12th CBSE 2021-22 Batch

Question: Which elements affects the goodwill
of the business?
Ans.: 1)
2)
3)
4)
5)
6)
7)
Conclusion:
For the purpose for calculating goodwill,

Abnormal / Extraordinary expenses-----> Add back to profit
Abnormal / Extraordinary income -----> deduct from profit
So, that we can find correct profit for the purpose of
calculating goodwill.
Adjustments:
1) Income from share market of
Rs.5000 in 2019-20.
2) Insurance premium of Rs.10000

in 2018-19 oversight (ignore by mistake).
3) Closing Stock of 2017-18 was overvalued

by Rs.6000.
4) Closing Stock of 2019-20 was undervalued

by Rs.8000.
5) Opening stock of Rs.2018-19 was undervalued

by Rs.15000.
6) Opening Stock of 2019-20 was overvalued

by Rs.9000.
7) Remuneration (Salary) to be paid to manager

Rs.5000 p.m.
8) X and Y two partners entitled to get remuneration

(salary) Rs.10000 each.
9) Purchased machinery of Rs.100000 debited to

Repair and Maintainance A/c in P/L by mistake in 2018-19.
10) Depreciation on above machinery was 10% p.a. WDV

100000 x 10% x 12/12 = 10000
(10000-10000)x 10% x 12/12 = 9000
(100000-10000-9000) x 10% x 12/12 = 8100
11) There is Maintainance expense of Machinery of Rs.50000

by mistake it is recorded in Machinery A/c. in 2019-20
12) Depreciation on above machinery was 10% p.a. WDV
illu.9:
Question 20:
Proceeds = Selling price
Cash / Bank A/c Dr. 11000

To Machinery A/c 10000
To Profit on sale of machinery A/c 1000
Capitalisation = Investment required = to take benefits of opportunities
Conceptual
Clarity
What?
Qualilty products and services

Customer relationship
Timely repayment to creditors
Management of business
Employees of the business
Social responsibilites perfomed by business
Place of the business
Years
Actual profit
Step 1
Step 2
Question:
Years
Actual profit
Answer: Step - 1
Step - 2
Question:
Weights = importance
Latest year = Highest

weight
oldest year = Lowest weight

Question:
Answer:
Effect:
Minus from 2019-20 profit
Minus from 2018-19
1) Minus in 2017-18
2) Plus in 2018-19
1) Plus in 2019-20
2) Minus in 2020-21
Minus in 2018-19
Plus in 2019-20
60000 minus every year
20000 minus every year
Plus in Current Year
Minus from 2018-19 to last
Minus in current year
Plus in 2019-20 and 2020-21
Step 1 Correct profit

Years 3/31/2015 3/31/2016 3/31/2017
Actual profits 180000 160000 250000
Adjustments:
Abnormal gain -20000
Abnormal loss 10000
Overhaul machinery expense (abnormal loss)
Depreciation on machinery
Closing stock undervalued
Correct Profit 180000 140000 260000
(x) Weights 1 2 3
Weighted profit 180000 280000 780000
Step 2 Weighted Average profit
Total Weighted profit

Total Weights
286000
Step 3 Goodwill
Weighted Average profit x Number of years purchase

858000
Depreciation
Major plant repair = capital expenditure = Asset plus
Revenue = Profit and loss A/c
3/31/2016 3/31/2017 3/31/2018 3/31/2019

25000 27000 46900 53810
10000
-1000 -900 -810
-1000 1000
-2000 2000
-5000 -5000 -5000 -5000
2015-16 2016-17 2017-18

Actual Profit 101000 124000 100000
Plant repair (Abnormal loss) 30000

Depreciation on plant -1000
(30000 x 10/100 x 4/12)
Overvaluation of stock -12000 12000

Annual Mainatainance cost -24000 -24000 -24000
Machinery sold -10000

Profit on sale of assets -1000
Depreciation on machinery 1000 900

(10000*10/1(10000-1000)*10/100*12/
Correct profit 77000 78000 117900
(x) weights 1 2 3
Weighted Profit 77000 156000 353700
Weighted Average profit 104234
Goodwill 312702
Super profit Method
Super = Extra
Extra profit
Ajay Vijay Samar
Step 1: Correct profit
2016 2017 2018
Average profit = 120000
Step 2: Capital Employed (Capital Investment)
1000000
Step 3: Normal Profit
Capital Employed x Normal Profit Margin

1000000 x 10/100
100000
Step 4: Super profit
Average profit - Normal profit

120000 - 100000
20000
Step 5: Goodwill
Super profit x Number of years purchase

20000 x 7
140000
Question: Step 1 Averge Profit
Step 2 Capital Employed
Total Assets - Total Outside liabilities

75000 - 5000
70000
Step 3 Normal Profit
Capital Employed x Normal rate of return

70000 x 20/100
14000
Step 4 Super profit
Average profit - Normal Profit

6000 = Average profit - 14000
Average profit = 14000 + 6000 = 20000
Step 5 Goodwill
Super profit x Number of years purchase

24000 = Super profit x 4
Super profit = 24000 / 4
6000
Capitalisation of Super profit Method
efits of opportunities
1200000
Normal Profit Margin - 10%
If Investment is Rs.100 Then profit will be Rs.10

Investment ??????? If the actual profit is Rs.120000
120000 x 100 / 10
1200000
Step 1 Average profit

Step 3 Normal Profit
Step 4 Super profit
Step 5 Goodwill
Super profit x 100

Normal rate of return
Capitalisation of Average Profit Method
Step 1 Average profit
120000
1000000
Step 3 Goodwill
Average profit x 100 (-)

Normal rate of return
120000 x 100
10
1200000 (-) 1000000
200000
12th CBSE
Reading of
chapter / Pratice of
question questions
in proper
format
Goodwill
It is an Intangible asset of the company. Which helps the business

to earn extra profit in future.
Why?
1) Partnership chapters
Admission of partner
Retirement / Death of partner
2) Business Takeover /
Business Merge
1) Simple Average Profit
Number of years purchase = 5 years

2015-16 2016-17 2017-18 2018-19 2019-20
370000 400000 419000 500000

Average Profit
Total Profit
Number of years
370000 + 400000 + 419000 + 500000

4
422250
Goodwill
Average profit x Number of years purchase

422250 x 5
2111250

2015-16 2016-17 2017-18 2018-19 2019-20
370000 -250000 419000 500000
Calculate the value of goodwill for 5 years purchase as per

simple Average profit Method.
Average profit
Total Profit
Number of years
370000 -250000 + 419000 + 500000

4
259750
Goodwill
Average Profit x Number of years purchase

259750 x 5
1298750
Method - 2 : Weighted Average Profit Method

Years 2015-16 2016-17 2017-18 2018-19 2019-20
Actual profit 370000 400000 419000 500000

620000 600000 520000 500000
Calculate the value of goodwill for 5 years purchase as per
weighted Average profit Method.
Step 1 Weighted Profit
Years 2015-16 2016-17 2017-18
Actual profit 370000 400000 419000

(x) Weights 1 2 3
Weighted Profit 370000 800000 1257000
Step 2 Weighted Average profit
Total weighted profit

Total weights
370000 + 800000 + 1257000 + 2000000

1 + 2+ 3+ 4
442700
Step 3 Goodwill
Weighted Average profit x Number of years purchase

442700 x 5
2213500
Note: When to apply Weighted Average profit Method?
Answer: When Profits show some trends i.e. increasing trend or decreasing trend
every year, then apply Weighted Average profit Method.
If profits are unstable (i.e. increasing decreasing every year) then
apply Simple Average profit Method.
Simple And Weighted Average profit Method with Adjustments

Years 2015-16 2016-17 2017-18
Actual profit 370000 400000 419000

10000
-5000
Mistakes :
1) 2016-17 profit: It includes an expense of loss by fire of Rs.10000.
2) 2017-18 profit: It includes profit from sale of Reliance shares of Rs.5000
Years 2017-18 2018-19 2019-20 2020-21

Actual Profit 250000 271000 293000 300000
Adjustments:
1) Profit of 2018-19 includes Rs.30000 abnormal loss.

