st August, 2019 for ` 37,000, Seema accepts, bill for 2 months drawn by Roma for the same amount on the same day Roma discounts the, bill with the bank for ` 36,200 on 3rd August 2019. On the due date the bill is dishonoured and, Noting Charges of ` 160 is paid by the bank. Seema pays ` 19,000 and Noting Charges in, cash immediately. A new bill is drawn by Roma for the balance including interest ` 650 for 2, months, which is accepted by Seema. The new bill is retired one month before the due date at a, rebate of ` 300., Give Journal Entries in the Books of Seema and prepare Seems’s Account in the books of, Roma., , 9., , Uday purchased goods from Shankar on credit for ` 35,000 at 10 % Trade discount. Uday paid, ` 1,500 immediately and for the balance accepted a bill for 3 months. Before due date Uday, approached Shankar with a request to renew the bill. Shankar agreed but with condition that, Uday should accept a new bill for 3 months including interest at 12 % p.a., Give Journal Entries in the Books of Shankar., , 306
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10. Sagar drawn an after sight bill on 21st Nov. 2019 for ` 21,000 at 3 months on Prasad. The bill is, discounted by Sagar at 8 % p. a. with his bank. On maturity, Prasad finds himself unable to make, payment of the bill and requests Sagar to renew it. Sagar accepts the request and draws a new bill, at one month for ` 21,750 including interest which was duly accepted by Prasad. Sagar deposits, the bill into bank for the collection. Prasad honours the bill on the due date and Bank charges, ` 250 as Bank Charges., Pass necessary Journal Entries in the Books of Sagar and prepare Sagar’s account in the, books of Prasad., 11. Journalise the following transaction in the books of Abhishek :a), , Siddhant informs Abhishek that Vineet’s acceptance for ` 23,000 endorsed to Siddhant, has been dishonoured. Nothing Charges amounted to ` 430., , b), , Kajal renews her acceptance to Abhishek for ` 39,000 by paying 3,000 in cash and, accepting a fresh bill for the balance along with interest at 11.5 % p.a. for 3 months., , c), , Radhika retired her acceptance to Abhishek for ` 23,000 by paying ` 22,250 by cheque., , d), , Abhishek sent a bill of Subodh for ` 9,000 to bank for collection. Bank informed that the, bill has been dishonoured by Subodh., , 12. Journalise the following transactions in the books of Narendra: a), , Narendra retires his acceptance to Upendra by paying ` 4,000 in cash and endorsing a bill, accepted by Ramlal for ` 5,000., , b), , Vikram’s acceptance to Narendra ` 6,000 retired one month before the due date at rebate, of 12% p.a., , c), , Dilip renews his acceptance to Narendra for ` 12,000 by paying ` 4,000 in cash and, accepting a fresh bill for the balance plus interest at 12% p.a. for 3 months., , d), , Bank informed Narendra that, Kartik’s acceptance for ` 13,000 to Narendra, discounted, with the bank was dishonoured and Noting Charges paid by bank ` 140., , 13. Journalise the following transactions in the books of Bharti:a), , Bank informed that Amit’s acceptance for ` 15,750 sent to bank for collection was, honoured and bank charges debited were ` 150., , b), , Nitin renewed his acceptance for ` 22,200 by paying ` 2,200 in cash along with interest, on balance amount at 10% and accepted a fresh bill for the balance for 3 months., , c), , Dhanshri who had accepted Bharti’s bill for ` 17,500 was declared insolvent and only, 40% of the amount due could be recovered from his estate., , d), , Discharged our acceptance to Savita for ` 9,450 by endorsing Pravin’s acceptance to us, ` 9,000., , 307
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14. Journalise the following transactions in the books of Sudha:a), , Endorsed Sonali’s acceptance at 2 months for ` 6,000 in favour of Urmila and paid cash, ` 3,500 in full settlement of her account ` 10,000., , b), , Discounted 2 months acceptance of Surya for ` 7,800 with bank at 10% p.a., , c), , Bank informed that Anuradha’s acceptance of ` 4,800 which was discounted was, dishonoured and bank paid Noting Charges ` 125., , d), , Pooja honoured her acceptance of ` 16,400 which was deposited into bank for collection., , 15. Journalise the following transactions in the books of Mrunal :a), , Bank informed that Aishwarya’s acceptance of ` 24,000 which was discounted had been, dishonoured and bank paid Noting Charges ` 220. Bill was renewed at the request of, Aishwarya for 2 months with interest of ` 480., , b), , Received ` 4,630 from private estate of Ankur who was declared insolvent against bill, accepted by him for ` 6,000., , c), , Accepted a bill of ` 15,000 at 3 months drawn by Anushka for the amount due to her, ` 20,000 and balance paid by cheque., , d), , Dishonoured our acceptance to Vivek ` 27,000 and Noting Charges paid by Vivek ` 700., , Activity, 1. Visit retailers near your college and home and find out if they are using bill of exchange., 2. Visit any Bank and find out if they are performing the function of discounting bill of exchange., 3. Visit Banks and find out the rate of discount changed by bank for discounting bill of exchange., 4. Find out Indian names of bill of exchange., 5. Collect specimens of Bill of Exchange and Promissory Note., , bbb, , 308
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8, , Company Accounts : Issue of Shares, , Content, ( Accounting of Shares), 8.1 Share and Share Capital, 8.1.1 Meaning and Definition, 8.1.2 Types of Shares, 8.1.3 Treatment of share capital in Company Balance Sheet (Horizontal Form), 8.2 Accounting for Share Capital, 8.2.1 Public Issue of Shares, 8.2.2 Basic Accounting Entries for Issue of Shares, 8.2.3 Issue of Shares at Par, Premium and Discount, 8.2.4 Oversubcription and Undersubscription of shares, 8.2.5 Calls in Arrears and Calls in Advance, 8.2.6 Issue of Shares for Consideration other than cash, 8.3 Forfeiture of Shares, 8.3.1 Accounting treatment for forfeiture of shares, 8.3.2 Re-issue of Forfeited Shares., Competency Statements, o, , , , , , , The Students will be able to :, Learn the types of Share and Share Capital., Understand the Concept of Public Subscription and Private Placement., Know Concept of under and over valuation of Shares and accounting of Shares issued at, par, at premium and at discount., Know the different accounting treatment for under and over Subscription of Shares as well, as call in arrears and call in advance., Company Accounts, (Issue of Shares), , Introduction Capital is the life blood of any business organisation. A sole trader introduces capital out of his own, pocket. Similarly the partners also bring capital from their own pockets. But is case of company form, of business organisation, the capital is raised through the issue of shares., Industrial Revolution brought significant changes in the size of business-structure. Joint Stock, Company as a modern form of business organisation emerged to meet the requirements of large, sized business to remove the main defects or limitation of the partnership form of organisation. i.e., 309
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unlimited liability and shortage of funds. It was therefore felt necessary to collect the capital from the, public at large and to encourage the public to contribute capital, here the principal of limited liability, was adopted., 8.1 Share and Share Capital, 8.1.1 Meaning, As per Section 2(84) of companies Act 2013 “Share is the share in the capital of a company and, includes stock as well.” ‘Share Capital’ means the capital raised by a company by issue of shares., In case of Company is divided into small parts known as shares. This is why it is known as ‘Share, Capital’., -According to Companies Act, Company can issue two types of shares namely Equity Shares and, Preference Shares., Equity Shares - A share which is not a preference share is an equity share. It means that if the, shareholder is not entitled to a fixed dividend or have priority at the time of repayment of capital will, be treated as Equity Share Capital. Equity shareholders participate in profits of a company after all, preferential rights have been satisfied. Equity shareholders are the risk bearers and therefore the real, owners of the company and can get dividend after payment of all expenses and dividend to preference, shareholders., Preference Shares - Preference shares are those shares which have right with respect to payment of, dividend and repayment of capital of winding of the company. Thus preference shareholders enjoy, preferential rights in case of payment of dividend and repayment of Capital. Preference shareholders, get fixed rate of dividend before giving dividend to equity shareholders. On the basis of additional, rights or benefits preference shares can be further classified as follows a) Cumulative and Non-cumulative Preference Shares, b) Redeemable and Irredeemable Preference Shares, c) Participative and Non-participative Preference Shares, d) Convertible and Non-convertible Preference shares, As the above classification of Preference shares does not effect on the accounting entires, detail, explanation is not given here., 8.1.2 Types of Share Capital, The different types of share capital are as follows i), , Authorised Capital - The Authorised Capital is the amount of share Capital which a company, is authorised to issue by its Memorandum of Association. The amount of Authorised capital is, determined after taking into consideration the future requirements of capital of the company., This capital is also known as “Nominal Capital” or “Registered Capital”. This is the maximum, amount which a company is authorised to raise by the issue of shares. The Authorised Capital, can be increased or decreased by adopting the prescribed legal procedure., , ii), , Issued Capital - Issued Capital is that part of the Authorised Capital which is offered to the, public for subscription. If the company issue all its shares, Issued Capital will be equal to, Authorised Capital. Generally, company issues such number of shares which are sufficient to, meet the requirements of the company at the time of their issue. The part of Authorised capital, which is not issued to the public is known as Unissued Capital., , iii) Subscribed Capital - Subscribed Capital is that part of Issued Capital which is actually subscribed by the public. When the shares issued for subscription are wholly subscribed, issued, capital would be the same as the subscribed capital. The part of issued capital which is not subscribed by the public are known as unsubscribed capital., 310
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iv), , Called up Capital - It is that part of the subscribed capital which is actually called up from, the shareholders. The company demands only that portion of the value of the shares which it, considers sufficient for the time being. It should be noted that Called up Capital may be equal, to Subscribed Capital. The part of subscribed capital which is not called up by the company are, known as UN-Called Capital., , v), , Paid up Capital - It is that portion of the Called up Capital which has actually been paid by, the shareholders, as it is likely that some shareholders may not pay all the amount demanded, and due on their shares. Paid up capital can be equal or lesser than the Called up Capital but it, cannot be more than the Called up Capital. The difference between Called up Capital and Paid, up Capital is known as Calls-in-Arrears., , vi), , Reserve Capital - It is that portion of Subscribed Capital which has been called up and which, the company by special resolution had decided not to called up except in the event of and for, the purpose of winding up., , 8.1.3 Treatment of Share Capital in Balance Sheet, Example - A company was formed with an Authorised Capital of ` 10,00,000 divided into `10,000, equity shares of ` 100 each. It issued to the public 7,500 equity shares payable as ` 30 on application,, ` 30 on allotment and balance on Final call. Applications were received for ` 6,000 equity shares., The amount of allotment was duly received except one shareholder holding 500 equity shares did not, pay allotment money. The company did not make final call., How will you show the different categories of share capital in Balance Sheet?, Solution :, In the Books of A Company, Balance Sheet as on ......, Liabilities, Authorised Capital :, 10000 equity shares of ` 100 each, Issued Capital :, 7500 equity shares of ` 100 each, Subscribed Capital :, 6000 equity shares of ` 100 each, Called-up Capital :, 6000 equity shares of ^ 100 each,, ` 60 per share called-up, Paid-up Capital : 6000 equity, shares of ` 100 each ` 60 per share, called-up, 360000, Less Calls in, 15,000, arrears ( 500 x 30), Total, , Amount `, , Assets, Cash at Bank, , Amount `, 3,45,000, , 10,00,000, 7,50,000, 6,00,000, 3,60,000, , 3,45,000, 3,45,000, , 311, , Total, , 3,45,000
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Types/Methods of Issue of Share Capital 1. Right Issue {Sec. 62) to equity shareholders., 2. Employee Stock option scheme (Sec. 62 (1) (b) to employees. (ESOS), 3. Any person (Sec. 62 (l)(c)), a) i) Private placement of shares (Sec. 42), , ii) Preferential Allotment of shares (R 13 of co. SCO Rules) to shareholders only. Public, Issue of shares, c) Sweat Equity Shares (Sec. 54) issued to Directors or employees., 4. Issue of Bonus shares to members/shareholders (Sec, 63 (1)), Issue of Share Capital, Sr., Type of, No., Securities, Right Issue, 1., , 2., , Empolyees, Stock, Option, Scheme, , 3., , a. Private, Placement, , b. Public, Offer, , Private, Public, Meaning, Company Company, Right shares are, 3, 3, issued by the , company to its , existing , shareholders usually, at a discounted, price. Existing, shareholders are, given priority or, right of purchasing, those shares., These shares are, 3, 3, allotted, to, the, employees at the rate, less than the market, price. This scheme, encourages, its, employees to acquire, ownership in the form, of shares., Any offer or invitation, 3, 3, to subscribe or issue, of securities to any, selected person or, group of person., Public offer is the, 7, 3, offering of securities, which are listed on, a stock exchange to, general public., , 312, , Accounting, Treatment, Accounting entries in the, books of the , company for right, Issue are the same, as those for issue of, ordinary shares to, the public, , Accounting, value, is, based on fair value and, intrinsic value of option, Employees compensation, expenses account. Deferred, employees compensation, expenses etc. are the new, accounts opened., These transaction avoid the, time consuming process of, having securities registered, for sale to the general public, through SEBI., Generally, company issue, its shares on IPO. The, capital collected recorded, as stockholder equity in the, Balance Sheet.
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4., , c. Sweat, equity share, , 3, , 3, , Bonus Issue, , 3, , 3, , As per Section 2(88), of the companies, Act 2013 “Sweat, Equity, Shares”, means, such, as, issued by a company, to, its, directors, or employees at, a discount or for, consideration,, other, than, cash, for providing their, know-how or making, available rights in the, nature, intellectual, property rights or, value additions by, whatever by whatever, name called., Bonus shares are, distributed by a, company, to, its, current shareholders, as fully paid shares, free of charge., , If the consideration is not, by way of cash, which does, not make that form of an, asset that can be carried, to the balance sheet of, the company as per the, accounting standards., , A Bonus Issue is just recomposition of reserves., It decreases the reserves, on one hand and causes, increase in share capital., So it is just the amounts are, transferred from redemption, reserve, capital reserve,, security premium etc. to, equity share capital., , , As Public Issue of shares is included in XIIth syllabus only that method is explained in detail, here., 8.2.1, Public Issue of Shares : It is the most common and popular practice of Public Limited Companies, to raise the share capital by issuing its shares to public in Primary Market. Following procedure is, followed by the company to issue its shares to the Public., 1. Issue of Prospectus : The Company issues a Prospectus which provides complete information, about the company to the prospective investors. The Prospectus specifies the number of shares, offered to the Public, the face value of shares and the amount to be paid on Application, Allotment, and Calls., 2. Receipt of Applications : The intending subscriber to the shares are required to send their, application form together with the application money by the specified date. The company makes, its application forms available to the public through its brokers and banks. As per sec 39(2} of, the companies Act 2013, the amount payable on application on every security/shares shall not, be less than 5% of the nominal amount of the share or such other percentage or amount as may, be specified by SEBI by making regulations in this behalf., 313
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3, , Allotment of Shares - As per Sec 39(1) of Companies Act 2013, no allotment of any shares of, a company offered to the public for subscription shall be made unless the amount stated in the, Prospectus as the minimum amount has been subscribed and the sums payable on application, for the amount so stated have been paid to and received by the company by cheque or other, instrument complying all the legal requirements the Directors of the Company proceeds for, the allotment procedure. Allotment letters are send to those who are allotted certain number of, share, while regret letter is sent to those who have not allotted any share and their application, money is refunded. On shares being allotted, the second installment is demanded it is called, Allotment Money., 4. Calls on Shares - After receiving allotment, the company makes the call due. If the calls are, more than one, they are serially numbered as First call, Second call etc. and the last call as, Final call. A call is a demand by the company to pay remaining amount other than application, and allotment money on a share. At least 14 days notice must be given to shareholders for, payment of the call., Basic Accounting Entries for Issue of shares The procedure for accounting for the issue of equity and preference shares is the same. However the, words Equity or Preference is prefixed to the shares installments in order to differentiate between the, two., Accounting Entries :, 1. On receipt of Share Application money, Bank A/c........................................................................Dr., To Share Application A/c, (Being application money on ... shares @.... Per share received), Share Application money is part of share capital of the company, so it is to be transferred to, share capital account., 2. On transfer of application money to share capital, Share Application A/c...................................................Dr., To Share Capital A/c, (Being share application money on .... Shares @ ` .... capital A/c), 3. On Share Allotment due, Share Allotment A/c......................................................Dr., To Share Capital A/c, (Being share allotment money on Shares @ ` .... per share due), 4. On Allotment money received, Bank A/c........................................................................Dr., To Share Allotment A/c, (Being share allotment money on .... Shares @ ` .... per share received), 5. On first call due, Share first call A/c.........................................................Dr., To Share capital A/c, (Being share first call money on .... Shares @ ` .... per share due), 6. On first call money received, Bank A/c........................................................................Dr., To Share first call A/c, (Being share first call money on .... Shares @ ` .... per share received), 314
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7., , On second call due, Share second call A/c....................................................Dr., To Share capital A/c, (Being share second call money on .... Shares @ ` .... per share due), 8. On second call money received, Bank A/c........................................................................Dr., To Share second call A/c, (Being share second call money on .... Shares @ ` .... per share received), 9. On Third& Final call due, Share Third & Final call A/c.........................................Dr., To Share Capital A/c, (Being Share Third & Final call money on .... Shares @ ` .... per share due), 10. On Third & Final call money received, Bank A/c........................................................................Dr., To Share Third & Final Call A/c, (Being share Third & Final call money on .... Shares @ ` .... per share received), , Illustrations, 1., , Gajanan Ltd. Issued 60,000 equity shares of ` 10 each payable as Application, ` 3 on Allotment,, ` 3 on First Call, ` 2 on final call. The shares subscribed and all the amount due was received., Pass necessary Journal the book of Gajanan Ltd., Solution :, Date, 1., , 2., , 3., , 4., , Particulars, L.F., Bank A/c..............................................................Dr., To Equity Share Application A/c, (Being equity share application money on 60,000, share @ ` 2 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, (Being application money on 60,000 equity shares @, ` 2 per share transferred to equity share capital), Equity Share Allotment A/c.................................Dr., To Equity Share Capital A/c, (Being allotment money on 60,000 equity shares @, ` 3 due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being Equity share Allotment money on 60,000, shares @ ` 3 received), , 315, , Debit `, 1,20,000, , Credit `, 1,20,000, , 1,20,000, 1,20,000, , 1,80,000, 1,80,000, , 1,80,000, 1,80,000
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5., , 6., , 7., , 8., , Equity Share First Call A/c..................................Dr., To Equity share capital A/c, (Being Equity share first call money on 60000 shares, @ ` 3 due), Bank A/c..............................................................Dr., To Equity Share First call A/c, (Being Equity share first call money on 60,000 equity, shares @ ` 3 received), Equity share Second & Final call A/c.................Dr., To Equity Share Capital A/c, (Being final call money on 60,000 equity shares @ `, 2 per share due, Bank A/c..............................................................Dr., To Equity share Second & Final call A/c, (Being Final Call money on 60,000 equity shares @ `, 2 per share received), , 1,80,000, 1,80,000, , 1,80,000, 1,80,000, , 1,20,000, 1,20,000, , 1,20,000, 1,20,000, , Honesty Ltd, Issued 20000 Preference shares of ` 10 each payable, ` 4 on Application, ` 2 on Allotment, ` 4 on 1st and Final call., Shares were fully subscribed and all amount were received., Pass necessary Journal Entries in the Books of Honesty Ltd., Solution :, Journal Entries in the Books of Honesty Ltd., , 2., , Date, 1., , 2., , 3., , 4., , Particulars, L.F., Bank A/c..............................................................Dr., To Preference Share Application A/c, (Being application money on 20,000 Preference shares, @ ` 4 per share received), Preference Share Application A/c........................Dr., To Preference Share Capital A/c, (Being application money on 20,000 Preference shares, @ ` 4 per share transferred to preference share capital, account), Preference Share Allotment A/c...........................Dr., To Preference Share Capital A/c, (Being allotment money on 20,000 Preference shares, @ ` 2 per share due), Bank A/c..............................................................Dr., To Preference Share Allotment A/c, (Being Allotment money on 20,000 Preference shares, @ ` 2 per share received), 316, , Debit `, 80,000, , Credit `, 80,000, , 80,000, 80,000, , 40,000, 40,000, , 40,000, 40,000
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5., , 6., , Preference Share First & Final Call A/c..............Dr., To Preference Share Capital A/c, (Being 1st & final call money on 20000 Preference, shares @ ` 4 per share due), Bank A/c..............................................................Dr., To Preference Share First & Final call A/c, (Being First & Final call money on 20,000 equity, shares @ ` 4 per share received), , 80,000, 80,000, , 80,000, 80,000, , Issue of Shares at a Premium, A company can issue its shares at more than its face value. Excess of issue price of share over its face, value is termed as Share Premium. If a share of ` 10 is issued at ` 13 per share the excess of ` 3 i.e., 13 - 10 will be termed as Share Premium or Securities Premium. The amount of premium received is, credited to a separate account known as Share Premium Account which is shown on the liability side, of the Balance Sheet as a separate item., Share Premium Account should be treated to be on share allotment unless otherwise mentioned., Share Premium Account may be credited at the time of making allotment due or receiving allotment, money., Journal entry, Share Allotment A/c..............................Dr, To Share Capital A/c , To Share Premium / Securities Premium A/c, 3., , Ankita Ltd. Offered for public 10,000 equity shares of ` 10 each at a premium of ` 12 per share, payable as under, On Application , , -`4, , On Allotment , , - ` 4 (including premium), , On First & Final call, , - Balance amount, , Company received all the money. The issue was fully subscribed. Give Journal entries to, record the above transactions and also show Balance Sheet., , 317
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Solution :, Journal Entires in the Books of Ankita Ltd., Date, 1., , 2., , 3., , 4., , 5., , 6., , Particulars, L.F., Bank A/c..............................................................Dr. `, To Equity Share Application A/c, (Being application money on 10,000 Equity shares, @ ` 4 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, (Being application money on 10,000 Equity shares, @ ` 4 per share transferred to preference share, capital), Equity Share Allotment A/c.................................Dr., To Equity Share Capital A/c, To Share Premium A/c, (Being allotment money on 10,000 equity shares @ `, 4 per share due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being allotment money on 10,000 equity shares @ `, 4 per share received), Equity Share First & Final Call A/c....................Dr., To Equity Share Capital A/c, (Being Equity share first & final call money on 10,000, equity shares @ ` 4 per share due), Bank A/c..............................................................Dr., To Equity Share First & Final call A/c, (Being Equity share 1st & Final call money on 10,000, equity shares @ ` 4 per share received), , Debit `, 40,000, , Credit `, 40,000, , 40,000, 40,000, , 40,000, 20,000, 20,000, , 40,000, 40,000, , 40,000, 40,000, , 40,000, 40,000, , Balance Sheet of Ankita Ltd., Liabilities, Share Capital, 10,000 Eq. shares of 10 each, Share Premium / Securities, Premium A/c, , Assets, , Amount `, Bank, , Amount `, 1,20,000, , 1,00,000, 20,000, , 1,20,000, , 1,20,000, , Issue of Shares at Discount When a company issues shares at a price less than the face value of the shares, it is known as issue of, shares at discount Normally, shares are not issued at discount by a company because the discount, allowed is a loss to the company which no company would like to incur. The loss on issue of shares, 318
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is to be debited to ‘Discount on Issue of shares Account/ The amount of discount will be shown on, the asset side of Balance Sheet till it is completely written off. The entry for discount should be, passed at the time of allotment along with the transfer entry for allotment because the loss on account of discount is incurred as soon as the shares have been allotted., Journal entry :, Share Allotment A/c...................................... Dr., Discount on Issue of Shares A/c................... Dr., To Share Capital A/c, Note : As per new provisions of issued by government Act (2013) Public issue of shares can not be, at a Discount., 4, , Ashwini Ltd invited applications from the public for subscribing for 10,000 equity shares of, ` 15 each at a discount of ` 1 per share payable, ` 5 on application, ` 9 Allotment. All the shares, were applied and allotted. Money due on allotment was received., Pass Journal Entries in the Books of Ashwini Ltd. and prepare Balance Sheet., Journal Entries in the Books of Ashwini Ltd., Date, 1., , 2., , 3., , 4., , Particulars, L.F., Bank A/c..............................................................Dr., To Equity Share Application A/c, (Being application money on 10,000 Equity shares @, ` 5 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, (Being application money on 10,000 Equity shares @, ` 5 per share transferred to preference share capital), Equity Share Allotment A/c.................................Dr., Discount on Issue of Shares A/c..........................Dr., To Equity Share Capital A/c, (Being allotment money on 10,000 equity shares @ `, 9 per share, after allowing discount of ` 1 per share, due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being allotment money on 10,000 equity shares @ `, 9 per share received), , Debit `, 50,000, , Credit `, 50,000, , 50,000, 50,000, , 90,000, 10,000, 1,00,000, , 90,000, 90,000, , Balance Sheet of Ashwini Ltd., Liabilities, Share Capital, 10,000 Equity shares, of 15 each, , Assets, , Amount `, 1,50,000, , Bank, Discount on Issue of Shares, , 1,50,000, , Amount `, 1,40,000, 10,000, 1,50,000, , 319
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8.2.4, Over subscription and Under subscription of Shares, (A) Over subscription of Shares When the number of shares applied for is more than the number of shares the company has, offered / issued to the public it is known as ‘Over subscription’. In the case of Over, subscription there may be three possibilities1. Some applicants may be allotted the full number of shares they have applied which is known, as ‘Full Allotment’. In this case there is no excess application money received., 2. Some applicants may not be allotted shares in which case their applications are treated as, rejected. In such a case the whole amount will have to be refunded to the applicants., Journal entry :, Share Application A/c , Dr., To Bank A/c , 3., , Some applicants may be allotted less number of snares than they have applied for, which is, known as ‘Partial Allotment’. In this case the excess amount received on application may be, utilised towards the money due on allotment by transferring the excess amount from the Share, Application Account to Share Allotment Account., , 5, , Vaishali Ltd. Issued 10000 equity shares of ` 10 each at par payable ` 3 on Application, ` 4 on, Allotment and ` 3 on First and Final call. The company received applications for 15000 shares., , The Board of Directors rejected 5000 applications and application money was refunded. All the, money was duly received., Show Journal Entries in the Books of Vaishali Ltd., Solution :, Journal Entries in the Books of Vaishali Ltd, Date, 1., , 2., , 3., , 4., , Particulars, L.F., Bank A/c..............................................................Dr., To Equity Share Application A/c, (Being application money on 15,000 Equity shares @, ` 3 per share received), Equity Share Application A/c .............................Dr., To Equity Share Capital A/c, (Being application money on 10,000 Equity shares @, ` 3 per share transferred to preference share capital), , Debit `, 45,000, , 45,000, , 30,000, 30,000, , Equity Share Application A/c .............................Dr., To Bank A/c, (Being application money on 5,000 equity shares @, ` 3 per share refunded), , 15,000, , To Equity Share Allotment A/c............................Dr., To Equity Share Capital A/c, (Being allotment money on 10,000 equity shares @ `, 4 per share due), , 40,000, , 320, , Credit `, , 15,000, , 40,000
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5., , 6., , 7., , Bank A/c.............................................................Dr., To Equity Share Allotment A/c, (Being allotment money on 10,000 equity shares @ `, 4 per share due), , 40,000, , Equity share First and Final call A/c...................Dr., To Equity Share Capital A/c, (Being Equity share first & Final call on 10,000, equity shares @ ` 3 per share due), , 30,000, , Bank A/c.............................................................Dr., To Equity share First and Final call A/c, (Being equity share first & final call money on 10,000, equity shares @ ` 4 per share due), , 30,000, , 40,000, , 30,000, , 30,000, , Pro-rata/Proportionate Allotment, When the application received for shares is more than the number of shares that can be issued,, the Directors may reduce the number of shares to be alloted each applicant proportionately on the, basis of total application received and the number of shares issued. Thus under this case each applicant, gets the shares but less than those demanded applied by him., Alternatively it can reject certain applications and refund the application money, allow full, shares to some applicants and make pro-rata allotment to others. In case of pro-rata allotment, company will adjust excess application money received against allotment money demanded from, the shareholders., Journal Entry :, a) Share Application A/c, Dr., , To share Allotment A/c , or , b) Share Application A/c, Dr., , To Share Capital A/c, , To Share Allotment A/c, (Being extras application money adjusted with allotment money), 6, , Sanika Company Ltd issued 10000 equity shares to the public of ` 10 each. Payable as ` 2 on, Application, ` 5 on Allotment, and ` 3 on 1st and Final Call. All the calls were made and money, received., Company received applications for 20,000 shares. Directors decided to allot shares to all applicants, on pro-rata basis., Pass Journal Entries in the Books of Sanika Co. Ltd., , 321
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Solution :, Journal Entries in the Books of Sanika Ltd, Date, 1., , 2., , 3., , 4., , 5., , 6., , Particulars, L.F., Bank A/c..............................................................Dr., To Equity Share Application A/c, (Being application money on 20,000 Equity shares @, ` 2 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, To Equity Share Allotment A/c, (Being application money on 10,000 Equity shares, transferred to equity share capital and application, money on 10000 equity shares adjusted against share, allotment A/c), Equity Share Allotment A/c.................................Dr., To Equity Share Capital A/c, (Being allotment money on 10,000 equity shares @ `, 5 per share due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being share allotment money on 10,000 equity, shares after adjusting excess application money), Equity share First and Final Call A/c..................Dr., To Equity Share Capital A/c, (Being Equity share first & Final Call on 10,000 shares, @ ` 3 per share due), , Debit `, 40,000, , Bank A/c..............................................................Dr., To Equity Share First & Final Call A/c, (Being Equity share first & Final call Money received), , Credit `, 40,000, , 40,000, 20,000, 20,000, , 50,000, 50,000, , 30,000, 30,000, , 30,000, 30,000, , 30,000, 30,000, , Note - Company has issued 10000 shares to the public, but applications were received for 20000, shares i.e. excess applications for 10000 shares., Working Note No. 1 Total Application money received 20000 shares @ ` 2 , Less : Application money on 10000 share @ ` 2 which were, , ` 40,000, , issued to public, , ` 20,000, , Excess Application money received , , ` 20,000, , Therefore, excess application money received on 10,000 equity shares @ ` 2 per share adjusted with, allotment money., , 322
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Working Note No. 1 Allotment money received =, Allotment money demanded, =, excess application money, =, 50,000 - 20000, ` 30,000, (B), , Under Subscription of SharesWhen number of shares applied by the public are less than the number of shares issued or, offered to the public it is called as under subscription of shares. In this case journal entries are, made on the number of shares applied and allotted only., , 7, , XYZ & Company Ltd. issued 4000 shares of ` 100 each payable as follows ` 25 on Application, ` 60 on Allotment, ` 15 on first and final call, , Public applied for 3000 shares. All the money on allotment and call were received., Give necessary Journal Entries., Solution :, Journal Entries in the Books of XYZ & Co. Ltd., Date, 1., , 2., , 3., , 4., , 5., , 6., , Particulars, L.F., Bank A/c..............................................................Dr., To Equity Share Application A/c, (Being application money on 3000 Equity shares @ `, 25 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, (Being application money on 3000 shares @ ` 25 per, share transferred to share capital A/c), Equity Share Allotment A/c.................................Dr., To Equity Share Capital A/c, (Being allotment money on 3000 equity shares @ `, 60 per share due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being share allotment money on 3000 equity shares, @ ` 60 per share received), , Debit `, 75,000, , 75,000, , 75,000, 75,000, , 1,80,000, 1,80,000, , 1,80,000, 1,80,000, , Equity share First and Final Call A/c..................Dr., To Equity Share Capital A/c, (Being Equity share 1st & Final Call on 3000 shares, @ ` 15 per share due), , 45,000, , Bank A/c..............................................................Dr., To Equity Share First & Final Call A/c, (Being share first & Final call on 3000 shares @ ` 15, per share received), , 45,000, , 323, , Credit `, , 45,000, , 45,000
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8.2.5 Calls in Arrears & Calls in Advance, (A) Call in Arrears, If the company accept the application and allots the shares to the person he becomes the shareholder, and the shareholder is liable to pay the entire amount of shares. In case he fails to pay the allotment, and calls on shares held by him the unpaid amount is known as Calls in Arrears., The unpaid amount on allotment and calls may be kept in their respective accounts for the balance not, received or may be transferred to a new account i.e. Calls in Arrears Account. The Calls in Arrears, Account has debit balance which is shown as a deduction from the Paid up Share Capital on liabilities, side of Balance sheet., 8, , Girish & Co. Ltd. Invited applications for 25000 equity shares of ` 10 each payable as, ` 2.50 on Application, ` 5 on Allotment, ` 2.50 on First & Final call, ` Applications were received for 30000 equity shares and pro-rata allotment were made to all., , All the money was duly received except First and Final call on 2500 equity shares., Enter the above transactions in the books of a company and show the Balance sheet., Solution :, Journal Entries in the books of Girish Co, Ltd., Date, 1., , 2., , 3., , 4., , Particulars, L.F., Bank A/c ............................................................Dr., To Equity Share Application A/c, (Being application money on 30,000 Equity shares @, ` 2.5 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, To Share Allotment A/c, (Being application money on 25,000 shares @ ` 2.50, per share transferred to share capital A/c and excess, application money on 500 shares @ ` 2.50 per share, adjusted), Equity Share Allotment A/c.................................Dr., To Equity Share Capital A/c, (Being allotment money on25,000 equity shares @ `, 5 per share due), Bank A/c ............................................................Dr., To Equity Share Allotment A/c, (Being share allotment money on 25000 equity shares, @ ` 5 per share received), , 324, , Debit `, 75,000, , Credit `, 75,000, , 75,000, 62,500, 12,500, , 1,25,000, 1,25,000, , 1,12,500, 1,12,500
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5., , 6., , Equity share First and Final Call A/c..................Dr., To Equity Share Capital A/c, (Being Equity share 1st & Final Call Money on 25000, shares @ ` 2.50 per share due), , 62,500, , Bank A/c ............................................................Dr., Calls in Arreas A/c...............................................Dr., To Equity Share First & Final Call A/c, (Being share first & Final call on 22,500 shares @ `, 2.50 per share received), , 56,250, 6,250, , 62,500, , 62,500, , Balance Sheet of Girish & Co. Ltd., Liabilities, Share Capital, Less : Calls in Arrears, , Amount, , Amount, , `, , `, , 2,50,000, 6,250, , Assets, , Amount, , Amount, , `, , `, , Bank, , 2,43,750, , 2,43,750, 2,43,750, , 2,43,750, , Note - Entry for the receipt of First & Final Call can also be made as follows Bank A/c, , Dr., , , , 56,250, , To Equity Share First & Final call A/c , , 56,250, , (B) Calls in Advance Company may receive Call in Advance. The amount paid by the shareholder of a company, before the particular call is made is known as Calls in Advance. It is the liability of the company, and should be transferred to Calls in Advance Account. It is adjusted with the respective call, made in future, till then it is shown as a liability in the Balance Sheet., 9, , Archana Ltd. issues 10000 shares of ` 10 each at ` 12 payable as, ` → 3 on Application, ` → 5 on Allotment (with premium), ` → 4 on First Final Call, Applications were received for 8000 shares only. Ketan a holder of 400 shares made the full, payment at the time of Allotment., Record the above transactions in the Books of Archana Ltd., , 325
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Solution:, Journal Entries in the Books of Archana Ltd., Date, 1., , 2., , 3., , 4., , 5., , 6., , Particulars, L.F., Bank A/c ............................................................Dr., To Share Application A/c, (Being application money on 8,000 shares @ ` 3 per, share received), Share Application A/c..........................................Dr., To Share Capital A/c, (Being application money on 8,000 shares @ ` 3 per, share transferred to share capital A/c), Share Allotment A/c.............................................Dr., To Share Capital A/c, To Share Premium A/c, (Being allotment money on 8,000 shares @ ` 5 per, share due), Bank A/c ............................................................Dr., To Share Allotment A/c, To Calls in Advance A/c, (Being share allotment money on 8000 equity shares, @ ` 5 per share & share First & Final call money on, 400 shares @ ` 4 per share received), Share First and Final Call A/c.............................Dr., To Share Capital A/c, (Being share First & Final Call Money on 8000 shares, @ ` 4 per share due), Bank A/c ............................................................Dr., Calls in Advance A/c...........................................Dr., To Share First & Final Call A/c, (Being share First & Final call on 7600 shares @ ` 4, per share received & on 400 shares adjusted), , Debit `, 24,000, , Credit `, 24,000, , 24,000, 24,000, , 40,000, 24,000, 16,000, , 41,600, 40,000, 1,600, , 32,000, 32,000, , 30,400, 1,600, 32,000, , 8.2.6 Issue of Shares for Consideration other than Cash, A company can issue its shares for cash or for consideration other than cash. Such as against, purchase of Land & Building, Plant & Machinery etc. The company purchase certain assets from, vendors (sellers or suppliers) on credit. Instead of making payment to vendors in cash, the company, issues them certain agreed number of shares at the agreed rate at a consideration of assets purchased., Journal Entries1. Purchase of Asset on Credit, Assets A/c, Dr., To Vendor A/c, (Being Asset purchased from the vendor), , 326
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2., , Allotment of share to, Vendor A/c , Dr., , To Share Capital A/c, (Being allotment of.... shares of ` ... each fully paid to vendors), Sometimes a company rewards its promoters for their services by issuing shares to them without, any payment. Such an issue of shares also comes under the issue of shares for consideration other, than cash. The full amount of the shares issued to promoters for their services is regarded on the cost, of goodwill and the entry shall be just the same on the purchase of any asset. The entry is, Goodwill A/c Dr., ..., To Share Capital A/c, (Allotment of ... shares of ` ... each fully paid to promoters), 8.3.1 Forfeiture of Shares, If the shareholder fails to pay allotment or call money or both, the company send reminder to, the shareholders to make the payment of calls in arrears. If Shareholder does not respond to reminders and fails to pay money then, the Directors can forfeit his shares as per the provisions of Articles, of Association of a company., When shares are forfeited the share capital is debited with the amount called upto the date of, forfeiture in respect of shares forfeited and credit will be given to, i), Share Forfeiture Account with the amount already received and, ii) The respective unpaid calls in account (or calls in arrears account, if unpaid calls have already, been transferred to Calls in Arrears Account) in respect of such shares. It should be noted that, the share capital account should be debited only with the amount called in respect of such, share; and not with their total nominal value unless full amount per share has been called., Journal Entry, Share Capital A/c , , Dr., , To Share Forfeitted A/c , To Calls in Arrears A/c , (A) When shares were Originally issued at a Premium, Where the forfeited shares are originally been issued at Premium and premium on forfeited, shares has already been received and the Share Premium Account will not be debited because, once the premium is received law does not allow to refund or cancel the premium, but if the premium on shares has not been received because it formed part of the installment which remain, unpaid, then premium on shares will be debited. The Journal Entry for forfeiture will be a), , If premium is already received, Share Capital A/c Dr., , To Forfeitted Shares A/c / Share forfeiture A/c, , To Calls in Arrears A/c, b), , Premium in not received, Share Capital A/c Dr., Share Premium/ Securities Premium A/c Dr., , To Calls in Arrears A/c , , To Share forfeiture A/c / Forfitted Shares A/c , 327