2) Profit of 2019-20 includes income from sale of machinery Rs.10000.
3) Profit of 2020-21 includes loss occurred due to fire of Rs.5000.
Calculate goodwill for 3 years purchase as per Average profit method.
Step 1 Correct Profit
Years 2017-18 2018-19 2019-20 2020-21

Actual Profit 250000 271000 293000 300000
Adjustments:
1) Abnormal loss: 30000
2) Abnormal Gain: -10000
3) Loss by Fire: 5000
Correct Profit 250000 301000 283000 305000
Step 2 Simple Average profit Step 3
Total correct Profit

Number of years
250000 + 301000 + 283000 + 305000

4
284750
Years 2017-18 2018-19 2019-20 2020-21

Actual Profit 250000 271000 293000 300000
3/31/2018 3/31/2019
300000 350000
50000
-10000 -8000
20000 -20000
360000 322000
4 5
1440000 1610000
3/31/2018 3/31/2019
100000
-15000 -17000
100000 x 20/100 x 9/12 (100000-15000) x 20/100 x 12/12
2018-19
140000
-2900
(30000 - 1000) x 10/100 x 12/12
-24000
810
(10000-1000-900)*10/100*12/12
113910
4
455640
2019 2020
1) Total Assets - Total Outside liabilities (Current Liabilities and Non - Current Liabilities)
OR
2) Capital + Reserves and surplus

rate of return
ars purchase
Capital employed
Cumulative
Revision
How?
There are 5 methods in our syllebus.
1) Simple Average Method (Mean)
2) Weighted Average Method (Weighted Mean)
3) Super profit Method
4) Capitalisation of Super profit Method
5) Capitalisation of Average Profit Method
2018-19
2019-20
500000
4
2000000
Adjustments
2018-19 2019-20
500000
of Rs.10000.
e shares of Rs.5000
nery Rs.10000.
Goodwill
Average profit x Number of years purchase

284750 x 3
854250
Current Liabilities)
Question: Write the following items in its respective Places under Schedule III of Part I of companies Act,2013.
Equity shares
Creditors
Debtors
Bills payables
Machinery
Bank Balance
Particulars Head
Equity shares Equity and liabilities
Creditors Equity and liabilities
Debtors Assets
Bills paybles Equity and liabilities
Premium on redemption of debentures
Premium - Extra money paid on repayment
redemption - repayment
Premium on redemption of debentures
OR
Long term borrowings

Authorised Capital
It is the amount of capital
which government
authorised the company is called
Authorised capital.
Apply - Rs.10,00,000 One share will be of Rs.1 and
total qty of shares we will give to
public is 10,00,000.
Approved - Rs. 8,00,000
Reserved capital
It is the amount of capital which is authorised

by the government but company did not issue to
the public. Company set aside this much share certificate
so that in future they can raise money from this.
Reserved capital = Authorised capital - Issued capital
Notes to Accounts:
Particulars
1) Share capital
Authorised capital
8,00,000 qty of Equity shares of Rs.1 each
Issued Capital
Subsribed Capital
Less: Calls in arrears
1000 qty of Equity shares of Rs.1 each
Face Value = MRP of Shares = Rs.1
only Rs.0.7 called up capital

Part - I
Statement
of financial
position
(Balance sheet)
(NOTES)
S
R
L
O
L
S
T
O
S
F
(T)
(I)
(T)
(I)
N
L
O
C
I
T
C
S
O
f companies Act,2013.
Sub-head Sub Sub head

Shareholder'fund Share capital
Current liabilities Trade payables
Current Assets Trade receivables
Current liabilities Trade payables
Loan taken - 100000 Loan repaid - 120000 Premium - 20000
Long term provision
Share capital
Amount of money which oweners give as capital to the company
is called share capital.
Issued Capital
which company issue / sale
to the public to make them
owner of the comapany.
Suppose out of 8,00,000 qty

share certificate, company
issued only 6,00,000 qty to
the public is called issued share capital.
Issued capital = 6,00,000 qty x Rs.1 = Rs.6,00,000
hare certificate
Amount Amount
800,000
600,000
500,000
-1000 499,000 in Balance sheet
Financial Statements of companies
Final Account of Companies
MCA - Ministry of Corporate Affairs

Compaines Act, 2013 approved
SCHEDULE - III
Part - II
Statement
of Financial
affairs
(Profit and Loss A/c)
(NOTES)
BALANCE SHEET
STATEMENT OF FINANCIAL POSITION OF ________ AS PER PART - I SCHEDULE - III

PARTICULARS NOTE NO. 3/31/2021 3/31/2020
I) EQUITIES AND LIABILITIES
a) SHAREHOLDERS' FUND
i) Share capital 1
ii) Reserves and Surplus (Profits, Losses, general reserves etc.) 2 xxx
b) NON - CURRENT LIABILITIES

i) Long Term Borrowing (Long term loan) 3 xxx
ii) Other Non Current Liabilities 4 xxx
iii) Long term Provisions 5 xxx
c) CURRENT LIABILITIES
i) Short term Borrowings (Short term loans) 6 xxx
ii) Trade Payables (Creditors and Bills payables) 7 xxx
iii) Other Current liabilities 8 xxx
iv) Short term Provisions 9 xxx
Total xxx
II) ASSETS
a) NON - CURRENT ASSETS

i) Fixed Assets
A) Tangible Assets 10 xxx
B) Intangible Assets 11 xxx
C) Tangibles Assets Work in progress 12 xxx
D) Intangible Assets under development 13 xxx
ii) Non Current Investments 14 xxx

iii) Long term loans and advances (Loan given) 15 xxx
iv) Other non-current assets 16 xxx
b) Current Assets
i) Current Investment 17 xxx
ii) Inventory (Closing stock) 18 xxx
iii) Trade receivables (Debtors and Bills receivables) 19 xxx
iv) Cash and Cash Equivelents (Bank balance) 20 xxx
v) Short term loans and advances (Loan Given) 21 xxx
vi) Other current Assets 22 xxx
Total xxx
Notes to Accounts:
Particulars Amount Amount

1) Share Capital
10000 Equity shares of Rs.10 each 100000
5000 Preference shares of Rs.10 each 50000
150000
2) Reserves and Surplus (Net profit)

Balance in Profit and loss A/c xx
General Reserve xx
Specific Reserve xx
Security Premium (Profit on sale of shares and debenture abovexx xxx
3) Long term Borrowings

Bank loan for more than 1 year
Debentures (Loan from public) (Minimum 5 years)
4) Other Non -current liabilities

Unsecured loan from relatives
Public Deposits
5) Long term provision

Provision for Provident Fund
Provision for workmen compensation fund
6) Short term borrowings (<1 year)

Bank Overdraft
Cash Credit
Other short term loans from banks
7) Trade Payables
Creditors
Bills Payables
8) Other current liabilities

Outstanding Expense / Expense payable
Income received in advance
9) Short Term Provisions

Provision for doubtful debts (Bad debts)
Provision for salary / wages
Provision for electricity bill
Provision for Discount
10) Tangible Assets

Machinery
Furniture
Building
Land
11) Intangible Assets

Goodwill
Trademark
Patent
Software
Copyright
12) Tangible Assets under Work in Progress
13) Intangible Assets under Development
14) Non Current Investments

Shares purchased of other companies
Debentures purchased of other companies
15) Long term loans and advances

Loan given to someone for more than 1 year
Deposits with telephone authority/ customs authority / electricity authority
16) Other Non-current Assets

Provident Fund Investment
Gratuity Investment
17) Current Investment

Investment for less than 1 year
18) Inventory
Closing Stock
19) Trade receivables

Debtors
Bills receivables
20) Cash And Cash Equivelents

Cash Balance
Bank Balance
Short term investments / Securities (Liquid Fund)
21) Short term loans and advances

Loan given for less than 1 year
22) Other current Assets

Income receivable
Prepaid expense
Subscribed capital
which public purchase / subscribed from the
company is called subscribed capital.
Suppose out of 6,00,000 qty issued by the company,

public purchased / subscribed only 5,00,000 qty.
So, here Subscribed capital of the company
will be 5,00,000 qty x Rs.1 = Rs.5,00,000.
This amount will be recorded in Balance sheet.
Presentation
Mr.X (Shareholder - 1000 Qty buy)
Calls in arrears - Amount receivable on shares In Share capital - minus from subscribed capital
Calls in arrears = 1000 qty x Rs.1 = Rs.1000
Mr.Y (Shareholder - 5000 qty buy)

Calls in advance - Amount received in advance on shares In current liabilities - Other current liabilities
Calls in advance - 5000 qty x Rs.1 = Rs.5000
Part - III
Cash flow Statement
subscribed capital
urrent liabilities
It includes analysis of Balance sheet and profit
in order to understand the financial performan
Financial stability of the company.
Comparative Analysis
Here, We compare the figures of

two years and take decisions on that
basis.
It is also known as "Horizontal Analysis".
R
O
C
C
D
E
F
O
Analysis of Financial Statement
It includes analysis of Balance sheet and profit and loss A/c

in order to understand the financial performance and
Financial stability of the company.
2 tools
to analyse
Comparative Analysis (Balance sheet)
STATEMENT OF FINANCIAL POSITION OF TATA Steels Ltd. AS PER PART - I SCHEDULE - III
i) Share capital 1 500,000.00 400,000.00
ii) Reserves and Surplus (Profits, Losses, general reserves etc 2 380,000.00 350,000.00

i) Long Term Borrowing (Long term loan) 3 900,000.00 1,000,000.00
ii) Other Non Current Liabilities 4 40,000.00 60,000.00
iii) Long term Provisions 5 50,000.00 30,000.00
i) Short term Borrowings (Short term loans) 6 180,000.00 160,000.00
ii) Trade Payables (Creditors and Bills payables) 7 57,000.00 48,000.00
iii) Other Current liabilities 8 10,000.00 15,000.00
iv) Short term Provisions 9 30,000.00 40,000.00
Total 2,147,000.00 2,103,000.00
II) ASSETS

i) Fixed Assets
A) Tangible Assets 10 1,100,000.00 700,000.00
B) Intangible Assets 11 150,000.00 80,000.00
C) Tangibles Assets Work in progress 12 - -
D) Intangible Assets under development 13 - -
ii) Non Current Investments 14 250,000.00 180,000.00