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10 Suman Ltd. issued equity shares of ` 10 each at a Premium of ` 3 per share, Payable as, follows`, 3 on application, `, 5 on Allotment (including Premium), `, 2.50 on 1st call, `, 2.50 on final call, One shareholder Mr. Ashok failed to pay Allotment money and 1st call money on 200 shares., Directors forfeited his share after first call. While another shareholder Mr. Atul failed to pay, 1st call and final call money on 100 shares and his shares were forfeited after final call. Show, Journal Entries for forfeiture of shares of Mr. Ashok & Mr, AtuI, Solution :, Date, 1., , Particulars, L.F., Share Capital A/c................................................Dr., Share Premium A/c..............................................Dr., To Share Allotment A/c, To Share First call A/c, To Share Forfeiture A/c, (Being forfeiture of 200 equity share due to nonpayment of Allotment money on first call money), , Debit `, 1,500, 600, , 2., , Share Capital A/c.................................................Dr., To Share First Call A/c, To Share Final Call A/c, To Share Forfeiture A/c, (Being forfeiture of 100 equity shares due to nonpayment of first call and final call money), , Working Note No. 1 Shares Forfeited & Premium not collected, Share Capital = No of forfeited shares × Called up value including premium, , , No. of forfeited shares = 200, , , , 200 × 7.5 = 1,500, , Security premium = 200 × 3 = 600 (No. of shares premium per share), Share allotment = 200 × 5 = 1,000 (No. of share Allotment money), 1st Call = 200 × 2.5 = 500 (No. of share Call Money), Forfeited shares = Bal. Amount, Working Note No. 2 Share forfeited premium is collected, Share Capital, = No. of shares × called up value (including premium), = 100 × 10 = 1,000, , 328, , Credit `, , 1,000, 500, 600, , 1,000, 250, 250, 500
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First Call, , = No. of shares × Call Money, = 100 × 2.5 = 250, , Second Call, , = No. of shares × Call, = 100 × 2.5 = 250, , Forfeited Shares = Balance Amount, 11, , Shraddha Ltd. issued 100000 equity shares of ` 10 each at a premium of ` 2 per share payable, as ` →, , 3 on Application, , ` →, , 5 on Allotment, , ` →, , 4 on first& final call, , Applications were received for 1,20,000 equity shares and pro-rata allotment was made to all the, applicants. The excess application money was adjusted with allotment., Vinita who was allotted 200 shares failed to pay First & Final call and her shares were forfeited., Pass Journal Entries in the books of Shraddha Ltd. and show the Balance Sheet, Journal Entries in the Books of Shraddha Ltd., Date, 1., , 2., , 3., , 4., , 5., , Particulars, L.F., Bank A/c..............................................................Dr., To Equity Share Application A/c, (Being application money on 1,20,000 Equity shares, @ ` 3 per share received), Equity Share Application A/c..............................Dr., To Equity Share Capital A/c, To Equity Share Allotment A/c, (Being application money on 1,00,000 shares, transferred to share capital A/cand remaining money, adjusted against allotment), Share Allotment A/c.............................................Dr., To Share Capital A/c, To Share Premium A/c, (Being allotment money on 1,00,000 equity shares @, ` 5 per share including premium due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being share allotment money received after adjusting, excess application money received), Equity Share First and Final Call A/c.................Dr., To Equity Share Capital A/c, (Being Equity share first & Final Call Money on, 1,00,000 shares @ ` 4 per share due), 329, , Debit `, 3,60,000, , Credit `, 3,60,000, , 3,60,000, 3,00,000, 60,000, , 5,00,000, 3,00,000, 2,00,000, , 4,40,000, 4,40,000, , 4,00,000, 4,00,000
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6., , 7., , Bank A/c..............................................................Dr., To Share First & Final Call A/c, (Being share first & Final call on 99800 shares @ ` 4, per share received ), Equity Share Capital A/c.....................................Dr., To Equity Share First & Final call A/c, To Share Forfeiture A/c, (Being forfeiture of 200 equity shares due to nonpayment of first & final call), , 3,99,200, 3,99,200, , 2,000, 800, 1,200, , Balance Sheet of Shraddha Ltd., Liabilities, Share Capital, Share Premium Allotment, Share Forfeiture Allotment, , Amount `, 9,98,000, 2,00,000, , Assets, Bank, , Amount `, 11,99,200, , 1200, 11,99,200, , 11,99,200, , (B) When shares were originally issued at discount, When the forfeited shares originally been issued at a discount. The Discount on issue of shares, amount should be credited. Journal Entry Share Capital A/c , Dr, , To Calls in Arrears A/c, , To Discount on Issue of Shares A/c, , To Share forfeiture A/c, 12, , Subhash Ltd. issued equity share of ` 10 each at 10% discount to the public payable, ` 3 on, Application, ` 2 on Allotment, ` 2 on lst call and balance ` 2 on final call., Neeta who was allotted 300 equity shares paid only application money and her shares were, forfeited after First call., Sanjay who was allotted 400 equity shares paid application and allotment money only his, shares were forfeited after final call., Show the Journal entries in the books of the company regarding forfeiture of shares of, Neeta and Sanjay., , 330
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Solution :, Journal Entries, Date, 1., , 2., , Particulars, L.F., Equity Share Capital A/c....................................Dr., To Equity Share Allotment A/c, To Equity Share First Call A/c, To Discount on Issue of Shares A/c, To Share Forfeiture A/c, (Being forfeiture of 300 equity share due to nonpayment of Allotment money, first call money), Equity Share Capital A/c.....................................Dr., To Equity Share First Call A/c, To Equity Share Final Call A/c, To Discount on Issue of Shares A/c, To Share Forfeiture A/c, (Being forfeiture of 400 equity shares due to nonpayment of first call and final call money), , Debit `, 2,400, , Credit `, 600, 600, 300, 900, , 4,000, 800, 800, 400, 2,000, , Working Note No. 1 Neeta, Capital = No. of Shares Called up value including discount, Allotment 300 × 8 = ` 2,400, A/c = 300 × 2 = ` 600, First call = 300 × 2 = ` 600, Discount = 300 × 1 = ` 300, Working Note No. 2 Sanjay, Discount = 400 × 1 = ` 400, First call = 400 × 2 = ` 800, Final call = 400 × 2 = ` 800, Capital = 400 × 10 = ` 4,000, 8.3.3 Reissue of forfeited shares, The directors can re-issue the forfeited shares either at par, premium or at discount, usually re-issued, as fully paid and they are issued at a discount. However the amount of discount allowed on reissue, should not exceed the amount which has already been received (the forfeited amount) in respect, of these shares on their original issue and the same should be debited to Share Forfeiture Account., In case of all the forfeited shares are re-issued balance of share forfeiture account is transferred to, Capital Reserve Account., , 331
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13, , Company forfeited 1000 share of ` 10 each for non-payment of final call of ` 2. All the forfeited, shares were issued at ` 6 per share fully paid., Pass the Journal Entries in the Books of a company for forfeiture and re-issue of shares., , Solution :, Journal Entries in the Books of a Company, Date, 1., , 2., , 3., , Particulars, L.F., Equity Share Capital A/c....................................Dr., To Share Forfeiture A/c, To Calls in Arrears A/c, (Being forfeiture of 1000 Equity shares ` 10 for, non-payment of final call of ` 2 per share), Bank A/c..............................................................Dr., Share Forfeiture A/c, To Share Capital A/c, (Being re-issue of 1000 Forfeiture shares @ ` 6 per, share), Share Forfeiture A/c.............................................Dr., To Capital Reserve A/c, (Being balance of Share Forfeiture Account Account, transferred to Capital Reserve Account), , Debit `, 10,000, , Credit `, 8,000, 2,000, , 6,000, 4,000, 10,000, , 54,000, 4,000, , Preeti Company Limited invited applications for 50000 Equity Shares of ` 100 each at par,, payable as follows, On Application, ` 30, On Allotment, ` 40, On First & Final Call, ` 30, The public applied for 35,000 shares and all these were allotted. All money due were collected, with an exception of first & final call on 4000 shares, these were forfeited. All forfeited shares were, re-issued by the Directors at ` 80 per share., Pass Journal Entries in the Books of Preeti Company Limited., 14, , In the Books of Preeti Co. Ltd., Journal Entries, Date, 1., , 2., , Particulars, L.F., Debit `, Bank A/c............................................................Dr., 10,50,000, To Share Application A/c, (Being Application money on 35000 Equity shares `, 30 per share received), Equity Share Application A/c..............................Dr., 10,50,000, To Equity Share Capital A/c, (Being equity share application money on 35000, shares transferred to Equity share Capital), 332, , Credit `, 10,50,000, , 10,50,000
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3., , 4., , 5., , 6., , 7., , 8., , 9., , Equity Share Allotment A/c.................................Dr., To Equity Share Capital A/c, (Being equity share allotment money on 35000 shares, ` 40 per share due ), Bank A/c..............................................................Dr., To Equity Share Allotment A/c, (Being equity share allotment money on 35000 shares, ` 40 per share received ), Equity Share First & Final Call A/c....................Dr., To Equity Share Capital A/c, (Being equity share allotment money on 35000 shares, ` 30 per share due ), Bank A/c.............................................................Dr., To Equity Share First & Final Call A/c, (Being equity share first & final call money on 31000, shares @ ` 30 per share received), Equity Share Capital A/c.....................................Dr., To Equity Share First & Final Call A/c, To Share Forfeiture A/c, (Being forfeiture of 4000 equity shares due to, non-payment of first & final call), Bank A/c.............................................................Dr., Share Forfeiture A/c.............................................Dr., To Equity Share Capital A/c, (Being re-issue for 4000 forfeited shares @ ` 80 per, share), Share Forfeiture A/c.............................................Dr., To Capital Reserve A/c, (Being balance on share forfeiture A/c transferred to, capital reserve A/c, , 15, , 14,00,000, 14,00,000, , 14,00,000, 14,00,000, , 10,50,000, 10,50,000, , 9,30,000, 9,30,000, , 4,00,000, 1,20,000, 2,80,000, , 3,20,000, 80,000, 4,00,000, , 2,00,000, 2,00,000, , The Subscribed Capital of Parag Limited is 30,000 Equity Shares of ` 100 each and 50,000, Preference shares of ` 100 each. On both of these shares ` 80 per share were called-up., The Directors forfeited 500 equity shares held by Ashish who failed to pay First and Second Call, of each ` 20 per share. They also forfeited 500 preference shares of Ashok who failed to pay, ` 20 per share on allotment, ` 20 per share on First call and ` 20 per share on Second call., The Director re-issued these forfeited shares of Ashish at ` 60 per share ` 80 paid up and those, of Ashok at ` 72 per share ` 80 paid up All re-issued shares were taken up by Anagha., Pass Journal Entries to record the forfeiture and re-issue of shares in the books of Parag Ltd., , 333
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Journal Entries In the Books of Parag Ltd., Date, 1., , 2., , 3., , 4., , 5., , Particulars, L.F., Equity Share Capital A/c.....................................Dr., To Equity Share First Call A/c, To Equity Share Second Call A/c, To Equity Share forfeiture A/c, (Being forfeiture of 500 equity share for failure to, pay First and Second Call ), Preference Share Capital A/c...............................Dr., To Preference Share Allotment A/c, To Preference Share First Call A/c, To Preference Share Second Call A/c, To Preference Share Forfeiture A/c, (Being forfeiture of 500 Preference shares due to nonpayment of Allotment money, First call & Second, call money), Bank A/c..............................................................Dr., Equity Share Forfeiture A/c.................................Dr., To Equity Share Capital A/c, (Being re-issue of 500 forfeited shares ` 60 per share, due ), Bank A/c.............................................................Dr., Preference Share Forfeiture A/c...........................Dr., To Preference Share Capital A/c, (Being re-issued 500 forfeited preference shares ` 72, per share), Equity Share Forfeiture A/c.................................Dr., Preference Share Forfeiture A/c...........................Dr., To Capital Reserve A/c, (Being Balance of share forfeiture account transferred, to capital reserve ), , Debit `, 40,000, , Credit `, 10,000, 10,000, 20,000, , 40,000, 10,000, 10,000, 10,000, 10,000, , 30,000, 10,000, 40,000, , 36,000, 4,000, 40,000, , 10,000, 6,000, 16,000, , Rakesh Ltd. issued 2000 equity shares of ? 100 each at a premium of ` 20 per share payable as, follows :, On Application , ` 20, On Allotment , ` 50 (including Premium), On first Call , ` 20, On final Call , ` 30, Applications were received for 3000 shares, 2000 share allotted to the applicants for 2400 shares., The remaining applications for 600 shares being refused and application money there on was refunded. Excess money received on application was adjusted against allotment., All amounts were duly received except Mr. Mandar to whom 80 shares were alloted., Mandar fails to pay First and Final call. His shares were forfeited and were reissued to Mr. Ketan, as fully paid at ` 80 per share., Journalise the transactions in the books of the company., , 16, , 334
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Journal Entries In the Books of Rakesh Ltd., Date, 1., , 2., , 3., , 4., , 5., , 6., , 7., , 8., , 9., , Particulars, L.F., Bank A/c.............................................................Dr., To Equity Share Application A/c, (Being equity share application money on 3000, equity shares @ ` 20 per share received), Equity Share Application A/c.............................Dr., To Equity Share Capital A/c, (Being application money on 2,000 shares @ ` 20 per, share transferred to capital A/c), Equity Share Application A/c.............................Dr., To Equity Share Allotment A/c, To Bank A/c, (Being excess application money on 400 shares, adjusted against allotment and on 600 shares, refunded), Equity Share Allotment A/c................................Dr., To Equity Share Capital A/c, To Share Premium A/c, (Being Allotment money on 2,000 equity shares @ `, 50 per share including premium due), Bank A/c..............................................................Dr., To Equity Share Allotment A/c., (Being equity share allotment money received ), Equity Share First Call A/c.................................Dr., To Equity Share Capital A/c, (Being share first call money on 2,000 shares @ ` 20, per share due), Bank A/c..............................................................Dr., To Equity Share First Call A/c, (Being equity share first call money on 1920 shares, @ ` 20 per share received), Equity Share Final Call A/c................................Dr., To Equity Share Capital A/c, (Being equity share final call money on 2,000 shares, @ ` 30 per share due), Bank A/c..............................................................Dr., To Equity Share Final Call A/c, (Being share first call money on 1920 shares @ ` 30, per share received), , 335, , Debit `, 60,000, , Credit `, 60,000, , 40,000, 40,000, , 20,000, 8,000, 12,000, , 1,00,000, 60,000\, 40,000, , 92,000, 92,000, 40,000, 40,000, , 38,400, 38,400, , 60,000, 60,000, , 57,600, 57,600
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10., , 11., , 12., , 17, , Equity Share Capital A/c....................................Dr., To Equity Share First Call A/c, To Equity Share Final Call A/c, To Share Forfeiture A/c, (Being forfeiture of 80 shares due to non-payment of, first & final call), Bank A/c.............................................................Dr., Share Forfeiture A/c, To Equity Shares Capital A/c, (Being reissue of 80 forfeited shares @ ` 80 per share), Share Forfeiture A/c.............................................Dr., To Capital Reserve A/c, (Being balance on Share Forfeiture A/c transfer to, Capital Reserve A/c), , 8,000, 1,600, 2,400, 4,000, , 6,400, 1,600, 8,000, 2,400, 2,400, , Show Journal Entries in the following cases (a) Prashant Trading Company Ltd. Forfeited 100 equity shares of ` 100 each due to nonpayment of Final Call of ` 30 and the same were re-issued at ` 50 per share fully paid., (b) Swanand Trading Company Ltd. forfeited 1000 equity shares of ` 10 each on which application money ` 2 and allotment money of ` 4 per share was paid. The first call money, of ` 2 per share remained unpaid. The company re-issued all the forfeited shares @ ` 5, per share, ` 8 paid-up., Journal Entries, , (a), Date, 1., , 2., , 3., , Particulars, L.F., Equity Share Capital A/c....................................Dr., To Equity Share Final A/c, To Share Forfeiture A/c, (Being forfeiture of 100 equity shares due to nonpayment of final call of ` 30 per share), Bank A/c.............................................................Dr., Share Forfeiture A/c............................................Dr., To Equity Share Capital A/c, (Being re-issue of 100 forfeited shares @ ` 50 per, share fully paid), Share Forfeiture A/c............................................Dr., To Capital Reserve A/c, (Being balance on share forfeiture A/c transferred to, Capital Reserve), , 336, , Debit `, 10,000, , Credit `, 3,000, 7,000, , 5,000, 5,000, 10,000, , 2,000, 2,000
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(b), Date, 1., , 2., , 3., , 18, , Particulars, L.F., Equity Share Capital A/c....................................Dr., To Share Forfeiture A/c, To Equity Share First Call A/c, (Being forfeiture of 1000 equity shares due to nonpayment of first call of ` 20 per share), Bank A/c.............................................................Dr., Share Forfeiture A/c............................................Dr., To Equity Share Capital A/c, (Being re-issue of 1000 forfeited shares @ ` 5 per share,, @ ` 8 per share called-up), Share Forfeiture A/c............................................Dr., To Capital Reserve A/c, (Being balance on share forfeiture A/c transferred to, Capital Reserve), , Debit `, 8,000, , Credit `, 6,000, 2,000, , 5,000, 3,000, 8,000, , 3,000, 3,000, , Dhananjay Electronic Caompany Ltd. Forfeited 500 equity shares of ` 10 each on which, ` 6 per share were received. Show journal entries regarding re-issue of all these shares if (a) Shares are re-issued at ` 8 per share fully paid-up, (b) Share are re-issued at ` 7, ` 8 called up, (c) Shares are re-issued at ` 5.50, ` 7 celled up, Journal Entries in the books of Dhananjay Electronics Co., Date, 1., , Particulars, L.F., Equity Share Capital A/c.....................................Dr., To Calls in Arrears A/c, To Share Forfeiture A/c, (Being forfeiture of 500 equity shares due to nonpayment of first call of ` 5 per share), , Debit `, 5,000, , Particulars, L.F., Bank A/c ...........................................................Dr., Share Forfeiture A/c.............................................Dr., To Equity Share Capital A/c, (Being re-issue of 500 forfeited shares @ ` 8 per, share fully paid), Share Forfeiture A/c............................................Dr., To Capital Reserve A/c, (Being balance on share forfeiture A/c transferred to, Capital Reserve), , Debit `, 4,000, 1,000, , Credit `, 2,000, 3,000, , (a), Date, 1., , 2., , 337, , Credit `, , 5,000, , 2,000, 2,000
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(b), Date, 1., , 2., , Particulars, L.F., Bank A/c.............................................................Dr., Share Forfeiture A/c.............................................Dr., To Equity Share Capital A/c, (Being re-issue of 500 equity shares @ ` 7 per share,, @ ` 8 per share called-up), Share Forfeiture A/c..........., Dr., To Capital Reserve A/c, (Being balance on share forfeiture A/c transferred to, Capital Reserve), , Debit `, 3,500, 500, , Particulars, L.F., Bank A/c.............................................................Dr., Share Forfeiture A/c.............................................Dr., To Equity Share Capital A/c, (Being re-issue of 500 equity shares @ ` 5.50 per share,, @ ` 8 per share called-up), Share Forfeiture A/c............................................Dr., To Capital Reserve A/c, (Being balance on share forfeiture A/c transferred to, Capital Reserve), , Debit `, 2,750, 750, , Credit `, , 4,000, , 2,500, 2,500, , (c), Date, 1., , 2., , Credit `, , 3,500, , 2,250, 2,250, , HHHHHHHHHHHHH EXERCISE - 8 HHHHHHHHHHHHH, Q.1 Objective Questions :, (A) Select he appropriate answer from the alternative given below and rewrite the sentence., 1., , The balance of Share Forfeiture A/c is transferred to ...................... account after re-issue, of these share., a) Reserve Capital , b) Capital Reserve, c) Profit & Loss , d) Share capital, , 2., , Premium received on issue of shares is shown to, a) Liability side of Balance Sheet , b) Asset side of Balance Sheet, c) Profit & Loss Account debit side, d) Profit & Loss A/c credit side., , 3., , Shareholders get ...................... on shares., a) Interest b) Commission, c) Rent d) Dividend, , 4., , The document inviting to subscribe the shares of a company is ...................... ., a) Prospectus , b) Memorandum of Association, c) Articles of Association, d) Share certificate, 338
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5., , As per SEBI guidelines minimum amount payable on share application should be, ...................... of Nominal Value of shares., a) 10% b) 15%, c) 2%, , d) 5%, , 6., , When shares are forfeited the Share Capital Account is ...................... ., a) credited b) debited, c) Neither debited nor credited d) Non of the above, , 7., , The liability of shareholder in Joint Stock Company is ...................... ., a) Joint and Several , b) Limited, c) Unlimited, d) huge, , 8., , The Share Capital which a company is authorised to issue by its Memorandum of, Association is ...................... ., a) Nominal capital/Authorised capital b) Issued capital, c) Paid up capital , d) Reserve capital, , 9., , The unpaid amount on allotment and calls may be transferred to ...................... account., a) calls in advance , b) calls, c) calls in arrears , d) allotment, , 10. There must be provision in ...................... for forfeiture of shares,, a) Articles of Association , b) Memorandum of Association, c) Prospectus , d) Balance Sheet, (B) Give one word/term/phrase for each of the following statements., 1. Amount called-up on shares by the company but not received., 2. Issue of share at its face value, 3. The person who purchase the shares of a company., 4. The form of business organisation where huge amount of capital can be raised., 5. The capital which is subscribed by the public., 6. The shares having preferential right at the time of winding up of the company., 7. The shares on which dividend is not fixed., 8. The part of subscribed capital which is not called-up by the company., (C) State true or false with reasons, 1. Directors can forfeit the shares for any reason., 2. Once the application money is received, directors can immediately proceed for allotment, of shares., 3. Joint stock company form of business organisation came into existence after industrial, revolution., 4. Equity shareholders get guaranteed rate of dividend every year., 5. Face value of shares and market value of shares is always same., 6. Sweat shares are issued to public., , 339
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(D) State whether you agree or disagree with following statements, 1. In case of Pro-rata allotment the excess application money received must be refunded., 2. Calls in Advance account is shown on the Asset side of the Balance sheet., 3. The Authorised capital is also known as Nominal Capital., 4. Paid-up capital can be more than Called up Capital., 5. Joint Stock company can raise huge amount of capital., 6. When shares are forfeited Shares Capital Account is credited., 7. Directors can re-issue forfeited shares., 8. When the issued price of share is ` 12 and face value is ` 10, the share is said to be issued, at premium., 9. Public limited company can issue its share without issuing its prospectus., 10. Shares can be issued for consideration other than cash., (E) Answer in one sentence only., 1. What is Preference shares?, 2. What is Registered Capital?, 3. What is Reserve Capital?, 4. What is Over subscription of shares?, 5. Which account is debited when share first call money is received?, 6. When are shares allotted on pro-rata basis?, 7. What is forfeiture of shares?, 8. What is Calls in Arrears?, 9. What do you mean by shares issued at Premium?, 10. What is Paid-up Capital?, (F) Complete the following sentences, 1. When face value of the share is ` 100 and issued price is `120, then it is said that the, shares are issued at ...................... ., 2., ...................... Capital is the Capital which a company is authorised to issue by its Memorandum of Association., 3. The difference between Called-up Capital and Paid-up Capital is known as _____., 4., ...................... share holders get fixed rate of dividend., 5., ...................... share holders are the real owners of the company., 6., ...................... form of business organisation in which Capital is raised through the issue, of shares., 7., ...................... Capital is the part of issued capital which is subscribed by the public., 8. The part of Authorised Capital which is not issued to the public is known as ......................, Capital. , (G) Calculate the following., 1. One shareholder holding 500 equity shares paid share application money @ ` 3 Allotment, money @ ` 4 per share and failed to pay final call of ` 3 per share, his shares were forfeited. Calculate the amount of share forfeiture., 340
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2., 3., , 4., 5., , 6., , 10000 equity shares of ` 10 each issued at 10% premium. Calculate the total amount of, share premium., Company received excess application for 5000 shares @ ` 4 per share. Applications of, 1000 shares were rejected and pro-rata allotment was made. Calculated the amount of application money adjusted with allotment., 80000 Equity shares of ` 10 each issued and fully subscribed and called up at 20%, premium. Calculate the amount of Equity share Capital., Directors issued 20000 equity shares of ` 100 each at par. These were fully subscribed, and called up. All money were received except one shareholder holding 100 equity shares, failed to pay final call of ` 20 per share. Calculate the amount of paid up capital of the, company., Company send Regret letter for 100 shares and Allotment letter to 25000 shareholders., Application money was ` 20 per share. Calculate the amount of application money which, company is refunding., Practical Problems, , 1., , Vijay Ltd. was registered with an authorised capital of ` 15,00,000 divided into 1,50,000, equity shares of ` 10 each., Company issued 1,00,000 equity shares of ` 10 each at a premium of ` 2 per share. Company, received applications for 80,000 equity shares and were allotted the shares., Company received application money ` 3 per share, allotment money ` 4 per share, (Including premium) and first call money ` 3 per share., The Directors have not made final call of ` 2 per share. All money were received except one, shareholder holding 500 shares did not pay first call., Show Authorised Capital, Issued Capital, Subscribed Capital, Called-up Capital, , Paid-up Capital, Calls in Arrears and Share Premium amount in company balance sheet., (Ans : Calls in Arrears ` 1,500 Share premium ` 1,60,000, Paid-up capital ` 6,38,500., Balance Sheet total ` 7,98,500), , 2., , Anand Company Limited issued 1,00,000 Preference shares of ? 10 each payable as - On, On Application ` 4, On Allotment ` 3, On First call ` 2, On Second & Final call ` 1, Company received application for all these share and received all money., Pass Journal Entries in the books of Anand Company Ltd., , 3., , Rohini Company Limited issued 25000 equity shares of ` 100 each payable as follows On Application ` 20, On Allotment ` 30, On First call ` 20, On Second & Final call ` 30, 341
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Applications were received for 22,000 equity shares and allotment of shares were made to, them. All money was received by the company., Pass Journal Entries in the books of Rohini Co. Ltd., (Ans : Application ` 4,40,000, Allotment ` 6,60,000, First call ` 4,40,000, Final call `, 6,60,000), 4., , Deepak Manufacturing co. Ltd. issued a prospectus inviting applications for 1,00,000 equity, shares of ` 10 each payable as follows, `, 2 on Application, `, 4 on Allotment, `, 2 on first call, `, 2 on final call, Application were received for 1,20,000 equity shares. The Directors decided to reject excess, applications and refunded application money on that. Company received all money., Pass Journal Entries in the books of a company., (Ans : Application Money refunded ` 40,000), , 5., , Sucheta Company Limited issued ` 20,00,000 new capital divided into ` 100 equity shares at a, Premium of ` 20 per share payable as ` 10 on Application ` 40 on Allotment and ` 10 premium, ` 50 on Final call and ` 10 premium., The issue was oversubscribed to the extent of 26000 equity shares. The applicants on 2000, shares were sent letter of regret and their application money was refunded., Remaining applicants were alloted share on pro-rata basis. All the money due on Allotment and, Final call was duly received., Make necessary Journal entries in the books of Sucheta Company Ltd., (Ans : Application money refunded ` 20,000, Adjusted ` 40,000), , 6., , Suhas Limited issued 10000 equity shares of ` 10 each at a premium of ` 2 per share payable, ` 3 on application, ` 5 (including premium) on allotment and the balance in two calls of equal, amount., Applications were received for ll,000 equity shares and pro-rata allotment was made for all the, applicants. The excess application money was adjusted towards allotment., Mrs. Shobha who were allotted 200 equity shares failed to pay F/F/C and her shares were, forfeited after the final call., Show Journal entries in the books of Suhas Ltd. and also show its presentation in Balance, sheet., (Ans : Amount of forfeiture ` 800, Balance sheet total ` 1,19,200), , 7., , Subhash Company Limited issues 2000 Equity shares of ` 100 each payable as ` 30 on, application, ` 30 on allotment, ` 40 on first and final call., All the shares were subscribed and duly allotted. Company made all the calls. All cash was, duly received except the first & final call on 100 equity shares. These shares were forfeited by, company and were re-issued as fully paid for ` 75 per share., Show the Journal entries in the books of Subhash Company Ltd., (Ans : Amount of forfeiture ` 6,000 Capital Reserve ` 3,500), 342
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8., , Pass Journal entries for the forfeiture and re-issue of shares in the following cases., A) Asha Ltd. forfeited 100 equity shares of ` 20 each fully called up for non-payment of first, call of ` 3 per share and final call of ` 5 per share. 80 shares of these were reissued at, ` 15 per share fully paid., B) Bhakti Ltd. forfeited 100 equity shares of ` 10 each, ` 6 called-up on which the shareholder, paid application and allotment of ` 5 per share. Of these 80 shares were re-issued as fully, paid-up for 16 per share., C) Konark Ltd. forfeited 50 shares of ` 10 each, ` 8 called-up. The shareholder failed to pay, first call of ` 3 per share. Later on 30 shares of these were re-issued at ` 7 per share., Ans : A) Amount of forfeiture ` 1200, Capital Reserve ` 560, , B) Amount of forfeiture ` 500, Capital Reserve ` 400, , C) Amount of forfeiture ` 250, Capital Reserve ` 120, Activity, 1. Obtain Prospectus issued by any Company for issue of shares and write a report on the, procedure as mentioned in the Prospectus., 2., , Visit any Stock Broker and find out the procedure of purchase and sale of shares through, Demat Account., , bbb, , 343
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9, , Analysis of Financial Statements, , Content, 9.1 , 9.2 , 9.2.1 , 9.2.2, 9.2.3, 9.3 , , Meaning, Objectives and Limitations of Financial Statement Analysis., Tools for Financial Statement Analysis, (A) Comparative Statement, (B) Common Sized Statement, (C) Cash Flow Statement, Meaning, Objectives and Classification of Accounting Ratios., , Competency Statements, o, , , , , , The students will be able to:, Understand the meaning, objectives and limitation of financial statement analysis., Learn various tools for Financial statements analysis., Understand objectives and classification of Accounting Ratios and Ratio analysis., , Introduction to Ratios :, (A) Balance Sheet Ratio, :, (1), (2), , Current Ratio, Liquid Ratio, , (B) Income Statement Ratio :, (1), (2), (3), (4), , Gross Profit Ratio, Operating Profit Ratio, Net Profit Ratio, Operating Ratio, , (C) Combined/Mixed Ratio :, (1), Return On Capital Employed (ROCE), (2), Return on Investment (ROI), 9.1 Meaning, The Financial Statements are those which are prepared periodically. Generally at the end of, financial year all the information recorded in the Books of Accounts of business is summarized in, Financial Statements., “The Statements which are prepared by the business to find out profitability, efficiency, solvency,, growth of business to judge the financial strength and status are called as Financial Statements.”, These statements give complete picture of financial positions and managerial performance. Financial, Statements are prepared for the purpose of presenting Annual Report., The Financial Statements are prepared by the profit concern as well as Non Profit concern, organisations., , 344
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There are two important Financial Statements., (1) Balance Sheet / A Position Statement, (2) Profit and Loss A/c / An Income Statement, , , Financial Statement analysis includes two aspects, , , , , (a) Analysis of Data : It provides methodical classification of financial statement, (b) Interpretation of Data : It means explanation of meaning and significance of data., , Objectives of Financial Statement Analysis, The Financial Statements are the source of information to various users e.g. Share holders,, Investors, Suppliers, Govt, etc. The main objectives of Financial Statement are as follows :, (1) To help in planning, (2) To assist in estimating the earnings of business., (3) To assist in investment making decision, (4) To help management in assessing the efficiency of the organisation., (5) To provide financial information about economic resources., (6) To provide information about changes in net resources arising out of business activities., (7) To disclose other information that is relevant to the need of the users of the Financial, Statement., Thus the objectives of Financial Statement is to provide information about the financial position, performance and changes in financial position of an enterprises that is useful to wide range of, users in making economic decisions., Limitations of Financial Statement Analysis :, Financial Statement is a powerful mechanism which helps in ascertaining the strength and, weakness in the operations and financial position of an enterprise. Analysis of financial statements, depends upon the data and information supplied by the Financial Statement about the economic result and financial position of the business., The main limitations of the analysis of Financial Statement are :, (1) Qualitative informations are ignored : Only the information which can be represented in, monetary terms are shown in financial statement. Other important feature relating to quality, which cannot be expressed in monetary terms are ignored. Such as goodwill, harmony, efficiency, of management, competitions etc., (2) Historical cost : Financial statements are prepared on historical cost and book values of Assets., They do not present the effect of change in prices., (3) Based on accounting concepts and conventions: Financial Statements are prepared on the, basis of certain accounting concepts and conventions. This means that these statements are far, away from reality and there analysis cannot be of much use., (4) Influenced by personal judgment: Financial Statements and conclusions are affected by, personal decisions. There are so many items which are decided by accountant themselves. For, example : Depreciations method, valuation of stock, writing off of deferred expenses etc., (5) Being Uncomparable : Differences in date of preparation, nature of business, method of, Accounting etc. make the financial statement uncomparable., 345
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(6) Static statement : Financial Statements are static in nature. They represent absolute figures., They do not present the process by which the figures are arrived., (7) Affected by window dressing : Sometimes management displays rosy picture through, financial statement. In order to show excellent profit sales may be increased, closing stock, may be overvalued, purchases at the end of the year may not be shown. This may be known as, window dressing It is clear from the above limitations that the result obtained from analysis of, Financial Statements should not be taken as true indicator of financial strength and weakness, of the business., These limitations must be kept in mind while taking decisions on the basis of analysis of, Financial Statements., Analysis of Financial Statements., 1. Balance Sheet: The balance sheet need to be arranged in vertical format which is suitable for, further analysis. Its format is given below :, .............. Company Ltd., Balance Sheet as on ........................, Particulars, Amount `, Amount `, I) Sources of Funds, A) Owners Fund/Shareholders Fund., a) Share Capital, Equity share capital, xxx, , Preference share capital., xxx, b) Add : Reserves and surplus, Profit & Loss A/c, xxx, General reserve, xxx, Securities Premium., xxx, c) Less : Fictitious Assets, xxx, Net Worth/Owners Fund., (xxx), xxx, B) Borrowed Funds, Bank Loan, xxx, Debentures, (xxx), Total Fund Available, xxx, II) Application of Funds, 1) Fixed Assets, xxx, Land and Building, xxx, Plant and Machinery, xxx, Furniture, xxx, Vehicle., xxx, xxx, 2) Investment, 3) Working Capital, xxx, Current Assets, Quick Assets, Cash, xxx, Bank, xxx, 346
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Debtors, Bill Receivable, Total Quick Assets, Non-Quick Assets, Stock , Prepaid expenses , Advances , Total Non-quick Assets, Total Current Assets (Quick + Non Quick Asset), Less Current Liabilities, Quick Liabilities, Creditors, Outside Expenses, Bill Payable, Total Current Liability, Non-Quick Liability, Bank overdraft, Total Current Liabilities, Working Capital (Current Assets Less Current Liabilities), Total Funds Employed /Applied, , xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, , xxx, xxx, xxx, , xxx, , xxx, , xxx, xxx, xxx, , Illustrations, 1:, , Convert following Balance Sheet into Vertical Balance Sheet, Balance Sheet as on 31/3/2019, Liabilities, , Amount `, 50,000, 15,000, 30,000, 30,000, 1,25,000, , Capital, Reserves, 12% Loan, Current Liabilities, Solution No. 1, , Assets, Fixed Assets, Investment, Current Assets, , Amount `, 60,000, 10,000, 55,000, 1,25,000, , Vertical Balance Sheet as on 31/3/2019, Particulars, , Amount `, , 1) Sources of Funds, a) Owners Fund Capital, (+) Reserves, (-) Fictitious Assets, Net Worth, b) Borrowed Funds, 12% Loan, Total Fund available, , Amount `, , 50,000, 15,000, Nil, 65000, 30,000, 95,000, 347
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2) Application Funds, Fixed Assets, , 60,000, , Investment, , 10,000, , Working Capital, Current Assets, Less :, , 55,000, , Current Liabilities, , (-) 30,000, , 95,000, , Total Fund Applied, 2:, , 25,000, , Convert following Balance Sheet into Vertical Balance Sheet, Balance Sheet as on 31st March, 2020, Liabilities, , Assets, Amount (`), 80,000 Fixed Assets, 20,000 Investment, 24,000 Current Assets, 15,000, 1,39,000, , Capital, Reserves and Surplus, 12%Loan, Current Liabilities, , Amount (`), 75,000, 20,000, 44,000, 1,39,000, , Solution No. 2, Vertical Balance Sheet as on 31st March, 2020, Amount, (`), , Particulars, I), , II), , 2), , Sources of Funds (Owners Fund), 1) Capital, + Reserves, Net Worth, 2) Borrowed Funds, 12% Loan, Total Fund Available, Application of Funds, 3) Fixed Assets, 4) Investment, 5) Working Capital, Current Assets, Less : Current Liabilities, Total Fund Applied, , Amount, (`), , 80,000, 20,000, 1,00,000, +24,000, 1,24,000, 75,000, 20,000, 44,000, (−)15,000, , 29,000, 1,24,000, , Income Statement: The Profit & Loss account need to be arranged in vertical format which is, suitable for further analysis. It is also called as vertical Income Statement. Its format is given, below :, , 348
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___________________ Company Ltd., Vertical Income Statement for the year ended, Amount, (`), , Particulars, , Amount, (`), , Income, Sales, xxx, (-) Sales Return, xxx, Net Sales, xxx, Less Cost of Goods Sold, Opening Stock, xxx, Add : Purchases, xxx, Add : Wages, xxx, Add : Carriage Inward, xxx, Add : Direct Exp., xxx, xxx, Less Closing Stock, xxx, Net Cost of Goods Sold, xxx, Gross Profit Net Sales - Net Cost of Goods Sold), xxx, Less : Operating Exp., a. Administrative Exp., xxx, b. Finance Exp., xxx, c. Selling Exp., xxx, Total Operating Expenses, xxxx, Operating Profit (Gross Profit - Operating Expenses), xxxx, Add : Non-operating Income, xxx, Less : Non-operating Exp., (xxxx), Net Profit Before Tax, xxx, Less : Tax (Charged on Net profit Before Tax), xxx, Net Profit After Tax, xxx, 3 : Convert following Trading and Profit and Loss Account into vertical income statement, Trading and Profit and Loss A/c for year ended 31/3/2019, Particulars, To Op. Stock, To Purchases, To Wages, To Gross Profit c/d., To Office Exp., To Selling Exp., To Finance Exp., To Net Profit c/d, , Amount (`), 3,50,000, 7,00,000, 50,000, 2,00,000, 13,00,000, 1,00,000, 50,000, 20,000, 30,000, 2,00,000, , Particulars, By Sales, By Closing Stock, , By Gross Profit b/d., , Amount (`), 11,00,000, 2,00,000, , 13,00,000, 2,00,000, , 2,00,000, 349
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Solution 3 :, Vertical Income statement as on 31/3/2019, Sr. No., Particular, 1., Sales, 2., (-) Cost of Goods Sold, Opening Stock, (+) Purchases, (+) Wages, , 3., 4., , 5., 6., 4:, , Amount (`), , Amount (`), 11,00,000, , 3,50,000, 7,00,000, 50,000, 11,00,000, 2,00,000, , (-) Closing Stock, Gross Profit, (-) Operating Exp., Admin Exp., Selling, Finance Exp., Total Operating Exp., Net Profit, , 9,00,000, 2,00,000, , 1,00,000, 50,000, 20,000, 1,70,000, 30,000, , Convert following Trading and Profit and Loss Account into Vertical Income statement, Trading and Profit & Loss Account for the year ended 31st March 2020., , Particular, To Opening Stock, To Purchases, To Wages, To Gross Profit c/d, To Office Expenses, To Selling Expenses, To Finance Expenses, To Net Profit c/d, , Particular, Amount (`), 2,00,000 By Sales, 9,00,000 By Closing Stock, 1,00,000, 3,00,000, Total 15,00,000, 1,25,000 By Gross Profit b/d, 1,00,000, 30,000, 45,000, Total, 3,00,000, , 350, , Amount (`), 12,00,000, 3,00,000, , Total, , 15,00,000, 3,00,000, , Total, , 3,00,000