iii) Long term loans and advances (Loan given) 15 91,000.00 30,000.00
iv) Other non-current assets 16 10,000.00 3,000.00
b) Current Assets
i) Current Investment 17 93,000.00 48,000.00
ii) Inventory (Closing stock) 18 250,000.00 686,000.00
iii) Trade receivables (Debtors and Bills receivables) 19 83,000.00 70,000.00
iv) Cash and Cash Equivelents (Bank balance) 20 40,000.00 20,000.00
v) Short term loans and advances (Loan Given) 21 72,000.00 250,000.00
vi) Other current Assets 22 8,000.00 36,000.00
Total 2,147,000.00 2,103,000.00
Common Size Analysis (Balance sheet)
STATEMENT OF FINANCIAL POSITION OF TATA Steels Ltd. AS PER PART - I SCHEDULE - III
i) Share capital 1 500,000.00 400,000.00
ii) Reserves and Surplus (Profits, Losses, general reserves etc 2 380,000.00 350,000.00

i) Long Term Borrowing (Long term loan) 3 900,000.00 1,000,000.00
ii) Other Non Current Liabilities 4 40,000.00 60,000.00
iii) Long term Provisions 5 50,000.00 30,000.00
i) Short term Borrowings (Short term loans) 6 180,000.00 160,000.00
ii) Trade Payables (Creditors and Bills payables) 7 57,000.00 48,000.00
iii) Other Current liabilities 8 10,000.00 15,000.00
iv) Short term Provisions 9 30,000.00 40,000.00
Total 2,147,000.00 2,103,000.00
100 2147000
?????? 900000
(900000 x 100) / 2147000
II) ASSETS 3/31/2021 3/31/2020

i) Fixed Assets
A) Tangible Assets 10 11,000.00 7,000.00
B) Intangible Assets 11 1,500.00 800.00
C) Tangibles Assets Work in progress 12 - -
D) Intangible Assets under development 13 - -

iii) Long term loans and advances (Loan given) 15 910.00 300.00
iv) Other non-current assets 16 100.00 30.00
b) Current Assets
i) Current Investment 17 930.00 480.00
iii) Trade receivables (Debtors and Bills receivables) 19 830.00 700.00
iv) Cash and Cash Equivelents (Bank balance) 20 400.00 200.00
v) Short term loans and advances (Loan Given) 21 720.00 2,500.00
vi) Other current Assets 22 80.00 360.00
Total 21,470.00 82,770.00
Statement of Profit and loss
Statement of Profit and loss of ____________ as on 31/03/___ as per Schedule II Part I of Companies Act, 2013
Particulars Note No. 3/31/2021 3/31/2020

I) Income
a) Revenue from operations (Sales) 1
b) Other Income 2
Total Income…………...(1)
II) Expenses
Cost of Material consumed (Purchase) 3
Change in inventory (Closing stock - Opening Stock) 4
Depreciation 5
Employee Benefit expenses 6
Finance cost (Interest expense) 7
Other expenses 8
Total Expenses……….(2)
Profit Before Tax (1 - 2) NET Profit

Less: Tax @ 30%
Profit After Tax
Comparative Analysis (Profit and Loss)

I) Income
a) Revenue from operations (Sales) 50000 45000
b) Other Income 8000 3000
Total Income…………...(1) 58000 48000
II) Expenses
Cost of Material consumed (Purchase) 21000 12000
Change in inventory (Closing stock - Opening Stock) 3000 1000
Depreciation 5000 6000
Employee Benefit expenses 10000 11000
Finance cost (Interest expense) 6000 2000
Other expenses 12000 8000
Total Expenses……….(2) 57000 40000
Profit Before Tax (1 - 2) 1000 8000

Less: Tax @ 30% 300 2400
Profit After Tax 700 5600
Common Size Analysis (Profit and loss)

I) Income
a) Revenue from operations (Sales) 50000 45000
b) Other Income 8000 3000
Total Income…………...(1) 58000 48000
II) Expenses
Cost of Material consumed (Purchase) 21000 12000
Change in inventory (Closing stock - Opening Stock) 3000 1000
Depreciation 5000 6000
Employee Benefit expenses 10000 11000
Finance cost (Interest expense) 6000 2000
Other expenses 12000 8000
Total Expenses……….(2) 57000 40000
Profit Before Tax (1 - 2) 1000 8000

Less: Tax @ 30% 300 2400
Profit After Tax 700 5600
100
????
STATEMENT OF FINANCIAL POSITION OF Reliance Industries AS PER PART - I SCHEDULE - III

i) Share capital 1 6,339 6339
ii) Reserves and Surplus (Profits, Losses, general reserves etc 2 418245 398983

i) Long Term Borrowing (Long term loan) 3 178751 118098
ii) Other Non Current Liabilities 4 53984 47821
iii) Long term Provisions 5 1410 2483
i) Short term Borrowings (Short term loans) 6 51276 39097
ii) Trade Payables (Creditors and Bills payables) 7 191666 115916
iii) Other Current liabilities 8 66169 46225
iv) Short term Provisions 9 1072 783
Total 968,912 775,745
II) ASSETS

i) Fixed Assets
A) Tangible Assets 10 297,847.00 194,895.00
B) Intangible Assets 11 8,624.00 8,293.00
C) Tangibles Assets Work in progress 12 15,638.00 105,155.00
D) Intangible Assets under development 13 12,327.00 6,402.00

iii) Long term loans and advances (Loan given) 15 44,348.00 31,806.00
iv) Other non-current assets 16 4,458.00 4,287.00
b) Current Assets
i) Current Investment 17 70,030.00 59,640.00
iii) Trade receivables (Debtors and Bills receivables) 19 7,483.00 12,110.00
iv) Cash and Cash Equivelents (Bank balance) 20 8,443.00 3,768.00
v) Short term loans and advances (Loan Given) 21 15,028.00 4,876.00
vi) Other current Assets 22 26,811.00 28,326.00
Total 968,912.00 775,745.00

Common Size Analysis
Here, We take a common figure (100)

and analyse each item of balance sheet and
profit and loss A/c and take decisions on
the basis of that.
Balance sheet = Common figure 100 = Total
Profit and loss A/c = Common figure 100 = Sales
It is also known as "Vertical Analysis".
Balance sheet)
Absolute change (Rs.) (C.Y. - L.Y.) % change (Absolute change / Last year) x 100
100000 25 Last year Increase

30000 8.57 400000 100000
if 100 ?????
-100000 -10 100000 x 100

-20000 -33.33 400000
20000 66.67
20000 12.5
9000 18.75
-5000 -33.33
-10000 -25
44000 2.09
400000 57.14
70000 87.5
0 0
0 0
70000 38.89
61000 203.33
7000 233.33
45000 93.75
-436000 -63.56
13000 18.57
20000 100
-178000 -71.2
-28000 -77.78
44000 2.09
Common size Analysis 31/03/2021 (%) Common size Analysis 31/03/2020 (%)
23.29 19.02
17.70 16.64
41.92 47.55
1.86 2.85
2.33 1.43
8.38 7.61
2.65 2.28
0.47 0.71
1.40 1.90
100 assumed 100 assumed
Common size analysis (%) 31/03/2021 Common size analysis (%) 31/03/2020
51.23
6.99
0
0
11.64
100 assumed
mpanies Act, 2013
mpanies Act, 2013
Absoulte Change (C.Y.-L.Y.) Percentage change (Absolute change / L.Y. figure) x 100
5000 11.11
5000 166.67
10000 20.83
9000 75
2000 200
-1000 -16.67
-1000 -9.09
4000 200
4000 50
17000 42.5
-7000 -87.5
-2100 -87.5
-4900 -87.5
mpanies Act, 2013
Common size analysis (%) 31/03/2021 Common size analysis (%) 31/03/2020
100 assumed 100 assumed

16 6.667
116 106.67
42 26.67
2.22
50000 100---> 45000

8000 ?????? 48000
(48000 x 100) / 45000
(Rs. In crores)
Absoulte difference (Rs.) (C.Y. - L.Y.) Percentage difference (Absolute difference / L.Y. figure) x 100
0 0 OK
19,262 4.83 Positive
60,653 51.36 Positive

6,163 12.89 Negative
-1,073 -43.21 Positive
12,179 31.15 Negative

75,750 65.35 Negative
19,944 43.15 Negative
289 36.91 Negative
193,167 24.90
102,952 52.82 Positive

331 3.99 Positive
-89,517 -85.13 Positive
5,925 92.55 Positive / Negative
147,030 54.05 Positive

12,542 39.43 Positive
171 3.99 Positive / ok
10,390 17.42 Negative

-5,342 -12.10 Positive
-4,627 -38.21 Positive
4,675 124.07 Positive
10,152 208.20 Positive
-1,515 -5.35 Negative
193,167 24.90
25
1) Current Ratio:
Example :
Question:
Answer:
Question 2:
Answer:
Working capital=
Question 3:
Answer:
2) Liquid Ratio:
Question 4:
Homework:
2) Total Assets
Fixed Tangible Assets
Shareholder's fund
Non-current liabilities
Non current Investment
Current Ratio.
ANSWER:
Equity and Liabilities
1) shareholer's fund
2) Non current liabilities
3) Current liabilities
Total
Assets
1) Non current asstes
Fixed assets
Non current investment
2) Current Assets
Total
6) Current Ratio
Working capital
Current Assets
Current Liabilities
Answer: Working capital =