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Solution 4 :, Income statement in vertical Form :, Sr. No., Particular, 1., Sales, 2., Less : Cost of Goods Sold, Opening Stock, Purchases, Wages, , 3., 4., , 5., 6., , Amount (`), , 2,00,000, 9,00,000, 1,00,000, 12,00,000, 3,00,000, , Less : Closing Stock, Gross Profit, Operating Expenses, Office Expenses, Selling Expenses, Finance Expenses, Total Operating Expenses, Net Profit, , Amount (`), 12,00,000, , 9,00,000, 3,00,000, , 1,25,000, 1,00,000, 30,000, 2,55,000, 45,000, , 9.2 Tools for Financial Statement Analysis :, Financial Statement gives absolute figures of Assets, Liabilities, Revenue, Expenses and Profits or Loss of business. They do not give the earning capacity, liquidity and financial soundness, of business., The main tools or techniques of financial analysis are as follows :, (A) Comparative Financial Statement, (B) Common Size Statement, (C) Cash Flow Analysis, 9.2.1 Comparative Financial Statement :, Comparative statement compares financial data at two points of time and helps in deriving the, meaning and conclusions regarding the changes in financial positions and operating results., Meaning : Statement showing financial data for two or more than two years placed side by side to, facilitate comparisons are called Comparative Financial Statement., Methods for comparisons of Financial Statement :, (1) Comparative Balance Sheet, (2) Comparative Income Statement., (1) Comparative Balance Sheet : Comparative Balance Sheet as on two or more different dates, can be used for comparing assets and liabilities and finding out any increase or decrease in, those items., According to Faulke : Comparative Balance Sheet is the study of the trend of the same, items and compared items in two or more Balance Sheet of same business enterprise of, , 351
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different dates.” Such comparison throws light on changes and progress made in respect of, each item of Assets and Liabilities., The main purpose of Comparative Balance Sheet is to measure the short term and long term, solvency position of business., Methods of preparing comparative Balance Sheet :, Comparative Balance Sheet is prepared by comparing the individual items of assets and, liabilities and finding out absolute and percentage increase or decrease in them., Following steps have to be taken to prepare the comparative Balance Sheet :, Step 1 : Enter the details of Assets and Liabilities in the first column., Step 2 : Enter the amount of Previous years Balance Sheet in second column., Step 3 : Record the amount of Current years Balance Sheet in third column., Step 4 : Record the absolute changes (i.e. difference between column of current year and previous, year) in fourth column., , Formula for Absolute Change = Current Year - Previous Year, Step 5 : Record the percentage changes (i.e. expressing absolute change in percentage of figures, of previous year) in fifth column., Formula for % of change =, , Absolute Change, × 100, Previous Year, , The Comparative Balance sheet need to be prepared in the format of Vertical Balance Sheet, given above., 5. : Following is the Balance Sheet of Varun Company Ltd. as on 31.3.2019 and 31.3.2020 is given, below :, Liabilities, Share Capital, Reserve and Surplus, Secured Loans, Unsecured Loans, Current Liabilities, , 31-3-2019 31-3-2020, Assets, (`), (`), 2,50,000 3,70,000 Fixed Assets, 60,000 1,00,000 Investment, 1,00,000 1,60,000 Current Assets, 90,000 1,40,000, 1,00,000, 90,000, 6,00,000 8,60,000, , 31-3-2019 31-3-2020, (`), (`), 3,50,000 5,70,000, 1,20,000 1,70,000, 1,30,000 1,20,000, , 6,00,000, , 8,60,000, , You are required to prepare Comparative Balance Sheet of Varun Company Ltd. as on 31.3.2019, and 31.3.2020., , 352
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Solution : Comparative Balance Sheet of Varun Company Ltd. as on 31.3.2019 and 31.3.2020, Particulars, , 1, 31.3.19, (`), , 2, 31.3.20, (`), , 3, Absolute, Change (`), , 4, Percentage, Change, , 2,50,000, , 3,70,000, , 1,20,000, , 48% Increase, , 60,000, , 1,00,000, , 40,000, , 66.67% Increase, , 3,10,000, , 4,70,000, , 1,60,000, , 51.61% Increase, , 1,00,000, , 1,60,000, , 60,000, , 60% Increase, , 90,000, , 1,40,000, , 50,000, , 55.55% Increase, , Total Borrowed Fund, , 1,90,000, , 3,00,000, , 1,10,000, , 57.89% Increase, , Total Fund Available (A + B), , 5,00,000, , 7,70,000, , 2,70,000, , 54% Increase, , A. Fixed Assets, , 3,50,000, , 5,70,000, , 2,20,000, , 62.86% Increase, , B. Investment, , 1,20,000, , 1,70,000, , 50,000, , 41.67% Increase, , 1,30,000, , 1,20,000, , (10,000), , (7.69%) decrease, , 1,00,000, , 90,000, , (10,000), , (10%) decrease, , 30,000, , 30,000, , Nil, , Nil, , 5,00,000, , 7,70,000, , 2,70,000, , 54% Increase, , I. Sources of Funds, a. Share capital, b. Reserves & Surplus, (A) Net Worth, B. Borrowed Funds, a. Secured Loan, b. Unsecured Loan, , II. Application of Funds, , C. Working Capital, 1. Current Assets, Less : 2 Current Liabilities, Working Capital (Current Asset Less, Current Liabilities), Total Fund Applied (A + B + C), , Percentage of Change for Share Capital, Amount of Absolute Change, Amount of Previous Year, , × 100, , 1,20,000, × 100 = 48%, 2,50,000, , Comparative Income Statement : The income statement shows the Net Profit or Net Loss., A comparative income statement will show the absolute figures of two or more periods i.e. absolute, change from one period to another. Since the figures for two or more periods are shown side by side,, the reader can quickly ascertain whether sales have increased or decreased, whether cost of sales,, has increased or decreased etc., , 353
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Methods of preparing comparative Income statement :, Comparative Income statement shows increase or decrease in various Trading and Profit and, Loss Account., Preparation of comparative Income statement includes the following steps :, Step 1 : Enter the Amount of Income and Expenditure in First Column., Step 2 : Enter the figures of previous years income statement in Second Column., Step 3 : Enter the figures of current year income statement in Third Column., Step 4 : Enter the absolute changes (i.e. difference between figures of current year and previous, year) in fourth column., , Formula for Absolute Change = Current Year - Previous Year, Step 5 : Enter the percentage changes (i.e. expressing absolute changes as percentage of figure of, previous year) in Fifth Column., Formula for % of change =, , Amount of Absolute Change, × 100, Amount of Previous Year, , The Comparative Income Statement should be prepared in the format of Vertical Income, Statement as given above., 6:, , Income Statement of ABC Limited for the year ended 31.3.2019 and 31.3.2020 is given, below. Prepare Comparative Income Statement, Particulars, , 31.3.2018 (`), 4,00,000, 2,20,000, 1,80,000, 80,000, 1,00,000, 50,000, 50,000, , 31.3.2019 (`), 6,00,000, 3,60,000, 2,40,000, 1,00,000, 1,40,000, 70,000, 70,000, , Sales, Less : cost of sales, Gross Profit, Less : Indirect Expenses, Net Profit before Tax, Less : Income Tax 50%, Net profit after Tax, Solution :, Comparative Income Statement of ABC Limited for the year ended 31.3.2018 and 31.3.2019, Particulars, Sales, Less : Cost of Sales, Gross Profit, Less : Indirect Expenses, Net Profit before Tax, Less : Tax 50%, Net Profit after Tax, , 31.3.2018, (`), 4,00,000, 2,20,000, 1,80,000, 80,000, 1,00,000, 50,000, 50,000, , 31.9.2019, (`), 6,00,000, 3,60,000, 2,40,000, 1,00,000, 1,40,000, 70,000, 70,000, , 354, , Absolute, Change (`), 2,00,000, 1,40,000, 60,000, 3,20,000, 40,000, 20,000, 20,000, , % change, 50% Increase, 63.64% Increase, 33.33% Increase, 25% Increase, 40% Increase, 40% Increase, 40% Incre. ase
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Percentage of Change for Sales, =, , Amount of Absolute Change, × 100, Amount of Previous Year, , 2,00,000, =, × 100 = 50%, 4,00,000, , 9.2.2 Common Size Statement, Meaning - Common Size Statements are those in which individual figures are converted, into percentage to some common base. Percentage of each individual item shows its relation to, its respective total i.e., Total Assets or Total Liabilities or Total Net Sales. In the income statement, the sales figure is assumed to be 100 and all figures are expressed as a percentage of this total. In, case of Balance Sheet Total Fund Available are considered as 100 and all figures are expresses as a, percentage of this total. For example: If the Total Fund available in of Balance Sheet is ` 16,00,000, and Building is ` 4,00,000, , Amount of Building, Formula, =, × 100, Total Fund Available, =, , 4,00,000, × 100 = 25%, 16,00,000, , Steps to Prepare Common Size. Balance Sheet., (1) Enter the number of items in Balance Sheet., (2) Enter the absolute amount of different types of Assets and Liabilities of previous years, Balance Sheet., (3) Enter the absolute amount of different items of Assets and Liabilities of current year, Balance Sheet., (4) Enter the percentage relations of different items Balance Sheet to total Assets/Liabilities, of previous year which are taken as 100., (5) Enter the percentage relation of different items of current year Balance Sheet to total, Assets/Liabilities of Current year which are taken as 100., 7:, , Balance Sheet of XYZ Ltd for the year ending 31.3.20 is given below., Balance-sheet as on 31.3.2020, , Liabilities, Equity Share Capital, Preference Share Capital, Reserve & surplus, Secured Loans, Unsecured Loans, Current Liabilities, , Assets, Amount (`), 9,00,000 Fixed Assets, 80,000 Investment, 1,50,000 Current Assets, 3,00,000, 2,00,000, 1,50,000, 17,80,000, , You are required to preapare Common Size Statement for the year ending 31.3.2020, Solution: Common Size Statement for the year ending 31.3.2020, 355, , Amount (`), 9,00,000, 1,50,000, 7,30,000, , 17,80,000
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Common size Balance sheet as on 31.3.2020, Particular, 1) Sources of Fund, 1) Owners Equity, Eq. St. Capital, Pref. Sr. Capital, Reserve and surplus, (2) Borrowed Fund, Secured loans, Unsecured loans, Total Borrowed fund, 3) Application of fund, 1) Fixed Assets, 2) Investment, 3) Working Capital, A) Current Assets, Less B) Current Liabilities, Net working capital, , Common Size % =, , %, , 9,00,000, 80,000, 1,50,000, 11,30,000, , 55.22, 4.91, 3.20, 69.33, , 3,00,000, 2,00,000, 5,00,000, 16,30,000, , 18.40, 12.27, 30.67, 100%, , 9,00,000, 1,50,000, , 55.21, 9.20, , 5,80,000, 16,30,000, , 35.59, 100%, , 7,30,000 (44.78%), 1,50,000 (9.20%), Total Fund Applied, , , , Amount (`), , Amount of Item, × 100, Total Fund Employed, , 8. : Prepare Common Size Income Statement for the year ended 31.3.2019 and 31.3.2020 from, the following information., Particulars, , 31.1.2019 (`), 5,00,000, 3,00,000, 2,00,000, 55,000, 52,500, 92,500, , Net Sales, Less cost of goods sold, Gross Profit, Less: Office and Administrative expences, Selling and Distribution Expense, Net Profit, , 356, , 31.3.2020 (`), 6,00,000, 3,60,000, 2,40,000, 72,000, 66,000, 1,02,000
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Solution No. 8, Common size Income Statement for the year ended 31.3.2019 and 31.3.2020, Particulars, Net Sales, Less Cost of Sales, Gross Profit, Less Office and, Administrative Expense, Selling and Distribution Expense, Net Profit, , Amount(`), 5,00,000, 3,00,000, 2,00,000, , Percentage % Amount (`) Percentage %, 100%, 6,00,000, 100%, 60%, 3,60,000, 60.0%, 40%, 2,40,000, 40,0%, , 55,000, 52,500, 92,500, , 11%, 10.5%, 18.5%, , 72,000, 66,000, 1,02,000, , 12%, 11%, 17%, , Net Sales is to be taken as base. At the year ending 31.3.2019. Net Sales ` 5,0,000 is taken as, base i.e. 100% sales. At the year ending 31.3.2020. Net Sales ` 6,00,000 is taken as base 100%, For 31.3.2019 % of Cost Goods Sold, , =, , Cost of Goods Sold, × 100, Net Sales, , , , , =, , 3,00,000, 5,00,000, , For 31.3.2020 % of Cost of Goods Sold =, , , =, , × 100 = 60%, , Cost of Goods Sold, × 100, Net Sales, 3,60,000, 6,00,000, , × 100 = 60%, , Advantages / Benefits of Common Size Statement, (1) Common size business statement denotes the trend in different items of Balance Sheet and, income so, it is very useful for comparing the profitability and Financial position fo two or, more business firms., (2) It is useful for inter firm comparison. This is because the financial statements of different firms, can be converted into uniform common size of individual items., (3) The Relationship can be established between various items of the Profit and Loss Account, i.e. Income statements to sales and various items of Balance Sheet to total Assets or Total, Liabilities. Meaningful conclusions can be drawn by studying the changes in relationsship., 9.2.3 Cash Flow Statement :, Cash Flow Analysis is another important technique of financial analysis. It shows the sources, and applications of cash by preparing Cash Flow Statement. It is inflows (Receipts) and outflows, (Payments) of cash from various activities during the particular period. It analyses the reasons for, changes in balance of cash between the dates of two Balance Sheet. Cash Flow Analysis is more, useful for short-term planning., Thus cash flow statement can be defined as a “Statement which summarises sources of cash, inflows and uses for cash outflows during a particular period.”, Importance of Cash Flow Statement :, Primary objective of Cash flow statement is to help management in taking decisions and making, a plan by providing current information on cash inflow and out flow of any accounting period., 357
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Importance of Cash flow Statement:, 1), , Useful in Short term financial planning and decision making : Cash flow statement provides, importance of uses of cash and equivalents for a specific period, which is useful of management, plan, operating, financial and investment requirement of the business enterprise., , 2), , Helps is analysis of liquidity positions : Cash flow statement is prepared on monthly basis, or quarterly basis which helps to find out liquidity in a better way. Analysis of liquidity is, important for banks and financial Institutions as it shows the ability of the business to pay its, Current liabilities., , 3), , Help in efficient cash management : Cash flow statement gives information relating to surplus, or deficit of cash which helps the business enterprise to decide on the short term investment of, surplus and arrange short term credit of deficit., , 4), , Helps is comparative study : A Comparison of Cash Flow statement with cash budget will, indicate the extent to which cash resources of business were generated and used according to, cash budget. Causes of different between the Cash flow statement and Cash Budget can be, analysed and necessary corrective measures can be taken., , 5), , Helps in study of Receipts and Payments : Cash Flow Statement gives the speed at which, Cash is generated from debtors, stock and other current asset and the speed at which current, liabilities are paid off. This enables the management to find the true position of Cash in future., , 6), , Helpful in dividend declaration : Before declaring dividend the management goes through the, Cash Flow statement ascertain the position of cash generated from operating activities which, can be used for payment of dividend., , 7), , Tools of Planning : Cash Flows statement can be used for projecting future investing and financial plans by the management of a business enterprise., , Uses of cash Flow Statement :, Cash Flow Statement is useful tool of historical analysis and help to answer many questions such as, (1) What is the liquidity position of the business?, (2) Why the net profit has gone up even though cash balance is decreased?, (3) Why the cash balance is increased even if there is a net loss?, (4) How the working capital needs were met by the fund generated from current operations?, (5) Did the firm use external sources of finance to meet its needs of funds?, (6) Did the firm sell any of its non - current assets?, Presentation of Cash Flow Statement :, According to AS - 3 Cash Flow Statement should be presented in a manner that it reports inflows and out flows of cash by classifying business transactions of a specific period into three categories e.g. Operating, Investing financing, etc., , 358
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Format for Cash Flow for the year ended, `, , I], , Cash Flow from Operating Activities, Net Profit, Adjust Non Cash/Non operating Items, + Depreciation, + Interest Paid, + Loss on Sale of Asset, (-) Interest/Dividend Received, (-) Profit on sale of Asset, Adjust working capital changes, Add - Increase in current Liabilities, Add - Decrease in current Assets, Less - Increase in current Assets, Less - Decrease in current Liabilities, Cash generated from operations, II] Cash Flow from Investing Activities, Add :- 1) Interest/Dividend received, 2) Sale of Asset/Investment, Less :- 1) Purchase of Fixed Asset/Investment, Net cash from Investing Activities., III] Cash Flow from Financing Activities, Add :- 1) Issue of Shares/Debentures, 2) Loan borrowed, Less :- 1) Redemption of Share/Debentures, 2) Loan Repaid, 3) Interest/Dividend paid, Net Cash from Financing Activities, Add :- Cash of beginning (op Bal. of cash + Bank), Cash of end (Cl. Bal of cash + Bank), , 359, , `, , xxx, , xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, xxx, , xxx, xxx, xxx, xxx
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Practical Problems on Cash Flow Statement., Illustration I, From the following information prepare the cash flow statement:, Particulars, Opening Cash Balance, Closing Cash Balance, Decrease in Stock, Increase in Bills Payable, Sale of fixed Assets, Payments of long term Loan, Net Profit for the year, , Amount (`), 30,000, 34,000, 16,000, 24,000, 60,000, 1,00,000, 4,000, , Solution :, Cash Flow Statement, Particulars, A) Cash flow from Operating Activities : Net Profit before, taxation, Add : Decrease in Current Assets : Stock, Add : Increase in Current liabilities : Bills payable, B), C), , Net Cash from Operating Activities : (A), Cash Flow from Investing Activities : Sale of fixed Assets, Net Cash from Investing Activities (B), Cash Flow from Financing Activities : Repayment of Long, term Loan, Net Cash used in Financing Activities (C), Net Increase in Cash and Cash Equivalents (A + B − C), Cash and Cash Equivalents at the beginning of Period, Cash and Cash Equivalents at the end of Period, , Amount (`), , 16,000, 24,000, , Amount (`), 4,000, , 40,000, 44,000, , 60,000, 60,000, 1,00.000, 1,00,000, 4,000, 30,000, 34,000, , Illustration 2:, From the following Balance Sheet of Mr. Anand as on 1st April 2018 & 31st March 2019. prepare, the Cash Flow Statement., Liabilities, 1st April 2018 31st March 2019, Assets 1st April 2018 31st March 2019, (`), (`), (`), (`), Capital, 1,48,000, 1,49,000 Stock, 25,000, 22,000, Sundry Creditors, 36,000, 41,000 Debtors, 35,000, 38,400, Long Term Loan, 30,000, 45,000 Cash, 4,000, 3,600, Buildings, 50,000, 55,000, Machinery, 80,000, 86,000, Land, 20,000, 30,000, 2,14,000, 2,35,000, 2,14,000, 2,35,000, , 360
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Solution :, Cash Flow Statement, For the year ended 1st April 2018 and 31st March 2019, Particulars, (A) Cash Flow from Operating Activities : Profit for the year, (1,49,000 - 1,48,000), Add : Decrease in Current Assets : Stock, Add : Increase in Current Liabilities : Sundry Creditors, Less : Increase the Current Assets : Debtors, Net Cash From Operating Activities (A), (B) Cash Flow from Investing Activities, Purchase of Land, Purchase of Machinery, Purchase of Building, Net Cash used in Investing Activities (B), (C) Cash Flow from Financial Activities, Borrowing of Long Term Loan, Net Cash from Financial Activities (C), Net Decrease in Cash and Cash Equivalents (A + C − B), Cash Equivalent at the begining of Period, Cash Equivalent at the end of Period, , Amount (`), 1,000, , Amount (`), , 3,000, 5,000, 9,000, (3,400), 5,600, 10,000, 6,000, 5,000, 21,000, 15,000, 15,000, (400), 4,000, 3,600, , 9.3 Ratio Analysis - Meaning, Objectives and Classification of Ratios., Meaning :, Ratio is a mathematical number that measures the relationship between two accounting figures. It is also called as “Financial ratio”. It can be expressed as fraction proportion or percentage in, between two accounting figures., The use of different types of accounting ratios to evaluate the financial performance of business, is called Ratio Analysis., Example :, If gross profit of business is 30000 and sales is 1,20,000 calculate Gross Profit Ratio., Solution : Gross Profit Ratio =, , , =, , Gross profit, Net Sales, 30,000, 1,20,000, , × 100, , × 100 = 25%, , Thus it express “ quantitative” relationship between two items or group of items., Objectives of ratios : Ratio analysis provide financial information and points out the areas, which require more application of arithmetical relationship to simplify the complex data. Following, are the objectives of Ratios, 361
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(1) Ratios are helpful for comparative analysis of profitability liquidity and solvency of business., (2) It helps to know the changes occurring in the business., (3) It helps to understand whether the business unit has taken right kind of operating, investing and, financing decisions. It shows how far it is helpful to improve the performance., (4) Ratios are helpful for various comparison, (a) Intra-firm comparison : Comparison within the firm itself - over number of years., (b) Inter firm comparison : Comparison between two different firms over a number of years, and Comparison between two firms when particular standard for firm / industry is set up., Classification of Ratios : Ratios are classified into various groups based on the purpose for which, ratio is computed as follows., Ratio, Balance Sheet, Ratio, , Income Statement, Ratio, , Combined /, Mixed Ratio, , , , Current , Liquid, Gross, Operating, Net, Returne, Ratio , Ratio, Profit, Expenses, Profit, on Capital, , Ratio, Ratio, Ratio, Employed, , (ROCE), (A) Balance - Sheet - Ratio :, , Returne, on, Investment, (ROI), , (1) Current Ratio : This ratio compare the current Assets with Current Liabilities. The ideal, current ratio is 2:1 which indicates that Current Assets are twice the Current Liabilities. It, measures short term solvency of business enterprises, , Current Assets, Current Ratio :, Current liabilities, , (1), (2), (3), (4), (5), (6), (7), (8), , Current Assets includes, Sundry Debtors, Loose Tools, Bill Receivable, Cash and Bank Balance, Investment in Marketable Securities, Short term Loans and Advances, Stock and Inventories, Prepaid Expenses etc., , (1), (2), (3), (4), (5), (6), (7), (8), , 362, , Current Liability includes, Sundry Creditors, Bill Payable, Bank Overdraft, Income Received in Advance, Short Term Loan, Provision for Taxation, Outstanding Expenses, Unclaimed dividend etc.
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(2) Liquid Ratio / Quick Ratio / Acid Test ratio :, The Ratio of quick assets to Current Liability is called quick ratio or acid test ratio or liquid, Ratio. The Assets which can be converted into cash immediately or at short notice are called, Quick Assets. All current Assets except Stock and Prepaid Expenses are considered as quick, Assets., The ideal Quick Ratio is 1:1. It measures the liquidity position of business enterprises., Note : Prepaid Expenses, Advance taxes etc. are excluded because they cannot be converted into, cash. Stock is excluded because it is uncertain as to when and how much it will realises, Liquid ratio, , =, , Liquid Assets, =, Quick Assets, Liquid Assets, =, , Liquid Liabilities, =, , Liquid Assets / Quick Assets, Current Liabilities, Current Asset - ( stock + Prepaid Expense), Cash Balance + Bank Balance + Debtors +, Bills Receivable + Marketable securities, Current Liabilities - (Bank Overdraft and Advance Received), , (B) Income Statement Ratio / Turnover or Margin ratio :, (1) Gross Profit ratio : This ratio measure relationship between Gross Profit and Net Sales., It is calculated to measure the efficiency of production department. It is usually expressed, in the form of percentage., Gross Profit = Net Sales - Cost of Goods Sold, , , Cost of Good Sold = Opening Stock + Purchase + Direct Expense - Closing Stock, , , Gross Profit, Cost of Good Sold, Net Sales, , =, =, =, , Gross Profit Ratio, , =, , Net Sales - Cost of Goods Sold, Opening Stock + Purchase + Direct Expense - Closing Stock, Sales - Sales Return, Gross profit, Net Sales, , × 100, , Expenses may be divided into two parts :, (a) Operating Expenses : Expenses which are incurred by the business for routine operation of, business are called Operating Expenses. For Example - Office and Administrative Expenses,, Selling and Distribution Expenses., Operating Profit = Gross Profit - Operating Expenses, (b) Non Operating Expenses : Includes loss on sale of fixed assets, loss by fire Goodwill written, off, Discount on issue of shares and Debentures, Preliminary Expenses etc. Operating profit, ratio shows the operational efficiency of business., Net Profit Ratio : Net profit ratio shows the relationship between Net Profit and Net Sales. It is, expressed in percentage. This ratio measures the overall efficiency of business., Net Profit, a) Net Profit Ratio =, Net Sales × 100, b), , Net Profit Ratio =, , Net Profit Before Tax, Net Sales, 363, , × 100
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c), , Net Profit After Tax, Net Sales, , Net Profit Ratio =, , × 100, , Profit = Operating Profit + Non Operating Income - Non Operating Expenses, Non Operating Income : It includes income from non trading activities e.g. Interest received,, Dividend received, Compensation received, Refund received, Profit on Sale of Fixed Assets, and Investments. Such net profit can be taken before tax paid or after tax paid., The main purpose of this ratio is to understand return on investment., Operating Profit Ratio :, Meaning : Operating Profit Ratio indicates the relationship between operating profit and the net, sales. It is usually expressed in the form of a percentage and is also known as Net Operating Profit, Ratio., Formula :, Operating Profit, Operating Profit =, × 100, Net Sales, , , Where (OP), = Gross Profit - Operating Expenses, Net Sales (S), 4., , =, , Sales - Return - Allowances, , Operating Ratio, , Meaning : It expresses the relationship between total operating costs and net sales and is expressed, by way of percentage, Formula :, Operating Ratio, , =, , Cost of Goods Sold + Operating Expenses, Net Sales, , × 100, , Where cost of Goods Sold = Opening stock + Purchases + Wages -Cl. Stock, Operating Expenses, = 1. Office and Administrative Expenses, 2. Selling and Distribution Expenses, 3. Finance Expenses (Excluding Interest, on Loans and Debentures), Net Sales = Sales - Returns - Allowances., (C) Combine Mixed Ratio :, (A) Return on investment (ROI) : This ratio measures net profit before tax and interest and, capital invested. This ratio is computed to measure the overall efficiency or profitability, of business., Return on capital investment :, Profit before Tax, Interest and Dividend, × 100, Capital Employed, Considering 12th syllabus does not have company act in detail, , , , ROI should be, , =, , Net Profit, × 100, Capital Employed, 364
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Capital Employed : Equity Share Capital + Preference Share Capital + Reserves and Surplus +, Debenture Capital and Other Long Term Loans, Capital Employed = Fixed Assets + Current Assets - Current Liabilities., This ratio indicates the ability of company to generate the profit per rupee of capital Employed., (B) Return on Capital Employed (ROCE) : This ratio measures a relationship between net profit, before interest and Tax and share holders fund. The funds are supplied Equity and Preference, Share holders. , Net Profit before interest and Tax, Return on Capital Employed :, Net Capital Employed/ Equity, Net Capital Employed, = Total Assets - Current Liabilities, , = Fixed Assets + Current Assets - Current Liabilities, This ratio indicates whether share holders fund is efficiently used or not., This ratio should be higher than ROI., Illustrations, (A) Balance Sheet Ratio:, 1 : A company had following Current Assets and Current Liabilities, Debtors - ` 60,000, Creditors ` 30,000, Bills Payable ` 20,000, Stock ` 30,000, Loose Tools, ` 10,000, Bank Overdraft = ` 10,000 Calculate current ratio, Solution 1 :, (1) Current Assets, , , , = Debtors + Stock + Loose Tools, = 60,000 + 30,000 + 10,000, = ` 1,00,000, , (2) Current Liabilities = Creditors + Bills payable + Bank Overdraft, , = 30,000 + 20,000 + 10,000, , = 60,000 , Current Assets, Current Ratio, = Current Liabilities, , , =, , 1,00,000 10 5, = 6 = 3 i.e. 5:3, 60,000, , Activity 1: A company had following Current Assets and Current Liabilities. Debtors 90,000,, Creditors 45,000, Bills Payable 10,000, Stock 40,000, Loose Tools 20,000, Bank Overdraft 20,000., Calculate Current Ratio. (Ans = 2:1), , 365
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2:, , Current Liabilities of company were * 1,50,000 and its current ratio is 3:1 Find Current, Assets., Solution 2 : , Current Assets, Current Ratio, = Current Liabilities, , Current Assets, 3, , =, 1,50,000, 1, Current Assets, = 3 × 1,50,000, , = ` 4,50,000, Activity 2 : Current Assets of company is ` 6,00,000 and its Current Ratio is 2: 1. Find Current, Liabilities. (Ans = ` 3,00,000), 3:, Total Assets = ` 2,20,000, , Fixed Assets = ` 1,00,000, Capital Employed ` 2,00,000, There were no long term investments. Calculate Current Ratio., Solution 3 : Calculation of Current Ratio, , Current Assets, Current Ratio, = Current Liabilities, Current Assets, , , Current Liabilities, , , Current Ratio, , =, =, =, =, =, =, , Total Assets - Fixed Assets, 2,20,000 - 1,00,000, ` 1,20,000, Total Assets - Capital Employed, 2,20,000 - 2,00,000, 20,000 , 120,000, =, , 20,000, , , = 6:1, 4 : Calculate the Quick ratio from the following, Working Capital ` 50,000, Current Assets ` 60,000, Stock ` 10,000 Prepaid Expense ` 4,000, Solution : Quick Assets, = Current Assets - Stock - Prepaid Expense, , = 60,000 - 10,000 - 4,000, , = 46,000, ∴ Quick Liabilities = Current Assets - working Capital, , = 60,000 - 50,000, , = 10,000 , Quick Assets, , Quick Ratio, =, Quick liabilities, , , =, , 46,000, 46, = 10 = 4.6 : 1, 10,000, 366
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5 : (Quick ratio) :, Current Liabilities ` 1,50,000, Bank Overdraf ` 50,000, Working Capital ` 4,00,000 and inventory ` 1,00,000., Calculate Quick Ratio., Solution : Current Assets, , , Quick Assets, , =, =, =, =, , , , = 5,50,000 - 1,00,000, , , , = ` 4,50,000, , Quick Liabality, , Current Liabilities + Working Capital, 1,50,000 + 4,00,000, ` 5,50,000, Current Assets - Inventory, , = Current Liabilities - Bank Overdraft, , , , = 1,50,000 - 50,000, , , , = 1,00,000, Quick Assets, =, Quick liabilities, , Quick Ratio, , , =, , 4,50,000, = 4.5 : 1, 1,00,000, , (B) Income Statement Ratio :, 6:, , (Gross Profit Ratio), Calculate the Gross Profit Ratio, Sales ` 5,40,000, Net purchase ` 3,00,000, Sales Return ` 40,000 Closing stock ` 50,000, Opening stock ` 90,000, , Solution :, Cost of goods sold, , = Opening Stock + Purchases - Closing Stock, , , , = 90,000 + 3,00,000 - 50,000, , , , = ` 3,40,000, , Net Sales, , = Sales - Sales Return, , , , = 5,40,000 - 40,000, , , , = 5,00,000, , Gross Profit, , = Net Sales - Cost of Goods Sold, , , , = 5,00,000 - 3,40,000 , , , , = ` 1,60,000, , Gross Profit Ratio, , , =, , Gross Profit, × 100, Net Sales, , =, , 1,60,000, × 100 = 32%, 5,00,000, 367
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7:, , (Gross Profit Ratio), Compute Gross Profit Ratio from the following information sales ` 5,00,000, Gross Profit Ratio, 25% on cost., Solution : Gross Profit is 25% on cost, Therefore Goods costing ` 100 must have been sold for ` 125., Hence, if sales are ` 125. G.P. is ` 25., If sales are ` 5,00,000, then G.P. will be as follows : , 25, G.P. = 5,00,000 ×, = ` 1,00,000, 125, , Gross Profit, Gross Profit Ratio, =, × 100, Net Sales, , , =, , 1,00,000, × 100 = 20%, 5,00,000, , 8:, , Net Profit Ratio, Calculate the net profit ratio from the following data, Sales = ` 7,60,000, Cost of goods sold = ` 5,20,000.: ., Indirect Expenses = ` 1,20,000, Solution : Sales = ` 7,60,000, Less cost of goods sold =, ` 5,20,000, Gross Profit = ` 2,40,000, Less Indirect Expenses =, ` 1,20,000, Net profit = ` 1,20,000,, , , Net Profit Ratio, , , 9:, , =, , Net Profit, × 100, Sales, , =, , 1,20,000, × 100 = 15.79 %, 7,60,000, , Net Profit Ratio, , Gross Profit of Komal Limited for the year 2019-20 is ` 5,60,000 from the following information., Calculate Net Profit Ratio., Administrative Expenses, Selling and Distribution Expense, Interest on Debentures, Income Tax, Sales, Calculation of Net Profit, , =, =, =, =, =, , ` 1,60,000, ` 1,20,000, ` 80,000, ` 60,000, ` 20,00,000, , 368
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Gross Profit, Less : Administrative Expenses, Selling and Distribution Expenses, Interest on Debentures, Net Profit, , Net Profit, × 100, Net Profit Ratio, =, Sales, , , =, , `, , 5,60,000 (`), , 1,60,000, 1,20,000, 80,000, , 3,60,000, 2,00,000, , 2,00,000, × 100 = 10%, 20,00,000, , 10 : Operating Ratio Calculate Operating Ratio, , , , , , Cost of goods sold, Operating Expenses, Sales, Sales Return, , Operating Ratio :, Net Sales, , , , , 7,00,000, 60,000, 10,00,000, 60,000 , Cost of Goods Sold + Operating Expenses, =, Net Sales, , `, `, `, `, , × 100, , = Sales - Sales Return, = 10,00,000 - 60,000, = ` 9,40,000 , 7,00,000 + 60,000, =, × 100 = 80.85%, 9,40,000, , ., 11 : From the following details Calculate Operating Ratio, Sales , ` 5,00,000, Sales Return , ` 50,000, Opening stock , ` 60,000, Purchases , ` 2,20,000, Closing Stock , ` 40,000, Office and Administrative Expenses ` 34,000, , Selling and Distribution Expenses ` 36,000 , Cost of Goods Sold + Operating Expenses, Net Sales, , Operating Ratio, , =, , Cost of goods sold, , = Opening Stock + Purchases - Closing Stock, , , , = 60,000 + 2,20,000 - 40,000, , , Net Sales, , , , =, =, =, =, , 2,40,000, Sales - Sales Return, 5,00,000 - 50,000, ` 4,50,000, 369, , × 100
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Operating Expense, = Office and Admin. Expense + Selling and, , Distribution Expenses, , = 34,000 + 36,000 = ` 70,000 , Operating Ratio, , 2,40,000 + 70,000, × 100 = 68.89 %, 4,50,000, , =, , 12 : Operating Ratio, Following is the Trading and Profit and Loss account of Noha firm for the year ending 31 March, 2020., Trading and Profit and Loss Account :, Particulars, To Opening Stock, To Purchases, To Wages, To Gross Profit c/d, , (`), 40,000, 2,30,000, 8000, 2,02,000, 4,80,000, 12,000, 14,000, , To Admin Exp., To Selling and Distribution, Expense, To Loss on sale of plant, To Net Profit, , Particulars, By Sales, By Closing Stock, , (`), 4,20,000, 60,000, , By Gross Profit b/d, , 4,80,000, 2,02,000, , 40,000, 1,36,000, 2,02,000, , 2,02,000, , Calculate Operating Ratio , Cost of Goods Sold + Operating Expenses, Solution : Operating Ratio =, Net Sales, , Cost of goods sold, , , , × 100, , Sales - Gross profit, 4,20,000 - 2,02,000, ` 2,18,000, 2,18,000 + (12,000 + 14,000), , =, × 100, 4,20,000, 2,44,000, × 100, , =, 4,20,000, , , = 58.09 %, C), , =, =, =, , Combined Ratio/Mixed Ratio /Composite Ratios., , 13 : Return on Investment/Return on Capital Employee from following details you are required to calculate Return on investment, Profit earned, = ` 50,000, Capital, = ` 2,00,000, Reserve, = ` 1,00,000, Loan , = ` 2,00,000, 370
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ROI , , Capital Employed, , , =, , , , =, , =, =, , Net Profit, × 100, Capital Employed, 2,00,000+1,00,000+2,00,000, 5,00,000, 50,000, × 100 = 10%, 5,00,000, , 14 : Calculate Return on Capital Employed from following information., Sales - 10,00,000, Cost of goods Sold, = 5,00,000, Operating Exp., = 3,00,000, Capital Employed, = 5,00,000, ROCE, , =, , Net Profit, , =, , , , =, , Net Profit, × 100, Capital Employed, 10,00,000-5,00,000-3,00,000=2,00,000, 2,00,000, × 100 = 40%, 5,00,000, , Comparative Balance Sheet, From the following Balance Sheet of Noha Textiles Limited prepare comparative Balance Sheet, and comment upon the changes., Balance Sheet as on 31.3.2018 & 31.3.2019, Liabilities, Current, Liabilities, Reserves, 12% Bank loan, Share Capital, , 31.3.2018, (`), 2,00,000, , 31.3.2019, (`), 4,00,000, , 3,00,000, 5,00,000, 5,00,000, 15,00,000, , 2,00,000, 8,00,000, 10,00,000, 24,00,000, , 371, , Assets, Fixed, Assets Less, Accumulated, depreciation, current assets, , 31.3.2018, (`), 12,00,000, , 31.3.2019, (`), 18,00,000, , 20,000, 10,00,000, 5,00,000, 15,00,000, , 3,00,000, 15,00,000, 9,00,000, 24,00,000
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Solution :, Comparative Balance sheet of Noha Textiles Ltd. as on 31.3.2018 & 31.3.2019., Particular, Fixed Assets, Less : Accumulated depreceation, (A) Net Fixed Assets, Current Assets, Less : Current Liabilities, (B) Working Capital, (C) Capital Employed, (D) Less : 12% Bank Loan, (E) Share holders Fund, C-D, Share Capital, Reserves, Share holders fund, , 31.3.2018, (`), , 31.3.2019, (`), , 12,00,000, 2,00,000, 10,00,000, 5,00,000, 2,00,000, 3,00,000, 13,00,000, 5,00,000, 8,00,000, , 18,00,000, 3,00,000, 15,00,000, 9,00,000, 4,00,000, 5,00,000, 2,00,000, 8,00,000, 12,00,000, , 5,00,000, 3,00,000, 8,00,000, , 10,00,000, 2,00,000, 12,00,000, , Absolute, Product, increase or increase and, decrease (`), decrease, 6,00,000, 50%, 1,00,000, 50%, 5,00,000, 50%, 4,00,000, 80%, 2,00,000, 100%, 2,00,000, 66.67%, 7,00,000, 53.55%, 3,00,000, 60%, 4,00,000, 50%, 5,00,000, (1,00,000), 4,00,000, , 100%, 33.33%, 50%, , Working Note : Calculation of percentage of increase or decrease is as follows, Absolute change over 2019, Absolute figure of 2018, 1), , 6,00,000, × 100 = 50% increase, 12,00,000, , 2), , 1,00,000, × 100 = 50% increase, 2,00,000, , Comments : The analysis of above comparative Balance Sheet gives the following conclusions., 1), , Total fixed assets have increased by ` 6,00,000, 50% increase., , 2), , Purchased of fixed assets was financed partly by issue of shares for ` 5,00,000 and partly by, increase in loan., , 3), , Share Capital has increased by ` 5,00,000 i.e. 100% increase it has strengthned in financial, position of the company., , 4), , Reserve have decreased by ` 1,00,000 i.e. 33.33% decrease, which reflect loss in the business, during the current year., , 5), , Current Liabilities have increased by ` 2,00,000 i.e. 100% interest but current Assets have also, increased by 4,00,000 i.e. 80% increase. It has resulted in the increase of working capital of the, firm by ` 2,00,000 which has been financed by increase in loan., , 372
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Comparative Income Statement, 15 : From the following information, prepare comparative income statement of Shri Shalni LTD, Particulars, , 2018 (`), 6,00,000, 1,00,000, 40%, 50,000, 50,000, 25,000, 5,000, 50%, , Sales, Sales Return, Gross Profit ratio, Office and Admin Expenses, Selling and Distribution Expenses, Other income, Other Expenses, Tax rate, , 2019 (`), 4,50,000, 50,000, 50%, 40,000, 40,000, 15,000, 5,000, 50%, , Solution : Shri Shalini LTD, Comparative income statement, Particulars, , Gross Sales, Less : Sales Return, Less : Cost of goods sold, A, Less : Opearting Expense, Office and Admin.Expenses, Selling and Distribution, Expenses, B, Operating profit, Add : Operating income, Expenses, Less : Non Operating, Expenses, Expenses, Less : Tax 50%, Net Profit after Tax, , 2018 (`), , 2019 (`), , Absolute, change (`), , 6,00,000, 1,00,000, 5,00,000, 3,00,000, , 4,50,000, 50,000, 4,00,000, 2,00,000, 2,00,000, , (1,50,000), (50,000), (1,00,000), (1,00,000), -, , 25%, 50%, (20%), 33.33%, -, , 2,00,000, 50,000, 50,000, , 40,000, 40,000, , 10,000, 10,000, , 20%, 33.33%, , Decrease, Decrease, , 1,00,000, 1,00,000, 25,000, , 80,000, 1,20,000, 15,000, , 20,000, 20,000, (10,000), , 20%, 20%, 40%, , Decrease, Decrease, Decrease, , 5,000, , 5,000, , -, , -, , 1,20,000, 60,000, 60,000, , 1,30,000, 65,000, 65,000, , 10,000, 5,000, 5,000, , 8.33, 8.33, 8.33, , 373, , Precentage, change (`), , Increase, and, Decrease, Decrease, Decrease, Decrease, Decrease, , Decrease, Decrease, Decrease
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At a Glance of Formulas, I., , Comparative Statement, 1. Absolute Change = Current Year − Previous Year, Absolute Change, Previous Year, , 2. % Change =, II., , × 100, , Common Size Statement, 1. Balance Sheet, , Formula =, , Amount of Individual Item, × 100, Total Fund Available, , 2. Income Statment, Formula =, III., , Amount of Individual Item, × 100, Net Sales, , Ratio Analysis, 1. Balance Sheet Ratios, , a) Current Ratio =, , Current Assets, Current Liabilities, , b) Quick Ratio =, , Quick Assets, Quick Liabilities, , 2. Income Statment Ratios, a) Gross Profit Ratio =, , Gross Profit, Net Sales, , Operating Profit, × 100, Net Sales, , b) Operating Profit Ratio =, , Net Profit Before Tax, × 100, Net Sales, , c) Net Profit Ratio =, , , Alternate Formula =, , d) Operating Ratio =, , × 100, , Net Profit Before Tax, × 100, Net Sales, , Cost of Goods Sold + Operating Expense, × 100, Net Sales, , 3. Combine Ratios / Mixed Ratios, Net Profit Before Interest and Tax, × 100, a) Return on Capital Employed =, Net Capital Employed, b) Return on Investment =, , Net Profit Before Tax, × 100, Capital Employed, 374
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HHHHHHHHHHHHH EXERCISE - 9 HHHHHHHHHHHHH, Objective Questions, A. Select the most appropriate alternative from those given below and rewrite the sentences :, 1. Gross Profit Ratio indicates the relationship of gross profit to the ..................., , a. Net-Cash , b. Net-Sales, , c. Net Purchases , d. Gross Sales, ................................., 2. Current Ratio =, Current Liabilities, , a. Quick Assets , b. Quick Liabilities, , c. Current Assets , d. None of these, 3., , , , Liquid Assets = ....................., a. Current Assets + Stock , c. Current Assets - stock + prepaid Expenses, , 4., , , , Cost of goods sold ...................., a. Sales - Gross profit, b. Sales - Net Profit, c. Sales Proceeds , d. None of these, , 5., , , , Net-Profit Ratio is equal to ..................., a. Operating ratio , b. Operating net-profit ratio, c. Gross Profit Ratio, d. Current Ratio, , 6., , , , The Common Size Statement requires ..................., a. Common base , b. Journal Entries, c. Cash Flow , d. Current Ratio, , 7., , , , Bill Payable is ..................., a. Long term loan , b. Current Liabilities, c. Liquid Assets , d. Net Loss, , 8., , , , Generally Current Ratio should be ..................., a. 2:1, b. 1:1, c. 1:2, d. 3:1, , 9., , , , From financial statement analysis the creditors are specially interested to know ................., a. Liquidity , b. Profits, c. Sale , d. Share Capital, , B., , b. Current Assets-Stock, d. None of these, , Give one word/term/phrase for each of the following statement., 1. The statement showing profitability of two different periods, 2. The ratio measures the relationship between Gross Profit and Net Sales., 3. Critical evaluation of financial statement to measure profitability., 4. A particular mathematical number showing relationship between two accounting figures., 5. An asset which can be converted into cash immediately., 6. The ratio measuring the relationship between net profit and ownership Capital Employed., 7. The statement showing financial position for different periods or previous year and current, year., 375