150000 =
150000 + Current liabilities =
Current Ratio =
2.5 =
1=
2.5 Current liabilities =

2.5 Current liabilities =
2.5 Current liabilities - 1 current liabilities =
1.5 current liabilities =
Current liabilities =
Current liabilities =
Current Assets =
Question: A company has current Ratio of 0.8:1.
Company paid dividend which is already declared.
Now, Company's Current Ratio will improve, Deciline or no chang
Answer: Current ratio =
2
1
0.8 x 100000
1 x 100000
80000
100000
80000 - 10000
100000 - 10000
70000
90000
0.78
1) Debt-Equity Ratio: Debts = Non current liabilities (Long term Liabilities)
Equity = Shareholdes's fund
Debts = LOL = Long term borrowings, Other Long term Liabilities
Equity = SR = Equity share capital, Preference share capital and
This Ratio shows the relation between co.'s long term debt and
CO. is having total capital = Rs.1,00,000
Rs.60000 shareholers
Formula = Debt / Equity
Ans. = …:1
2) Total Assets to debt ratio: Total Assets = Non current Assets + Current Assets
Debts = Non current liabilities (Long term Liabilities)
This ratio shows that out of co.'s total assets, how much propor
lenders are having.
Co.'s total capital = 1,00,000
Owner's fund
Rs.60000
60%
Formula = Total Assets / debt

Ans.= …:1
3) Propreitory Ratio: It shows the proportion of owner's fund out of total assets of th
Formula : Shareholders' fund / Total Assets

Ans.: …:1
4) Interest Coverage Ratio: It shows how much times co.s profit can cover interest payment
Debenture and Long term bank loan interest =
Co.' profit earned =
Formula :
Net profit before interest and Tax

(-) Interest on Loans and debenture
Profit before tax after interest
(-) Tax @ 30%
Profit after tax (70%)
1) Inventory Turnover Ratio: This ratio shows that out of availiable inventory (stock) How mu
and repurchased.
Stock purchased = 1,00,000

5 times
Formula =
Average inventory =
Cost of Goods Sold =
Cost of Goods Sold =
2) Working Capital Turnover Ratio: This ratio shows out of available working capital amount, How
co. is making sales.
Working capital = 100000
Sales = 10,00,000
Formula = Sales / Working capital

Ans. = Times
Working capital = Current Assets - Current liabilities
Sales = Net sales = Sales - Sales return
3) Trade Receivable Turnover Ratio: Bills Receivables and Debtors
Credit Sales = 10,00,000
B/R and Drs = 5,00,000
This ratio shows the availaibility of Trade receivables against

Credit Sales of the company.
Formula = (Credit Sales / Avg Trade receivables)

Ans. = Times
Avg. Trade Receivable = (OP. B/R + Op. Debtors + Cl. B/R + Cl. De
Credit Sales = Total Sales - cash sales
Credit Period:
365 - 12 - 52 / Trade receivable Turnover Ratio

Ans. = Days - months - weeks
4) Trade Payables Turnover Ratio: Creditors and Bills payable
Credit Purchase = 10,00,000
Crs. And Bills payables = 1,00,000

Formula = (Credit Purchase / Avg. Trade payables)
Ans. = Times
Avg. Trade payables = (Op. Crs. + Op. B/P + Cl. Crs. + Cl. B/P) / 2
Credit purchase = Total purchase - Cash Purchase
Payment Period:
365 - 12 - 52 / Trade payable Turnover Ratio

Ans. = Days - Months - Weeks
1) Gross Profit Ratio: This ratio indicates profit margin of factory work against total s
Formula = (Gross Profit / Net sales) x 100

Ans. = %
Gross Profit = (Net sales + Closing Stock - Opening stock - Net pur
Gross Profit = Net sales - COGS
Net sales = Sales - Sales return
2) Net Profit Ratio: This ratio indicates overall profit of the business against total sa
Formula = (Net Profit / Net sales) x 100

Ans. = %
Net profit = Gross Profit + Other incomes - Other expense
Net sales = Sales - Sales return
3) Return on Capital Employed: This ratio shows the relation between profit of the business
against total capital employed in the business.
Formula = (Net profit before interest and tax / Capital Employed

Ans. = %
Net Profit before interest and tax =

Net profit before interest and Tax
(-) Interest on Loans and debenture
Profit before tax after interest
(-) Tax @ 30%
Profit after tax (70%)
Capital Employed =
Capital Employed =
4) Operating Ratio / Operating Cost Ratio: This ratio shows the relation between Operating cost and sales.
i.e. How much % Cost has been increased to operate business
in day to day life against sales.
Formula = (Operating Cost / Net Sales) x 100

Ans. = %
Operating cost = COGS, Selling Expense, Depreciation, Office and
Net sales = Sales - Sales Return
5) Operating Profit Ratio: This ratio shows the relation between operating profit and Net
Formula = (Operating Profit / Net sales) x 100

Ans. = %
Operating Profit = Net sales - Operating cost (COGS, Selling Expen
Net sales = Sales - Sales Return
Operating Profit Ratio = 100 - Operaing Ratio

Liquidity ratio
1) Current Ratio
2) Liquid Ratio
Current Ratio shows the relation between Current Assets and Current Liabilities.
That, if business have to pay its all current liabilities within short duration,
then whether business able to pay it or not.
Current Assets = 250000
CA CL
250000 210000
?????? 1
250000 x 1
210000
250000
210000
1.19 ..:1
CA CL
Debtors 20000
Bills receivable 10000
Stock 35000
Current investment 100000
Creditors 50000
Bills Payable 40000
Outstanding interest on loan 12000
Calculate Current Ratio.
Step 1: Current Assets
Debtors 20000
Stock 35000
Current Investment 100000
165000
Step 2: Current Liabilities
Creditors 50000
Bills payable 40000
Oustanding Interest on loan 12000
102000
Step 3: Current Ratio
Current Assets
Current liabilities
165000
102000
1.62
Short term loan 100000

Stock 30000
Creditors 50000
Cash and Bank Balance 150000
Calculate current Ratio.
Step 1: Current Assets

Stock 30000
Cash and bank balance 150000
230000
Step 2: Current liabilities
Short term loan 100000

Creditors 50000
150000
Step 3: Current Ratio
Current assets
Current liabilites
230000
150000
1.53
Capital which is required in day to day business activity.
Current Assets - Current liabilities

250000 - 210000
40000
Working capital = 60000 Current liabilities = 240000
Calculate current ratio.
Working capital = Current Assets - Current liabilities

60000 = Current Assets - 240000
Current Assets = 300000
Current Ratio = Current Assets

Current liabilities
300000
240000
..1.25:1
Liquid Ratio shows very short term emergency situation of business.

It means if in very short time period if any cash payment comes,
then whether business is able to pay or not.
It shows the relation between Liquid Assets and Current liabilities.
Liquid Assets = Total Current Assets - Prepaid Expense - Inventory (Stock)
Formula : Liquid Assets

Current liabilities
Standard Ratio = 1 : 1
Rs.1 CL = Rs.1 LA
Debtors 20000
Stock 35000
Current investment 100000
Creditors 50000
Bills Payable 40000
Outstanding interest on loan 12000
Calculate Liquid Ratio.
..1.27:1
Drs 180000
Prepaid exp 40000
cash 50000
marketable securties (Cuu inve) 50000
Inventory 80000
400000
500000
250000
320000
130000
150000
320000
130000
50000
500000
250000
150000
100000
500000
..2.5:1
150000
??
????
Current Assets - Current Liabilities

Current Assets - Current Liabilities
Current Assets ….(1)
Current Assets
Current Liabilities
Current Assets
Current Liabilities
Current Assets
150000 + Current liabilities
150000
150000
150000 / 1.5
100000
150000 + Current Liabilities

150000 + 100000
250000
ove, Deciline or no change.
Current Assets
Current liabilities
Current assets
Current liabilities
800
1000
1600
2000
600
1000
0.6
4000
5000
1000
2000
0.5
6400
8000
1400
3000
0.47
Solvancy Ratio
Solvancy Ratio means those performance of the business which shows

long term solvancy of the business.
m Liabilities)
her Long term Liabilities and Long term provisions
rence share capital and Reserves and Surplus
o.'s long term debt and co.'s own funds.
Rs.40000 Long term loans
m Liabilities)
ssets, how much proportion of control
Lender's fund
Rs.40000
40%
(Total Assets / debt) x 100

Ans.= %
out of total assets of the company.
(Shareholders' fund / Total Assets) x 100

Ans.: %
cover interest payment on long term loans.
300000
1,500,000
Profit before interest and tax / Interest on long term liabilities
Ans. = Times
81429
10000
71429
21429
50000
Effeciency Ratios
Effciency Ratios show the operating effciency of the business.