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8. Statement showing changes in cash and cash equivalent during a particular period., 9. Activity related to acquisition of long term assets and investment., 10. The ratio that establishes relationship between Quick Assets and Current Liabilities, C., , State true or false with reasons., 1. Financial Statement includes only Balance Sheet., 2. Analysis of financial statement is a tool but not a remedy., 3. Purchase of Fixed Assets is operating cash flow., 4. Dividend paid is not a source of fund., 5. Gross Profit depends upon Net Sales. ,, 6. Payment of cash against purchase of stock is use of fund., 7. Ratio Analysis is useful for inter firm comparison., 8. The short term deposits are considered as cash equivalent., 9. Activity Ratios Turnover Ratios are the same., 10. Current Ratio measures the liquidity of the business., 11. Ratio analysis measures profitability efficiency and financial soundness of the business., 12. Usually current ratio should be 3:1., , D., , Answer in one sentence only., 1. Mention two objectives of comparative statement., 2. State three examples of cash in flows., 3. State three examples of cash out flows., 4. Give the formula of Gross Profit Ratio., 5. Give the formula of gross profit, 6. State any three examples of current assets., 7. Give the formula of current ratio., 8. Give the formula of quick assets., 9. State the formula of cost of goods sold., 10. State the formula of Average Stock., Practical Problems, , 1., , From the Balance Sheet of Amar Traders as on 31st March 2018 and 31st March 2019, prepare comparative Balance Sheet., Liabilities, , 31.3.2018, (`), Capital, 60,000, Reserves and Surplus, 24,000, Loans, Creditors, 34,000, 30,000, 1,48,000, , 31.3.2019, (`), 72,000, 30,000, 51,000, 24,000, 1,77,000, 376, , Assets, Fixed Assets, Current Assets, , 31.3.2018, 31.3.2019, (`), (`), 1,20,000, 1,50,000, 28,000, 27,000, , 1,48,000, , 1,77,000
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2., , From the following Balance Sheet of Alpha Limited prepare a comparative Balance Sheet, as on 31st March 2018 and 31st March 2019., Balance Sheet, st, As on 31 March 2018 and 31st March 2019, Liabilities, , 31.3.2018 31.3.2019, (`), (`), 2,00,000 2,50,000, Equity Share Capital, 80,000, 80,000, 12% Preference Shares, 1,00,000 1,40,000, Reserves and Surplus, 51,000, 60,000, 15% Debentures, 80,000, 50,000, Creditors, 6,000, 10,000, Bills Payable, 43,000, 25,000, Provision for Taxation, 5,25,000 6,50,000, 3., , 5,25,000, , 31.3.18 (`), 120,000, 60,000, 28,000, 24,000, 34,000, 30,000, , 1) Fixed Assets, 2) Share Capital, 3) Current Assets, 4) Reserve & Surplus, 5) Loan, 6) Current liabilities, , 6,50,000, , 31.3.19 (`), 1,50,000, 72,000, 27,000, 30,000, 57,000, 24,000, , Prepare Comparative Balance Sheet for the year ended 31.3.17 and 31.3.18, Particulars, , 31.3.17 (`), 60,000, 2,40,000, 68,000, 1,20,000, 48,000, 56,000, , 1) Current liabilities, 2) Fixed Assets, 3) Loan, 4) Share Capital, 5) Reserve & Surplus, 6) Current Assets, 5., , 31.3.2018 31.3.2019, (`), (`), 80,000 1,00,000, Land, 90,000, 60,000, Building, 73,000 1,73,000, Plant and Machinery, 1,50,000 1,10,000, Stock, 1,28,000 1,40,000, Debtors, 37,000, 34,000, Bank, , Prepare Comparative Balance Sheet for the year ended 31.3.18 and 31.3.19, Assets & Liabilities as follows, Particulars, , 4., , Assets, , 31.3.18 (`), 48,000, 3,00,000, 1,02,000, 1,44,000, 60,000, 54,000, , Prepare Comparative Income Statement of Noha Limited for the year ended 31.3.17 and, 31.3.18, Particulars, , 31.3.17 (`), 2,00,000, 50%, 1,20,000, 8,000, , Sales, Income Tax, Cost of Sales, Indirect Expenses, , 377, , 31.3.18 (`), 3,00,000, 50%, 80,000, 12,000
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6., , Prepare comparative Income Statement of Sourabh Limited for the year ended 31.3.17, and 31.3.18, Particulars, , 31.3.17 (`), 4,00,000, 16,000, 24,000, 50%, , Sales, Indirect Expenses, Cost of Sales, Income Tax, 7., , 31.3.18 (`), 6,00,000, 24,000, 56,000, 50%, , Following is the Balance Sheet of Sakshi Traders for the year ended 31.3.17 and 31.3.18, Liabilities, , Equity Share Capital, Pref. Share Capital, Reserve & Surplus, Secured Loan, Unsecured Loan, Current Liabilities, , 31.3.17, (`), 80,000, 20,000, 20,000, 40,000, 20,000, 20,000, 2,00,000, , 31.3.18, (`), 80,000, 20,000, 24,000, 16,000, 36,000, 36,000, 2,12,000, , Assets, Fixed Assets, Investment, Current Assets, , 31.3.17, (`), 1,20,000, 20,000, 60,000, , 31.3.18, (`), 1,44,000, 20,000, 48,000, , 2,00,000, , 2,12,000, , Prepare common size Balance-Sheet for the year 31.3.17 and 31.3.18, 8., , Prepare common size Income Statement for the year ended 31.3.17 and 31.3.18, Particulars, , 31.3.17 (`), 2,00,000, 1,50,000, 4,000, 6,000, , Sales, Cost of goods sold, Office and Administrative Expenses, Selling and Distubution Expenses, 9., , 31.3.18 (`), 2,50,000, 1,70,000, 6,000, 1,000, , Following is the Balance Sheet of Sakshi Limited. Prepare cashflow statement.:, Liabilities, , Share Capital, Creditors, Profit and Loss A/c, , 31.3.17, (`), 2,00,000, 60,000, 40,000, , 31.3.18, (`), 3,00,000, 90,000, 70,000, , 3,00,000, , 4,60,000, , Assets, Cash, Debtors, Stock, Land, , Answer 1) Cash flow from Operational Activities ` 30,000, , 2) Cash flow from Investing Activies (Land) ` 5,000, , 3) Cash flow from Financing Activities ` 1,00,000, , 378, , 31.3.17, (`), 20,000, 1,40,000, 80,000, 60,000, 3,00,000, , 31.3.18, (`), 30,000, 2,50,000, 70,000, 1,10,000, 4,60,000
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10. From the following Balance Sheet of Konal Traders prepare cash flow statement., Liabilities, Share Capital, Creditors, Profit and Loss A/c, , 31.3.17, (`), 2,00,000, 70,000, 10,000, , 31.3.178, (`), 2,50,000, 45,000, 23,000, , 2,80,000, , 3,18,000, , Assets, Cash, Debtors, Stock, Land, , Answer 1) Cash flow from Operating Activities ` 17,000, (13,000+5,000-1000), , 2) Cash flow from Investing Activies (Land) ` 5,000, , 3) Cash flow from Financing Activities ` 1,00,000, 11. A Compay had following Current Assets and Current Liabilities, Debtors , ` 1,20000 , Bills Payable ` 40,000 , Loose Tools, ` 20,000 , Calculate Current Ratio, (Answer : Current Ratio = 5:3), , Creditors, ` 60,000, Stock , ` 60,000, Bank overdraft.` 20,000, , 12. Current Assets of Company ` 6,00,000 and its Current Ratio is 2:1, Find Current Liabilities, (Answer : Current Liabilities = ` 3,00,000), 13. Current Liabilities, = ` 3,00,000, Working Capital, = ` 8,00,000, Inventory , ` 2,00,000, Calculate Quick Ratio, (Answer : Quick Ratio = 3:1), 14. Calculate the Gross Profit Ratio, Sales, =, Net purchases, =, Sales Ratio, =, Closing Stock, =, Operating Stock, =, (Answer : G. P. Ratio = 32%), 15. Calculate Net Profit Ratio, from the following, Sales, Cost of good sold, Indirect Exp., (Answer : Net Profit Ratio =, , `, `, `, `, `, , 2,70,000, 1,50,000, 20,000, 25,000, 45,000, , = ` 3,80,000, = ` 2,60,000, = ` 60,000, 15.79%), 379, , 31.3.17, (`), 30,000, 1,20,000, 80,000, 50,000, 2,80,000, , 31.3.18, (`), 47,000, 1,15,000, 90,000, 66,000, 3,18,000
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16. Calculate Operating Ratio, Cost of good sold, = ` 3,50,000, Operating Exp., = ` 30,000, Sales, = ` 5,00,000, Sales Return, = ` 30,000, (Answer : Operating Ratio = 80.85%), 17. Calculate, 1) Current Assets, = ` 3,00,000, 2) Current Liabilities, = ` 1,00,000, , What is current Ratio, (Answer : Current Ratio = 3:1), , Activity :, 1. Obtain a Balance Sheet published in Newspaper /Annual Report and prepare comparitive, Balance Sheet of the company., 2., , Obtain a Balance Sheet and Profit & Loss Account of a company published in Newspaper, / Annual Report and calculate different ratios., , bbb, , 380
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10, , Computer In Accounting, , Content, 10.1 Concept of Computerized Accounting system (CAS), 10.2 Features of computerized Accounting System., 10.3 Importance of Computerized Accounting System., 10.4 Components of Computerized Accounting System., 10.5 Comparison between manual accounting process and Computerized accounting process., 10.6 Sourcing of Accounting Software, 10.7 Legal Vs. Pirated Accounting Software, Competency Statements, o, , , , , , , The students will be able to:, Understand the computerised Accounting & its Components., Understand Features Importance & Limitations of Computerised accounting System., Learn Application of Computerised Accounting Statements., Learn various Accounting Packages., , 10.1 Concept of Computerized Accounting System (CAS)., The usage of computers and Information Technology in accounting processes has revolutionized, the modern business concepts so that the process of decision making has become quick, accurate, timely and much easier. A computerized accounting system helps to implement accounting process, and makes it user friendly with automation. Computerized accounting systems are software programs, which help to store data / information in the accounting system. It is connected via computer, network, server or remote accessed device with Internet. The company or firm prepares various reports and, statements with the help of computerized accounting software., The most important thing is company or firm prepares its reports as per Generally Accepted Accounting, Principles (GAAP) under this system., 10.2 Features of Computerized Accounting System, 1) Integrated Date & Information : Computerized Accounting system is designed to make, it user friendly automated and integrated for all business process such as purchase, sales,, finance, inventory, payroll and manufacturing. With computerized accounting system, we can keep accurate, up-to-date business information within time limit. Computerized, accounting is mixed with Management Information System (MIS) with Multilingual and, Data organization capabilities to support the company. All the business operations are, easy and cost effective., 2), , Accuracy & Speed : Computerized accounting has various customized templates and, software for users which allows fast and accurate data entry and transaction operations., Thus, after recording the business transactions it generates the various information and, reports automatically., 381
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3), , Quick Decision Making : The Computerized Accounting System generates real-time, information for quick decision. The company or firm can plan, its activities with the help, of comprehensives MIS reports and instant access to complete and critical information of, the Company., , 4), , Modern and Integrated : It helps to save time in recording business transactions as, compared to manual accounting system. Various financial statements such as Trial Balance., Profit & Loss A/c, Balance Sheet can be derived at any point of time within fraction of, seconds., , 5), , Immediate availability of Books of Accounts : In Computerized Accounting system, Books and Registers like Cash Book, Bank Book, Purchase Register, Sales, Register and, Statement of Account like Receivables and Payables are readily available at any point of, time., , 6), , Security : The Computerized Accounting System is more secured. Data and information, can be kept confidential as compared to the traditional accounting system. In this security, system user can create multiple user security control for the various users., , 7), , Transparency : Computerized accounting system helps the business organization to keep, greater transparency in the day to day business operations., , 8), , Grouping of Accounts : Appropriate grouping of accounts is required to be done in, computerized accounting system. Normally ledger accounts are classified under groups, like Assets, Liabilities, Income and Expenditure. As per requirement these groups are, further divided into sub groups as per convenience of the user., , 10.3 Importance of Computerized Accounting System., Computerized accounting systems are very important to various types of business organizations,, firms, company etc., 1), , Automation : All the calculations are automatically done by the accounting software with, minimum time as compared to manual accounting calculations., , 2), , Multi-user-Facilities : Multi-user-facility enable the business man access accounting, information online or off line with more user controls outside of the office or within office., In big business houses this facility is useful as data entry can be done by many operators, on different computers simultaneously., , 3), , Accuracy : Computerized accounting software is more accurate as compared to human, being. All calculations, like additions, subtractions and statistical calculations are, automatically done by software., , 4), , Speed : Computerized accounting software work faster than manual accounting process. It, generates all financial statements and reports speedily as per user requirements., , 5), , Reduction in Cost : As the financial records are to be entered only once in the system, the accountant will save his time in maintaining the records. This will enable the business, organization to employ few accounting personnel., , 6), , Systematic and up to date records : Computerized accounting system ensures systematic, and up to date financial records of the business organization., , 7), , Huge Storage Capacity : In case of manual accounting it is required to maintain separate, Books and Registers for each financial year. In case of computerized system one computer, software can store the accounting records for many years., 382
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8), , Compact : No matter how voluminous the financial data is the computer can store it in a, compact way. The financial information can be stored on the hard disk and if required back, - up can be taken on the external storage devices which requires very little space., , 9), , Transferability / Sharing Information : Computerized accounting system allow the, business organization to share the financial information with the interested parties. The, information can be shared with the help of printouts or can also be shared with soft copy, i.e through pen drive or Internet transfer., , 10.4 The Following components form the Computerized Accounting System :, (a) Hardware, (b) Software, (c), , Company Personnel, , a), , Hardware : Hardware is the electronic equipment that includes computers, disk drives,, monitors, printers and the network that connects with them. Most modern accounting, systems require a network, the system of electronic linkages that allow different computers, to share the information within network., In the network system, many computers can be connected to the main computer, or server,, which stores the program and the data. With the right communication of hardware and, software, an auditor in Maharashtra can access the data of a client located in Kerala. The, result is a speedier audit for the client, often at lower cast than the cost incurred it the, auditor had to perform all the work on site in India., , b), , Software : Software is the set of programs that direct the computer to perform the desired, task. Accounting software accepts, edits (alters), and stores transactions and data, generates, the reports., , c) Personnel : Personnel are critical to the success of any endeavor because people operate, the system. Modern accounting system gives non-accounting personnel access to parts of, the system., , , Management of a computerized accounting system requires careful planning of data, security and grooming of the people in the organization who will have access to the data., Security is sought by using passwords, codes that permit access to computerized records., , 10.4.1 Creation of Accounting Documents :, In accounting software generally the following components are used., a), , Creation of accounting documents : Computer software helps in creating different, accounting documents like cash memos, vouchers, receipts, invoices etc., , b), , Recording of Transactions : Computerized accounting software are used to record the, day to day business transactions. It reduces paper work., , 383
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Ledger Accounts, , Credit, , Liability, , Debit, , Income, , Expenditure, , Asset, , Profit & Loss Account, , Balance Sheet, c), , Preparation of Trial Balance and Financial Statement : After recording the transactions, the data is automatically transferred into ledger through the software. Vouchers are prepared, on the basis of data recorded into the computer. Trading and Profit and Loss Account and, Balance Sheet is automatically prepared., , Input, (Data), , Processing, (Accounting), , Output, (Reports), , Input represents data form source documents, such as sales receipts, bank deposit slips, Purchase, orders etc. Computerized accounting systems require that data inputs be arranged in specific formats., Transactions with missing dates, account numbers or other critical information are not accepted by, the system., Outputs are the reports generated for decision making. These may be like statements of debtors,, creditors, inventory, Trial Balance, income statement, balance sheet and so on., 10.5 Comparison between manual accounting process and Computerized accounting process., Basis of, Difference, 1. Meaning, , Manual Accounting, , Computerized Accounting, , Manual accounting is the system, in which we maintain physical, register of journal and ledger, for keeping the records of each, business transactions., , In this system of computerized, accounting, we use computer and, different accounting software for, digital record of each business, transactions., , 384
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2. Calculation, make total, of, , In this system, all calculations, are done manually. For example,, to find the balance of any ledger, account. We will make total of the, debit and credit side and then we, will find its difference for showing, balance., , In computerized accounting system,, our duty is to record the business, transactions manually in the, database. All the calculations are, done by computer system. We need, not calculate each account’s balance,, it is calculated automatically by, computerized accounting system., , 3. Ledger, Accounts, , Ledger accounts are prepared by, posting transactions in appropriate, ledger manually with the help of, journal. There may be mistakes, while transferring the amount, manually., , In computerized accounting system,, once a voucher is entered it will, automatically be printed. Thus there, is no chance of taking or transferring, wrong amount., , 4. Trial, Balance, , In this system of accounting,, we have to take the balances of, all ledger A/c, in Trial Balance, Statement., , Computerized accounting system will, produce Trial Balance automatically., , 5. Adjustment, Entries, Record, , Both adjustment journal entries, and its posting in the ledger, accounts will be done manually, one by one., , Only adjustment entries will be passed, in the computerized accounting, system, posting in the Ledger accounts, will be done automatically., , 6. Financial, Statements, , We have to make the financial, statements manually by carefully, transferring Trial Balance’s figures, in to Trading, Profit and Loss, Account and Balance Sheet., , 7. Closing the, Books, , After the year end accountants, prepare financial statements, for the accounting period. The, balances are to be carried forward, manually, to next year., , We need not prepare financial, statement, manually;, financial, statements will be generated, automatically., It, will, also, automatically change after each, voucher entry in the system. This, facility is not available in the manual, accounting system., In the computerized accounting, software financial reports are auto, generated for the accounting period., The balances are automatically, carried forward to next year., , 10.6 Sourcing of accounting Software, Accounting software is an essential part of the computerized accounting system. An important, factor to be considered before acquiring accounting software is the accounting expertise of people, responsible in business for accounting work, People, not computers, are responsible for accounting., The need for accounting software arises in two situations :, 10.6.1 Accounting Packages, Every Computerized Accounting System is implemented to perform the accounting activity, (recording and storing of accounting data and information) and generate various reports as per, 385
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the requirements of the user. From this perspective the accounting packages are classified into the, following categories :, (a) Ready to use, (b) Customized, (c) Tailored, (d) Free & Open Source, Each of these categories offers individual features. However, the choice of the accounting, software would depend upon the suitability to the organisation or firm especially in terms of accounting, and financial needs., 10.6.2 Ready-to-Use :, This accounting software is suitable to those organizations or firm running small scale business, where the frequency or volume of accounting transactions is very less. This is because the cost of, installation is generally less and number of users is limited. Ready-to-use software is relatively easier, to learn. This also implies that level of secrecy is relatively low and the software is prone to data, frauds. The training needs are simple and sometimes the vendor (supplier or software) offers the, training on the software free. However, this software offers little scope of linking to other information, systems., 10.6.3 Customized :, This Accounting software may be customized to meet the special requirement of the user., Standardized accounting software available in the market may not suit or fulfill the user requirements,, For example, standardized accounting software may contain the sales voucher and inventory status, as separate options. However, when the user requires that inventory status to be updated immediately, upon entry of sales voucher and report be printed, the software needs to be customized., Customized software is suitable for large and medium businesses and can be linked to the other, information systems. The cost of installation and maintenance is relatively high because the high cost, is to be paid to the vendor for customization. The customization includes modification and addition, to the software contents, provision for the specified number of users and their authentication, etc., Secrecy of data and software can be better maintained in customized software. Since the need to train, the software users is important, the training costs are therefore high., 10.6.4 Tailored, The accounting software is generally tailored in large business organizations with multi users, and geographically scattered locations. This software requires specialized training to the users. The, tailored software is designed to meet the specific requirements of the users and form an important, part of the organizational MIS. The secrecy and authenticity checks are robust in such software’s and, they offer high flexibility in terms of number of users., 10.6.5 Free & Open Source, The small business need an accounting software but they don’t have a big budget, then find out, accounting software available on free, open source software on the Internet. These applications you, can download and install from the websites., For examples : GNU Khata is the open source accounting software for small business as well, as a personal finance software., , 386
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10.7 Legal / Licensed Vs. Pirated Accounting Software, There are different types of accounting software packages and applications available in the, market. User can select Legal and Open source software as per its business needs., Legal Accounting Software is fully functional and safe, Pirated Accounting Software is also, full functional but its use is illegal & data can be corrupted. Always use the legal software for the, accounting transaction because they can be updated as per statutory changes like VAT, GST etc., l, , l, , l, , Legal software - Full functional software., Demo Software - Used for demo purpose with all major features but with a very few, restrictions., Pirated software - Cracked software, nearly full functional, but illegal to use & risky considering data safety., , To select the best accounting product you will first need to decide your individual and corporate, needs. Small business accounting software functions much differently in many respects that accounting software manufactured as an enterprise resources planning solution for example., Tally ERP9, Miracle, Busy, Focus, & Wings, 10.8 Practical Activity :, Practical on Application of accounting software - Creation of Company, Accounts group,, Accounting Entries and generation of reports (Balance Sheet, Profit & Loss A/c, Day Book etc)., What is Accounting Software?, Accounting Software is used for recording day to day business transaction of a company., It maintains inventory management system with computer. It is integrated with other business, applications such as Purchase. Sales, Finance, Payroll, Inventory ect. with all accounting details., Step 1: After entering into Accounting Software Tally, double click on the option create, company under company information., To create company in Tally, follow the following navigation path Gateway of Tally > Company, Info > Create company, Company Information, Select Company, Login as Remote User, Backup, Restore, Quit, , 387
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Step 2 : The company creation window, display on the screen as shown below in the image. Fill, the detail information in the company creation form., , Kindly rewrite, it has no reference with the heading, or change heading., Need to insert group creation image & its process., 1), , How to create ledger account in Tally Software, Path : Gateway of Tally - Accounts Info - Ledgers - Single Ledger - Choose Create, Step 1 : From Gateway of Tally Screen, click on accounts info, , Path Gateway of Tally - Accounts Info - Ledgers - Single Ledger - Choses Create, , 388
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2), , How to create voucher Tally Software, For Example :, 1), Purchased goods on credit from Mr. Anmol Sharma of Rs. 25000/-, , Voucher Types in Tally, Voucher Types, , Its Uses, Cash deposited in bank, l, Cash withdrawn from bank, l Transfer from one Cash A/c to other Cash A/c., l, Bank to Bank transfer, , F4 (Contra), , l , , F5 (Payment), , l, , l, , l, , All types of payments are entered through this voucher type., (Cash and Bank), Credit item of a payment voucher shall be either Cash or Bank Account, only., There can be two modes, Single Entry Mode or Double Entry Mode., 389
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F6 (Receipt), , l, l, l, l, l, , F7 (Journal), , l, l, , l, , F8 (Sales), , l , l, l, , F9 (Purchase), , l, , l, l, , There can be only two types of receipts., Cash Receipt and Bank Receipt., Both these receipts has to be entered here., Debit item of Receipt Voucher will always be either Bank or Cash., There can be two modes, Single Entry Mode or Double Entry Mode., This voucher is used for non - cash transactions., E.g. Depreciation, provisions, transfer entries, purchase of fixed assets, on credit., Journal voucher should not be used for credit sales or credit purchases., This is used for cash sales as well as credit sales., There can be two modes, “As Invoice” or “As Voucher”., Party’s A/c Name means ledger to be Debited, write Cash in case of, Cash Sales., This voucher type is used for both types of purchases, Credit as well as, Cash., There can be two modes, “As Invoice” or “As Voucher”., Party’s A/c Name means ledger to be credited., , For viewing Accounting Reports in Accounting Software to click on Report option and, select the Display option., , HHHHHHHHHHHHH EXERCISE -10 HHHHHHHHHHHHH, Q.1 Objective questions :, A. Select the most appropriate alternatives from those given below and rewrite the statements., 1) The primary document for recording all financial transactions in Tally is the ............., a) Journal b) Trial sheet c) Voucher d) File, 2), 3), B., , C., , This displays the balance day wise for a selected voucher type., a) Record Book , b) Ledger book, c) Journal book, , d) Day book, , Fixed Deposit A/c comes under ............... group., a) Investments , b) Current Liability c) Bank A/c , , d) Current Asset, , Give the word term or phrase which can substitute each of the following statements:, 1) The details of Bills Receivable are maintained in this record, ., 2) Tally software is classified into this category, ., 3) The short key used to save or accept the information, ., 4) It is a damaged software, cracked, nearly fully functional, ., 5) The process by which all the calculations are automatically done by the accounting software., State whether the following statement are true or false with reason :, 1) Alt + D are the short key for delete voucher entry., 2) In Tally F6 Functions key is for Payment Voucher., 390
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3), 4), 5), D., , Legal software is fully functional software without any restriction., Salary Account comes under Indirect Expenses., Accounting software may not be customized to meet the special requirement of the user., , Answer in One Sentences :, 1) What is CAS?, 2) Write the steps to create Ledger account in tally?, 3) How to view reports in tally?, 4) Explain the various type of voucher?, 5) Write the steps to create a company?, , Activity :, Obtain information of various Accounting Softwares and write a report including type of Software,, open source / Licensed, single user / Multi user, hardware requirement, after sales service and, Training to use the Software., , bbb, , 391
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Answers Key, Introduction to Partnership and, Partnership Final Accounts, , 1, , Q.A Select the most appropriate alternative from the following & Rewrite the sentences :, Ans:, , 1) a, , 2) d, , 3) a, , 4) b, , 5) b, , 6) a, , 7) d, , Q.B Write the word/phrase/term, which can substitute each one of the following sentences. :, Ans: 1) Partners 2) Drawings 3) partnership firm 4) Indian Partnership 5) Registration, 6) Partnership deed 7) Fixed Capital Method 8) Profit sharing Ratio 9) Fluctuating Capital, Method 10) Current Account 11) Prepaid Expences 12) Fianl Accounts 13) Current, Assets an Liquid assets 14) Order of Liquidation 15) Profit and loss account 16) Asset side, 17) Net Profit, Q.C State whether the following statements are True of False with reasons :, Ans: 1) False 2) False 3) True 4) True 5) False 6) False 7) False 8) False 9) True 10) False, 11) True 12) True 13) False 14) False 15) False, Q. D. Find odd one out, Ans: 1. Salary, , 2. Purchases 3 Bills Receivable 4. Bills Payable 5. Depreciation, , Q. E Complete the Sentences, Ans: 1), 7), 12), 17), , Equal 2) Optional 3) Lawful 4) Unlimited 5) Current 6) Profit & loss, joint & Several 8) Partnership deed 9) debited 10) income 11) Current, Credit 13) trade 14) Revenue 15) Purchases 16) prepaid expenses, Fixed Assets 18) direct 19) expenditure 20) advertisement, , Q.G Do you agree/disagree with the following statements.:, Ans: Agree 4, 5, 6, 8, 10, 11, 15,, , Disagree : 1, 2, 3, 7, 9, 12, 13, 14, 16, , 392
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2, , Accounts of ‘Not for Profit’ Concerns, , Q. A Select the most appropriative alternatives from those given below., Ans: 1) Social, 2) Capital Receipts, 3) Nominal Account, 4) An Assets, 5) A liability, 6) surplus,, 7) Income and Expenditure, 8) Cash and Bank Balance, 9) Service, 10) Capital, Q. B Write the Word / Term / Phrase which can substitute each of the following statements., , Ans: 1. Not for Profit Concern , 3. Specific Donation / Capital Receipt, 5. Income and Expenditure Account, 7. Outstanding Income Account , 9. Capital Fund , Q. C , , State whether the following statements are True or False with reasons., , Ans: True - 1,4,8,10, Q. D , , 2. Income and Expenditure Account, 4. Capital Receipt, 6. Receipt and Payments Account, 8. Surplus, 10. Capital Receipts., , False - 2,3,5,6,7,9, , Fill in the blanks, , Ans: 1) Trading, 2) Service, 3) Real, 4) Cash, 5) Profit and Loss, 6) Payments, 7) Nominal,, 8) Income and Expenditure, 9) Revenue, 10) Current, Q.F- I. Complete the Table, Ans: 1) ` 15,000 (Expenditure),, 2) ` 4,000 (Expenditure),, 3) ` 23,000 (Income), 4) ` 1,500 (Deficit), 5) ` 3,700 (Surplus), Q.F- II. Salaries paid during the year, Ans: 1) ` 1,000, , 2) ` 700 3) ` 1,600, , 4) ` 1,400, , 5) ` 4,500, , 6) ` 400, , Q.F-III. Rent received during the year, Ans: 1) ` 1,100, Q. G, , 2) ` 1,800, , 3) ` 650, , 4) ` 2,900, , 5) ` 450, , 6) ` 3,100, , Calculate the following, , Ans: 1) Depreciation ` 1,250 , 2) ` 9,600, 3. Stationery Consumed ` 23,000, 4) ` 15,000, 393, , 5) Library Books ` 50,000.
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Q. H , , Find odd one., , Ans:1) Receipts and Payments Account , 4) Reliance Industries, , 3, Q. A), Ans: 1., 3., 5., Q. B), , Ans: 1), 3), 5), 7), 9), , Q. C), Ans: , Q. D), , Select the correct alternative, a. 12:8: 5 2., a. Revaluation A/c , 4., b. Capital, , b. Surplus Method, d., Cash / Bank, , Write the word / Term / Phrase which can substitute each of the following statements., , Super Profit Method 2) Revaluation A/c / Profit & Loss Adjustment A/c, Goodwill , 4), Old Ratio, Premium Method , 6), Sacrifice Ratio, Normal Profit , 8), Partners Capital A/c / Current A/c, Undistributed Profit / Accumulated Profit, 10), Sacrifice Ratio, , State whether the following statements are True / False., True : 1, 2, 5, 9, 10 , , False : 3, 4, 6, 7, 8, , Find the odd one out, 2) RDD Written off , , 3) Fluctuating Capital Method., , Calculate the following, , Ans: 1) New Ratio 2:1:1, Q. G), , 3) Stationery, , Reconstitution of Partnership (Admission of Partner), , Ans: 1) Machinery , Q. E), , 2) Salaries , 5) Net Profit, , 2) Sacrifice Ratio 5:1, , Complete the following, , Ans: 1) Average Profit , 2) Capital employed, 3) Stock undervalued 40,000, Cost of Stock 2,00,000, 394, , 3) Sacrifice ratio 7:3
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4, , Reconstitution of Partnership (Retirement of Partner), , Q. A Select the most appropriate alternatives from those given below and rewrite the sentence., Ans: 1) All the partners, , 2) Debited, , 3) Loan, , 4) New, , 5) Gain, , 6) 3:2, , Q. B Write the word, term, phrase, which can substitute each of the following statement., Ans: 1), 3), 5), , Profit on Revaluation Accounts, Loss on Revaluation , Goodwill , , 2) Gain ratio, 4) Gain Ratio, 6) Capital/ Current Account, , Q. C State whether the following statement are true or false with reasons., Ans: , , True : 1, 2, 4 , , False : 3, 5, 6, , Q. D Fill in the blanks and rewrite the following sentence :, Ans: 1), 4), , Old Ratio, Capital, , 2) Debited, 5) Gain, , 3) Profit and Loss Adjustment, , Reconstitution of Partnership, (Death of Partner), , 5, , Q.1 A) Select the most appropriate answer from the alternative given below and rewrite the, sentences., Ans : 1) (c) The continuing partner’s benefit on retirement or death of a partner, 2) (a) Gain Ratio 3) (c) Assets 4) (c) Retirement 5) (b) Legal Heir’s loan / Executor loan, B) Write a word, term, phrase, which can substitute each of the following statement., Ans : 1) Profit, 4) Deceased Partmer, , 2) Legal heir or executor, 5) Gain / Benefit Ratio), , 3) General Reserve Fund, , C) State whether the following statements are True or False with reasons., Ans : True : 2, 4, , False : 1, 3, 5, , 395
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D) Fill in the blanks and rewrite the following sentence., Ans : ( 1) Liability, , 2) Gain, , 6, , 3) Assets, , 4) Old Ratio, , 5) Goodwill), , Dissolution of Partnership Firm, , Q.1 A) Select the most appropriate answer from alternatives given below and rewrite the, sentences., Ans : 1) Realisation Account., 4) Debited, 7) Book Value, 10) Dissolution., , 2) Cash / Bank Account, 5) Realisation Account, 8) Dissolved, , 3) Profit Sharing Ratio, 6) Insolvent, 9) Credited, , B) Give the word / term / phrase which can substitute each of the following statement., Ans : 1) Realisation on Loss /Loss 2) Dissolution, 3) Realisation A/c, 4) Capital deficiency, 5) Realisation Profit / Profit 6) Realisation of Assets, 7) Contingent Liability, 8) Unrecorded Assts, 9) Realisation A/c, 10) Dissolution / Realisation Expenses), C) State whether the following statements are True or False with reasons., Ans : True : (2), (3), (6), (8), (9), , False : (1), (4), (5), (7), (10), , F) Complete the table., Ans : 1) ` 16,000, , 7, , 2) ` 28,000, , 3) ` 5,000, , 4) ` 34,000, , Bills of Exchange, , Q.1 A) Select the correct option and rewrite the sentences., Ans : 1) Drawee, 4) 25th Jan. 2019, 7) 6th March 2020, 10) Bills Payable, , 2) Draft, 5) Drawee, 8) Government Officer, , 396, , 3) Preceding, 6) Three, 9) Dishonouring, , 5) ` 28,000)
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B) Give one word / phrase / term which can substitute each of the following ststements., Ans : 1) Grace days, 4) Endorsee, 7) Accomodation bill, 10) Bad Debts, , 2) Noting charges, 5) Notary Public, 8) Holder, , 3) Payee, 6) Renewal of bill, 9) Discounting the bill, , C) State True or False with reasons., Ans : True : (2), (5), (6), (7), (9), , False : (1), (3), (4), (8), (10), , D) Find the odd one., Ans : 1) Noting, , 2) Demand Bill, , 3) Notary Public, , 4) Noting charges, , 5) Draft, , E) Complete the sentence., Ans : 1) Retirement of bill, 2) Insolvent person, 4) After date bill, 5) Trade bill, 7) After sight bill, 8) Noting, 9) Qualified acceptance as to place, , 3) Deficiency, 6) Drawer, 10) Bank Charges, , G) Do you agree or disagree with the following statements., Ans : 1) Disagree, 4) Agree, 7) Disagree, 10) Agree, , 2) Disagree, 5) Agree, 8) Disagree, , 3) Agree, 6) Agree, 9) Disagree, , H) Calculations., Ans : 1) ` 825, 2) i) ` 900, 3) ` 18,200, 6) 16th August 2019, , ii) ` 600, 4) ` 53,000, , iii) ` 300, 5) ` 16,725, , J) Do you agree or disagree with the following statements., Ans : 1) i) 3rd Apr. 2019, iv) 2nd Mar. 2020, 2., , , , , , ii) 24th Nov. 2019, v) 17th Aug. 2019, , iii) 25th Jan. 2020., , i) Nominal due date 17th Feb. 2020 and Legal due date 20th Feb. 2020., ii) Nominal due date 12th Aug. 2020 and Legal due date 14th Aug. 2020., iii) Nominal due date 23rd Jan. 2020 and Legal due date 25th Jan. 2020., iv), Nominal due date 20th Dec. 2019 and Legal due date 23rd Dec. 2019., v), Nominal due date 21th Feb. 2019 and d Legal due date 24th Feb. 2019., , 397
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8, , Company Accounts : Issue of Shares, , Q.1 A) Select he appropriate answer from the alternative given below and rewrite the sentence., Ans : 1) Capital Reserve, 3) Dividend, 6) debited, 8) Nominal/Authorised Capital, , 2) Liability Side of Balance Sheet, 4) Prospectus, 5) 10%, 7) Limited, 9) calls is arrears, 10) Articles of Association, , B) Give one word/term/phrase for each of the following statements., Ans : 1) Calls in Arrears, 4) Joint Stock Company, 7) Equity Shares, , 2) Issue at par, 5) Subscribed Capital, 8) Uncalled Capital, , 3) Shareholder, 6) Preference Shares, , C) State True or False with reasons., Ans : True : (3), , False : (1), (2), (4), (5), (6), , D) State whether you agree or disagree with following statements., Ans : Agree : 3,5,7,8,10, , Disagree : 1,2,4,6,9, , F) Complete the following sentences., Ans : 1) Premium, 4) Preference, 7) Subscribed, , 2) Authorised, 5) Equity, 8) Unissued, , 3) Calls in Arrears, 6) Joint Stock Company, , G) State whether you agree or disagree with following statements., Ans : 1) 3,500, , 9, , 2) 10,000, , 3) 16,000, , 4) 8,00,000, , 5) 1,99,8000, , 6) 2,000, , Analysis of Financial Statments, , Q. A. Select the most appropriate alternative from those given below and rewrite the sentences :, Ans: 1), 4), 7), , Net sales , Sales - Gross Profit , Current Liabilitie , , 2) Current Assets, 5) Operating Ratio, 8) 2:1 , 398, , 3) Current Assets - Stock, 6) Common Base, 9) Liquidity
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Q. B., Ans: 1), 3), 5), 7), 9), , Give one word/term/phrase for each of the following statement., Comparative Income Statement , Analysis of financial statement , Liquid assets , Comparative Balance Sheet , Financing investing, , , 2) Gross Profit Ratio, 4) Ratio, 6) ROCE, 8) Cash Flow Statement, 10) Liquid Ratio, , Q. C. State true or false with reasons., Ans: , , True : 2, 4, 5, 6, 7, 8, 9, 10, 11 , , 10, , False : 1, 3, 12, , Computer In Accounting, , Q.1 A) Select the most appropriate alternatives from those given below and rewrite the, statements., Ans : 1) Voucher, , 2) Day book, , 3) Investment, , B) Give the word term or phrase which can substitute each of the following statements., Ans : 1) Sundry Debtors, 4) Pirated Software, , 2) Mercantile, 5) Automation, , 3) Ctrl + A, , C) State whether the following statement are true or false with reason., Ans : True : 1, 3, 4, , False : 2, 5, , bbb, , 399
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Notes, , 400
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BOOK-KEEPING, &, ACCOUNTANCY, , 212.00