That by utilising limited resources of the business,
How effciently business can earn profit.
nventory (stock) How much times inventory has totally sold
Cost of Goods Sold / Average Inventory Ans. = Times
(Opening stock + Closing Stock) / 2

Opening stock + Purchase + Wages + Carraige inward - Closing Stock
Sales - Gross profit
g capital amount, How much times
de receivables against
Debtors + Cl. B/R + Cl. Debtors) / 2

P + Cl. Crs. + Cl. B/P) / 2
Profitability Ratios
Profitability Ratios show the % of profit margin business is earning

against sales or against capital employed.
ory work against total sales.
Opening stock - Net purchase - Wages - Carraige inward - factory expense)
business against total sales.
s - Other expense
rofit of the business
d tax / Capital Employed) x 100

Shareholders' fund + Non current liablities
Total Assets - Current liabilities
perating cost and sales.

d to operate business
Depreciation, Office and Administrative Expense
perating profit and Net sales of the business.
cost (COGS, Selling Expense, Depreciation, Office and Administrative Expense)

Average inventory =
Payment 10000 Stationery Expense
Adj: There is stationery stock of Rs.3000

H.A.
Hidden Adjustment
%, Date
If I Invest Rs.100 ----->>> I will get Rs.10 Interest

????????<<<<------ I received Rs.10000 interest
10000 x 100 / 10
Rs.100000 Fixed Deposit
d Current Liabilities.
hort duration,
Formula:
..:1
..:1
es = 240000
- Current liabilities
ssets - Prepaid Expense - Inventory (Stock)
-10000
-10000
-9200
-9000
1.02
(Opening stock of raw materal + Opening stock of Finished goods) + (Closing stock of raw material + Closing stock of finishe
1) I/E A/c
Adjustments
1) Income receivable (Accrued Income)
2) Prepaid Expense
3) Income received in advance
4) Outstanding Expense (Accrued expense)
5) Depreciation
6) Stationery Stock
7) R/P A/c : Stores purchase (Payment) 10000

Adjustments: Op. St. of Stores = 3000,Cl. St. of stores = 6000
8) R/P A/c :(Payment side) Sport Material 100000

Adjustment: OP St. = 60000 Cl. ST. = 90000
9) R/P A/c = (Receipt Side) Furniture sold Rs.60000 (Book value Rs. 50000)
10) R/P A/c : (Payment) 10% Fixed Deposit Rs.100000
11) R/P A/c : (Payment) 10% Fixed Deposit Rs.100000

(Receipt) : Interest on Fixed Deposit Rs. 7000
12) R/P A/c : (Receipt) Interest on 10% Fixed deposit Rs.10000

Ratio means relation between two elements of the
financial statements which is used to analyse the performance
of the business.
Solvancy Ratio
1) Debt-Equity Ratio
2) Total Debt to Asset Ratio
3) Properitory Ratio
4) Interest Coverage Ratio
Liquidity Ratio shows short term (<1 year) solvancy of the business.
Current Liabilities: 210000
Current Assets
Current liabilities
Standard ratio = 2 : 1
Bills payable 20000
crs 100000
expense payable 80000
200000
COGS =
Closing stock of raw material + Closing stock of finished goods)
2
(120000+100000+110000+130000)
2
Average inventory = 230000
Inventory turnover ratio = (COGS / Avg inventory)

(1015000 / 230000)
4.32
Adjustments for Final A/c
2 effects of each adjustment
2) Balance sheet
1st Effect in I/E A/c 2nd Effect in Balance sheet
Add in C.Y. Income (I/E) Assets
Less from C.Y. Expense Assets
Less from C.Y. Income Liabilities
Add in C.Y. Expense Liabilities5
Expense Minus from Assets
Less from C.Y. Stationery Expense Assets
Op. St. + Purchase - CL. St. Cl. Stock in Assets

Consumption (Expense) 6000
3000 + 10000 - 6000 = 7000
OP. ST. + Purchase - Cl. ST. Assets = Closing Stock

60000 + 100000 -90000
Depreciation = 70000 (Expense)
Income 10000 (60000 - 50000) Balance sheet Furniture 0

Income : Interest receivable 10000 Assets: 10% Fixed Deposit 100000
(100000 x 10% x 12/12)
Assets : Interest receivable 10000
Income : Interest received 7000 Assets: 10% Fixed Deposit 100000

Add: Interest receiveable 3000 Assets : Interest receivable 3000
10000
Income : Interest on FD 10000 Assets: (10000 x 100) / 10

Fixed Deposit = Rs.100000
Ratio Analysis
Types of Ratios
Profitability Ratio
1) Gross Profit ratio
2) Net Profit ratio
3) Operting Ratio
4) Operating Profit Ratio
5) Return to Capital Employed
Liquidity Ratio
Liquidity = Cash Availiability

Opening stock of raw material 120000
Opening stock of finished goods 100000
Purchases 790000
wages 120000
PF Contribution of workers 60000
Fuel and power 40000
Freight 15000
carriage 10000
Less : closing stock of raw material -110000
Less : closing stock of finished goods -130000
COGS 1015000
Activity Ratio / Efficiency Ratio
1) Inventory Turnover Ratio
2) Working Capital Turnover Ratio
3) Trade receivable Turover ratio
4) Trade Payables Turnover Ratio
Donation for Cricket match
1,000,000
Expenses of cricket match

900,000
Dr. P/L A/c
Salary 25000
(-) Prepaid salary 10000
15000
Information
1) Creditors
Purchase (Stock)
Find: Purchase Amount (I/E Dr.)
2) Debtors
Sales (Stock)
Find: Sales Amount (I/E Cr.)
Example:
1) Opening Stock of medicines

Closing stock of medicines
Amt. paid to creditors
Opening balance of Creditors
Closing balance of Creditors
Calculate the amount of purchase of medicines

to be debtied in I/E A/c.
Creditors A/c Dr.

To Cash A/c
2) Op St. of stationery
Cl St. of Stationery
Op bal of creditors
Cl bal of creditors
During the year amount paid to crs
Cash purchase (STOCK)
Calculate amount of consumption of stock

to be debited in I/E A/c.
3) Sports material sold during the year (Book value 50000)

Amount paid to creditors
Cash purchase of sports material
Sports material as on 31/03/2017
Sports material as on 31/03/2018
Creditors on 31/3/2017
Creditors on 31/3/2018
Depreciation to be trasferred to I/E A/c Dr. side??????
4) Salary Paid during the year

Including:
Rs.20000 paid of last year
Rs.18000 paid for next year
Additional Information:
Salary outstanding of last year
Salary outstanding of current year
Salary paid in advance during last year
Calculate the amount to be debited in I/E A/c.
Step -1
Opening balance sheet
Opening capital fund
1/4 (last year balance) assets amount - Assets side
1/4 (Last year balance) liabilities amount - liabilities side
Total Assets (-) Total Liabilities (=) Opening capital fund
Que. Dr
Receipt
To Balance b/d (1/4/2018)
Cash in hand
Cash in bank
To Donation
To subscription
To Legacy Donations (4)
To interest on investment (2)
To sale of old newspaper
Total
Additional Information:
1) Insurance premium was paid for insurance taken w.e.f. 01/07/2018
2) Interest on investment Rs.11000 accrued was not received.
3) Rent Rs.6000 (ID +, L) , salary Rs.9000 (L, ID +) and advertisment Expense Rs.10000 (ID +,
4) Legacy Donation is towards construction of library block.
Prepare Final A/c.

Answer: Liabilities
Total
Dr.
Expense
To Charity
To Rent and Taxes 32000
(+) Outstanding rent and taxes 6000
To Salary 60000
(+) Outstanding Salary 9000
To Printing
To Postage
To Advertisment 45000
(+) Outstanding advertisment 10000
To Insurance premium 20000

(-) Prepaid insurance (5000)
Surplus (Add in opening capital fund)
Total
Liabilities
Opening capital Fund 241000
(+) Surplus 275000
Legacy Donation
Outstanding rent and taxes
Outstanding Salary
Outstanding Advertisment
Total
Que.: Dr
Receipt
To balance b/d (Opening cash balance)
To subscription: (1)
2017-18 4000
2018-19 205000
2019-20 6000
To Donations
To proceeds (income) of Drama Tickets
To Sale of Waste Paper
Prepare club's income and expenditure account for the year ended
following informati
1) There are 500 members. each paying an annual subscription of Rs.500. Rs.5000 are still in
2) Municipal taxes amounted to Rs.4000 per year is paid upto 30/6/2019 and Rs.5000 are ou
3) Building stands in the books at Rs.500000 (Op Bal A)
4) 6% interest has accrued on investments for the five months.
Ans.:
Liabilities
Total
Dr.
Expenses
To Salaries 60000
(+) Receivable 5000
To Misc. Expense
To Drama Expense
To Newspaper
To Municiple Expense 4000
(-) Prepaid C.Y. (1000)
(+) Prepaid L.Y. 1000
To Charity
To electricity charges
To Surplus (Add in opening capital fund)

Total
Liabilities
Opening capital 612500
(+) Surplus 222500
Subscription N.Y.
Outstanding Salaries
Total
Capital Income
Any income of NPOs

which increase its liabilities
or decrease its assets.
example:
Life Membership fees
Specific Donation
Legacy
Sales of Sports equipments
Capital Expenditure
It means those expenses

which either increase the assets
or decrease the liabilities.
examples:
Purchase of Assets Assets B/s

Construction of assets Assets B/s
from specific donation
Expenses for specific purpose Liabilities -
For NPO:-
Cr.
Commission 5000
(+) Receivable 1000
6000
Question: Current F.Y. 2021-22 (I/E)
Subscription received during the year in bank A/c

Inculding:
Subscritption of F.Y.2020-21
Subscription for F.Y.2022-23
Additional information:
Susbcription outstanding for F.Y.2021-22
Subscription received in advance in L.Y.
2020-21
I/E A/c Credit Side?
Answer: Particulars Amount

Subscription received during the year 100000
Less: Subscription for F.Y. 2020-21 -20000
Add: Subscription outstanding for F.Y. 2021-22 30000
Add: Subscription received in advance in L.Y. 2020-21 10000
Income / Expenditure A/c Credit side 105000
Question: Current F.Y. 2021-22
Question: There are 60 members in the club. Each one's subscription is Rs.10000

inculding:
Subscription for F.Y.2020-21 5000
Subscription for F.Y.2022-23 8000
Subscription received in advance in F.Y. 2020-21 3000
Subscription received in advance in F.Y. 2021-22 8000
I/E credit side?
Answer: Particulars Amount

Add: Subscription in advacne in F.Y.2020-21 3000
Less: Subscription in advance in F.Y. 2021-22 -8000
582000
Add: Receivable for F.Y.2021-22 18000
I/E A/c Credit side 600000
Single Entries (Ledger preparation)
Journal Entry
Ledger posting
OP balance, Cl Balance, Payment, Discount received from creditors

Op stock, Cl Stock, Sales
Op Drs, Cl Drs, Received, Discount given to Drs.

Op st, Cl St., Purchase
Dr.
50000 Particulars
95000 To Cash A/c (Amt
200000
20000
10000
To Balance c/d (C
Total
Dr.
Particulars
To Balance b/d (O
To Creditors A/c
Total
25000 Dr.
40000 Particulars
30000 To Cash A/c (Amt
19000
46000
6000
To Balance c/d (C
Total
Dr.
Particulars
To Balance b/d (O
To Creditors A/c
To Cash Purchase
56000 Total
91000
40000
50000
55000
37000
45000
318000
25000
45000
10000
330000
Final A/c Sums
Steps to Solve Final A/c Sums
Step - 2
Income - Expenditure A/c
Current Year
Surplus / Deficit
Receipt & Payment A/c 31/3/2019 (Cashbook as on 31/03/2019)

Amt Payment AMt
By charity 115000
115000 OP Bal A By Rent and Taxes (3) 32000
126000 OP Bal A By salary (3) 60000
90000 IC By printing 6000
428000 IC By postage 3000
180000 L By Advertisment (3) 45000
45000 IC By insurance premium (1) 20000
2000 IC By furniture 216000
By investment 230000
By balance c/d (closing cash balance)
Cash in hand 99000
Cash in bank 160000
986000 Total 986000
Year end = 31/03/2019 3 months difference = Prepaid amount 12 months payment = 20000Rs.
w.e.f. 01/07/2018 end = 30/06/2019 (Prepaid insurance) (ID-, A) 3 months payment = ????????
A, IC +
nd advertisment Expense Rs.10000 (ID +, L) outstanding as on .31/3/2019
Opening balance sheet as on 1/4/2018

Amount Assets Amount
241000 Cash in hand 115000
Cash in bank 126000
241000 Total 241000
Income / Expenditure A/c Cr.

Amount Income Amount
115000 By Donation 90000
By Subscription 428000
38000 BY Interest on investment 45000
(+) Interest receivable 11000 56000
69000 By sale of old newspaper 2000
6000
3000
55000
15000
275000
576000 Total 576000

301000 576000
Balance sheet as on 31/03/2019
Interest receivable 11000
516000 Prepaid insurance 5000
Furniture 216000
Investment 230000
180000 Cash in hand 99000
6000 Cash in bank 160000
9000
10000
721000 Total 721000
Receipt & Payment A/c 31/3/2019 Cr

Amt Payment Amt
102500 Op. Bal. A By Salaries (2) 60000
By Misc. Expense 7500
Op. Bal. A By Drama Expense 45000
BY Newsapaper 15000
By Municiple Taxes (2) 4000
215000 By Charity 35000
54000 By Investment (4) 200000
95000 By electricity charges 14500
4500 By balance c/d (closing cash balance) 90000
471000 471000
nd expenditure account for the year ended 31/3/2019 and balance sheet as at that date after taking the
following information into account.
subscription of Rs.500. Rs.5000 are still in arrears for the year ended 31/3/2018 (op bal A)
paid upto 30/6/2019 and Rs.5000 are outstanding of salaries.
five months. Municiple Tax end 30/6/2019

Start 1/7/2018
C.Y. 3 mths Municiple Tax prepaid

C.Y. exp. Minus, Asset
Opening Balance sheet

Cash in hand 102500
612500 Subscription receivable (4000 + 5000) 9000
Building 500000
Prepaid Municiple Tax (4000/12) x 3 1000
612500 Total 612500
Income and Expenditure A/c Cr.

Amount Income Amount
By Subscription 205000
65000 (+) Receivable 45000 250000
7500 By Donation 54000

45000 BY Proceeds of Drama ticket 95000
15000 By Sale of waste paPer 4500
By Interest receivable 5000
4000
35000
14500
222500
408500 Total 408500
186000 408500
Subscription receivable C.Y. 45000
835000 Subscription receivable L.Y. 5000
Investment 200000
Interest Receivable (200000 x 6% x 5/12) 5000
6000 Cash Balance 90000
5000 Building 500000
Prepaid Municiple Tax 1000
846000 Total 846000

Income
Revenue Income
Any income which doesn't change

or liabilities.
example:
Liabilities Subscription (Every year membership fe
Liabilities Entrence fees / Parking fees
Liabilities Sales from kitchen
Assets -
Income and Expenditure A/c - Credit s
Expenses
Revenue expenditure
It means those expenses which

neither affect assets nor liabilities.
examples:
Purchase of kitchen items

honourarium (salary)
Gardening fees
salary expense
Income and expenditure A/c - Debit sid
Subscriptions
Membership fees of a particular Period.
Income
(Revenue income)
Income - Expenditure A/c = Credit Side (IC)
(P/L A/c)
IN P/L A/c (I/E A/c) which year's expense and income

will get recorded?
A) Only for this year

B) This year and Next year
C) Past year ang This Year
D) Past year, This year and Next year
100000
20000
15000
30000
10000
600,000
Income received in advance = Liabilities
Income received in advance = Liabilities
Income receivable = Assets
Creditors A/c Cr.

Amount Particulars Amount
200000 BY Balance b/d (Op Crs) 20000
10000 By Credit Purchase 190000
210000 Total 210000

210000 20000
Stock of Medicines A/c Cr.
50000
190000
BY Income /Exp A/c (Consumption) 145000
By Balance c/d (Cl. ST.) 95000
240000 Total 240000

240000 95000
Creditors A/c Cr.

46000 BY Balance b/d (Op Crs) 30000
19000 By Credit Purchase 35000
65000 Total 65000
Stock of Medicines A/c Cr.

25000
35000
6000 BY Income /Exp A/c (Consumption) 26000
By Balance c/d (Cl. ST.) 40000
66000 Total 66000

Step - 3
Balance sheet
Current year
Cr
ID
ID
ID
ID
ID
ID
ID
A
A
A
A
onths payment = 20000Rs. (20000 x 3) / 12 = 5000

nths payment = ????????
C.Y. 01/04/2018 to 31/03/2019
P.Y. 01/04/2017 to 31/03/2018
3 months (Prepaid)
ciple Tax end 30/6/2019 Last year municiple tax payment period
Year end 31/03/2019 01/07/2017 to 30/06/2018
Year end 3/31/2018
mths Municiple Tax prepaid Last year Balance sheet= 3 months prepaid municiple tax
xp. Minus, Asset Op. Bal A
C.Y. Exp +
(500 members x Rs.500 each = 250000 - 205000 received = 45000 receivable)

Revenue Income
Any income which doesn't change

or liabilities.
Subscription (Every year membership feIC

Entrence fees / Parking fees
Sales from kitchen
Income and Expenditure A/c - Credit side
Revenue expenditure
It means those expenses which

neither affect assets nor liabilities.
examples:
Purchase of kitchen items

honourarium (salary)
Gardening fees
salary expense
Income and expenditure A/c - Debit side

prepaid municiple tax
Partnership business = business entity concept
Interest on capital
5000
1)
2)
Situation 1=
Situation 2 =
Situation 3 =
Situation 4 =
Situation 5 =
Situation 6 =
Situation 7 =
Opening capital
(-) Loss / expens
(+) Profit / inco
Closing capital
Question:
Question:
Answer:
Question:
Answer:
Step 3:
Question:
Answer:
Step 3
Question:
Answer:
Question:
Answer:
Question:
Answer:
Question:
Answer:
Question:
Answer:
67)
Solution:
Question:
Question:
Question 2:
Question 3:
Answer:
Question:
Answer:
Question:
Answer:
est on capital
Dr. Profit and loss Appropriation A/c

Particulars Amount
Interest on capital
Remuneration
Commission
Reserve
Sharing profit
Total
xx
Simple Method
Que:
Answer:
Product Method
Que:
Ans.:
Regular Drawings Interest Rate 10% p.a.
Rs.10000 withdrawn at the beginning of every month.
Date
4/1/2020
5/1/2020
6/1/2020
7/1/2020
8/1/2020
9/1/2020
10/1/2020
11/1/2020
12/1/2020
1/1/2021
2/1/2021
3/1/2021
Total
Interest on drawings =
Rs.10000 withdrawn at the end of every month.
Date
4/30/2020
5/31/2020
6/30/2020
7/31/2020
8/31/2020
9/30/2020
10/31/2020
11/30/2020
12/31/2020
1/31/2021
2/28/2021
3/31/2021
Total
Rs.10000 withdrawn at the middle of every month.
Date
4/15/2020
5/15/2020
6/15/2020
7/15/2020
8/15/2020
9/15/2020
15-Oct
11/15/2020
12/15/2020
1/15/2021
2/15/2021
3/15/2021
Total
Rs.10000 withdrawn at the beginning of every quarter.
Date
4/1/2020
7/1/2020
10/1/2020
1/1/2021
Total
Rs.10000 withdrawn at the end of every quarter.
Date
6/30/2020
9/30/2020
12/31/2020
3/31/2021
Total
Rs.10000 withdrawn at the middle of every quarter.
Date
5/15/2020
8/15/2020
11/15/2020
2/15/2020
Total
Rs.10000 withdrawn at beginning of every month. Year is of 6 months only.
Date
10/1/2020
11/1/2020
12/1/2020
1/1/2021
2/1/2021
3/1/2021
Total
Flexible / Fluctuating Capital A/c
There is only one capital A/c

of the partners in which all their
profits/ loss / income / expense
will be considered.
100000
-10000
5000
95000
There are 3 partners. X, Y and Z

Question: X and Y sharing profit and loss in 3:2.
Company earned profit of Rs. 6,00,000 before appropriating follow
1) Interest on capital @ 10% p.a. (Capital : X = 500000 and Y = 5500

2) Interest on drawings @ 5% p.a. (Drawings : X = 10000, Y = 2000
3) Remuneration to partner will be X = 25000 and Y = 10000.
4) Commission to X @ 2% of Net profit.
Prepare P/L Appropriation A/c and Capital A/c.
Answer:

Particulars Amount
To Interest on capital
X = 500000 x 10/100 x 12/12 = 50000
Y = 550000 x 10/100 x 12/12 = 55000 105000
To Remuneration
X = 25000
Y = 10000 35000
To Commission
X = 600000 x 2/100 12000
To sharing profit
X = 448750 x 3/5 = 269250
Y = 448750 x 2/5 = 179500 448750
Total 600750
152000
179500
A and B are partners sharing profit and loss in 2:1.

They are following fixed capital methods having Rs.300000 and Rs.200000 respectively.
Their current A/c Balance is A = Rs.15000 (Cr.) and B = Rs.25000 (Dr.)
Business has earned net profit of Rs.710000 before appropriating following items.
1) Interest on capital @ 10% p.a.
2) Interest on drawings @ 5% p.a. (A = Rs.5000 withdrawn at beginning of every month,
B = Rs.9000 wiothdrawn at the end of every month)
3) Remuneration to A = Rs. 15000 and B = Rs.35000

4) Commission payable to B @ 10% of remaining profit after charging commission.
5) There should be create a reserve of 10% out of remianing profit.
6) Sharing profit will be distributed in following manner : First 2,00,000 will be distributed in 3:2 and remaning profit wil
Prepare P/L Appropriation A/c and Capital and Current A/c.

Particulars Amount
To Interest on capital
A = 300000 x 10/100 x 12/12 = 30000
B = 200000 x 10/100 x 12/12 = 20000 50000
To Remuneration
A = 15000
B = 35000 50000
To Commission
B = (710000 + 4100 - 50000 - 50000) x 10 / 110 55827
To Reserve
(710000 + 4100 - 50000 - 50000 - 55827) x 10/100 55827
To Sharing profit
A = 120000 + 201630 =
B = 80000 + 100815 = 502445
Total 714100
211655
200,000
..3:2
A = 200000 x 3/5 = 120000
B = 200000 x 2/5 = 80000
Company earned net profit of Rs.1,00,000.
Partnership deed provides interest on capital @ 10% p.a.
(Capital = A : 1,00,000 and B : 1,50,000)
Accountant ignored partnership deed and directly distributed
profit among patners.
Rectify the following error.
Particulars A
Interest on capital 10000
(100000 x 10/100 x 12/12)
Cr.
Distribute in profit sharing ratio 15000

(25000 x 3/5)
Dr.
Net off 5000
Dr.
A's Capital A/c Dr.

To B's capital A/c
(Being entry rectified)
X and Y are partners sharing profit and loss in 2:1

Accountant forgot to provide interest on drawings
of X = Rs.6000 and Y = Rs.4000.
Particulars X
Interest on drawings 6000
Dr.
Distribute in profit sharing ratio 6667

Cr.
(10000 x 2/3)
Net off 667
Cr.
Y's capital A/c Dr.

To X's capital A/c
(Being entry recitified)
X and Y are partners sharing profit and loss in 3:2.

Company earned profit of Rs.1,00,000
Accountant by mistake distributed profit in equal ratio (1:1).
Particulars X
Correct profit sharing ratio (3:2) 60000
(100000 x 3/5)
Cr.
Wrong Profit sharing ratio reverse 50000

(100000 x 1/2)
Dr.
Net off 10000
Cr.
Y's capital A/c Dr.

To X's capital A/c
M, N and O are partners sharing profit and loss in equal ratio. (1:1:1)
Their capitals are Rs.50000, Rs.60000 and Rs.80000 respectively.
Partnership deed provides interest on capital @ 10% but
accountant has given interest on capital @ 8%.
Rectify the error.
Particualrs M
2% extra interest on capital 1000

(50000 x 2/100 x 12/12)
Cr.
Reverse in profit sharing ratio. 1267

Dr.
(3800 x 1/3)
Net off 267

Dr.
M's capital A/c

N's Capital A/c
To O's capital A/c
A and B are partners in 5:3 ratio.

Partnership deed provides interest on capital @ 10% p.a.
and interest on drawings @ 6% p.a.
Capitals are: A = 100000 and B = 80000
Drawings were : A = 50000 and B = 30000
Accountant ignored partnership deed and distributed
profit.
rectify following error.
Particulars A
(100000 x 10/100 x 12/12)
Cr.

(50000 x 6/100 x 12/12)
Dr.
Net off 7000
Cr.
Reverse in profit sharing ratio 8250

Dr.
(13200 x 5/8)
Net off 1250
(8250 - 7000)
Dr.
A's capital A/c

TO B's capital A/c
Note : In the absence on date of drawings, we assuemd 12 months.
X, Y and Z are partners in 3:2:1 ratio.

1) X , Y and Z are entitled to get interest on capital @ 10% p.a.
(Capitals : X = 50000, Y = 80000 and Z = 90000)
2) X and Y are also entitled to get Commission

at 5% of turnover. (Turnover is Rs.100000)
3) Z is entitiled to get remuneration of Rs.10000.
Accountant ignored all these things and distriubted profits.
Rectify the error.
Particulars X

(50000 x 10/100 x 12/12)
A, B and C are sharing profit in 2:2:1.
1) Interest on capital @ 5% p.a. to all partners.
(Capital: A = 100000, B = 60000 and C = 90000)
2) Interest on drawings @ 6%p.a.

(Drawings: A = Rs.6000 beginning of every month,
B = Rs. 8000 at the end of every month.
C = Rs.5000 at the middle of every quarter)
3) C is entitled for commission of Rs.2000.
4) A and B both are getting Rs.3000 salary annually.
Rectify the error.
Particulars A
Cr

(6000 x 12 x 6/100 x 6.5/12)
Dr.
Commission
Remuneration 3000
Cr.
Net off 5660

Cr.
Reverse in PSR 5968

Dr.
(14920 x 2/5)
Net off 308

(5660-5968)
Dr.
A's capital A/c
B's capital A/c
To C's capital A/c
Mohan
Capital 30000
Less : Profit -8000

24000 x 1/3
22000
Add: Drawings 5000
Opening capital 27000
Question: Closing capital 90000

Profit distributed already in 4:1:1 Rs.180000
Interest on capital @10%
Drawings less Rs.360000 each
Correct : PSR 1:1:1 IOC 12%
Working Note - 1: Calculation of opening capital
Ashima
Closing capital given 90000
(-) Profits in 4:1:1 of Rs.180000 -120000
(+) Drawings 360000
110 330000
(-) Interest on capital @10% 10 -30000
Opening capital Assume 100 300000
Particulars Ashima
Interest on capital @12% 36000
(300000 x 12/100 x 12/12)
Cr.
Profit distribute among partners in 1:1:1 48000

(144000 x 1/3)
Cr.
A, B and C are partners sharing profit and loss in the ratio of 3:2:1.
Mr.C has received gurentee from Mr.A and Mr.B that he will get
minimum Rs.40000 profit from the business.
Business has earned profit of Rs. 210000.
Show the calculation of profit distribution.
Particulars A
Actual profit distributed in (3:2:1) 105000
(210000 x 3/6)
Deficiency adjustment -3000

(5000 x 3/5)
Correct profit 102000
X, Y and Z are partners in 2:1:1.

X and Y given gurentee to Z that he will not get less than Rs.35000 in profit.
any lacking will arise will be distributed by X and Y in 1:1.
Actual profit of the business is Rs. 80000.
Calculate profit Distribution.
A, B and C are partners sharing profit and loss equally.

Their capitals are Rs. 100000, Rs.120000 and Rs.150000 respectively.
Interest on capital will be @ 10% p.a.
Company earned profit of Rs. 100000.
A received gurentee from B and C that his profit will not be less that Rs.28000.
Show the calcualtion of profit distribution.
Actual profit
Lacking adjustment
Correct profit
A, B and C are partners sharing profit and loss equally.

Their capitals are Rs. 100000, Rs.120000 and Rs.150000 respectively.
Interest on capital will be @ 10% p.a.
A received gurentee from B and C that his amount will not be less that Rs.45000 along with interest on capital.
Business earned actual profit Rs.140000
Show the actual amount received by each partner. (profit + interest on capital)
Acutal Profit 140000

(-) Interest on capital
A = 10000
B = 12000
C = 15000 -37000
Sharing profit 103000
A B
34334 34333
(103000 x 1/3) (103000 x 1/3)
Rohit, Ali and Sneh are partners in 2:2:1.

Partnership deed provides following items.

2) Interest on drawings @3%p.a.
3) Ali will get salary per month Rs.500.
4) Ali got gurentee that out of business profit, he will get
minimum Rs.80000 profit. Any shortfall remaining partners will bear it.
Capital : Rohit = 120000, Ali = 100000 and Sneh = 100000
Drawings = All partners withdrawn Rs.1000 each at the beginning of every month.
Net profit of the firm is Rs.70000.
Calculate the total profit each partner will receive.
Dr. P/L Appropriation A/c

Particulars Amount
Interest on capital
Rohit = 120000 x 6% x 12/12 = 7200
Ali = 100000 x 6% x 12/12 = 6000
Sneh = 100000 x 6% x 12/12 = 6000 19200
Remuneration To Ali 6000
To Sharing Profit
Ali 80000
45385
Total 70585
W.N. = Sharing profit
Rohit
Actual Profit in 2:2:1 18154
Lacking / Shortfall
Shortfall given by Rohit and Sneh in 2:1 -41231

(61846 x 2/3)
Total Profit -23077
Kamal, Lalit and Neha are partners in 3:3:2.

Anita came as a new partner and new profit sharing
ratio between them is 3:3:2:2.
Partnership deed provides following things:

2) Interest on drawing : Kamal = 20000 and Lalit = 40000
3) Salary : Lalit = 96000 and Anita = 120000
Capital : Kamal = 800000, Lalit = 700000, Neha 200000 (Dr.) and Anita = 400000
Anita got gurentee from other three partners that she will get minimum
Rs.300000 profit.
Net profit of the business is Rs.1500000
Any lacking in profit will be bear by Kamal, Lalit and Neha in 2:2:1.
Calculate total profit of each partner.
Interest on capital
Kamal = 800000 x 5% = 40000
Lalti = 700000 x 5% = 35000
Anita = 400000 x 5% = 20000 95000
Salary
Lalit = 96000
Anita = 120000 216000
To Sharing profit
Kamal = 358420
Lalit = 358420
Neha = 242160
Anita = 300000 1259000
Total 1570000
Working note:
Kamal
Acutal profit(3:3:2:2) 377700
Shortfall / lacking
Shortfall adjustment in 2:2:1 -19280

(48200 x 2/5)
Total Profit 358420

Profit and loss A/c
Net Profit / Net loss
Trf. Balance sheet - capital
Net Profit earned by business = 30% income tax

100,000 Income Tax = 30000
Remuneration (Salary)
20000
ppropriation A/c Cr.

Particulars Amount
Net Profit xxxxxx
Interest on drawings xxxx
Total
xxx
Interest on drawings
Regular drawings
Drawings at particular date

and particular amount
1/4 to 31/03
Date Amount
4/1/2020 5000
6/30/2020 12000
8/1/2020 10000
9/1/2020 5000
12/31/2020 15000
2/1/2020 3000
3/1/2020 5000
Interest on drawings @10% p.a.
Date Amount outstanding months

4/1/2020 5000 12
6/30/2020 12000 9
8/1/2020 10000 8
9/1/2020 5000 7
12/31/2020 15000 3
2/1/2021 3000 2
3/1/2021 5000 1
Date Amount
4/1/2020 5000
6/30/2020 12000
8/1/2020 10000
9/1/2020 5000
12/31/2020 15000
2/1/2020 3000
3/1/2020 5000
Interest on drawings @10% p.a.
Date Amount Months

4/1/2020 5000 12
6/30/2020 12000 9
8/1/2020 10000 8
9/1/2020 5000 7
12/31/2020 15000 3
2/1/2020 3000 2
3/1/2020 5000 1
Total
Amount Months
10000 12
10000 11
10000 10
10000 9
10000 8
10000 7
10000 6
10000 5
10000 4
10000 3
10000 2
10000 1
120000
(12 + 1) / 2 (13/2)
Total Drawings x Rate of interest / 100 x 6.5/12

120000 x 10/100 x 6.5/12
6500
Amount Months
10000 11
10000 10
10000 9
10000 8
10000 7
10000 6
10000 5
10000 4
10000 3
10000 2
10000 1
10000 0
120000
(11 + 0) / 2
(11/2)
5.5

120000 x 10/100 x 5.5/12
5500
Amount Months
10000 11.5
10000 10.5
10000 9.5
10000 8.5
10000 7.5
10000 6.5
10000 5.5
10000 4.5
10000 3.5
10000 2.5
10000 1.5
10000 0.5
120000
(11.5 + 0.5) / 2
(12/2)
6
Total drawings x rate of interest /100 x 6/12

120000 x 10/100 x 6/12
6000
Amount Months
10000 12
10000 9
10000 6
10000 3
40000
(12 + 3) / 2
(15/2)
7.5
Total Drawings x Rate of interest x 7.5/12

40000 x 10/100 x 7.5/12
2500
Amount Months
10000 9
10000 6
10000 3
10000 0
40000
(9 + 0) / 2
(9/2)
4.5

40000 x 10/100 x 4.5/12
1500
Amount Months
10000 10.5
10000 7.5
10000 4.5
10000 1.5
40000
(10.5 + 1.5) / 2
(12/2)
6
Total drawings x rate of interest / 100 x 6/12
40000 x 10/100 x 6/12
2000
Amount Months
10000 6
10000 5
10000 4
10000 3
10000 2
10000 1
60000
(6 +1) / 2
(7/2)
3.5
Total drawings x rate of interest / 100 x 3.5/6

60000 x 10/100 x 3.5/6
3500
Types of capital A/c
There are 2 types of capital A/c

Dr. Partners' Fluctuating capital A/c
Particulars X Y
To Drawings
To Interest on drawings
To Balance c/d (Closing capital)
Total
Dr. Partners' Fixed capital A/c

Particulars X Y
To Withdrawn of capital
To Balance c/d (Closing capital)

Total
Dr. Partners' Current A/c

Particulars X Y
To Balance b/d
To Drawings
To Interest on drawings
To balance c/d
Total
Commisssion before deducting commission amount
Net profit x Rate of commission / 100

rofit and loss in 3:2.
profit of Rs. 6,00,000 before appropriating following items.
ital @ 10% p.a. (Capital : X = 500000 and Y = 550000)

wings @ 5% p.a. (Drawings : X = 10000, Y = 20000)
to partner will be X = 25000 and Y = 10000.
X @ 2% of Net profit.
opriation A/c and Capital A/c.

Particulars Amount
BY Net Profit (Balance b/d) 600000
BY Interest on drawings
X = 10000 x 5/100 x 6/12 = 250
Y = 20000 x 5/100 x 6/12 = 500 750
Total 600750
600750
0 respectively.
of every month,
(5% on profit after deduction of all expense (remaining profit)
will be distributed in 3:2 and remaning profit will be distributed in profit sharing ratio.

Particulars Amount
BY Net profit (Balance b/d) 710000
By interest on drawings
A = 60000 x 5/100 x 6.5/12 =.1625
B = 108000 x 5/100 x 5.5/12 = 2475 4100
Total 714100
714100
302445
..2:1
A = 302445 x 2/3 = 201630
B = 302445 x 1/3 = 100815
B Total
15000 25000
(150000 x 10/100 x 12/12)
Cr. Cr.
Reverse (step 1)
10000 25000
(25000 x 2/5) Dr.
Dr. Step 2 : Distribute In profit sharing ratio
5000
Cr.
5000
5000
Y Total
4000 10000
Dr. Dr.
Reverse
3333 10000
Cr. Cr.
(10000 x 1/3) Distribute
667
Dr.
667
667
3
Y Total
40000 100000
(100000 x 2/5)
Cr. Cr.
Reverse
50000 100000
(100000 x 1/2) Dr.
Dr.
10000
Dr.
10000
10000
N O Total
1200 1600 3800

(60000 x 2/100 x 12/12) (80000 x 2/100 x 12/12)
Cr. Cr. Cr.
Reverse
1266 1267 3800
Dr. Dr. Dr.
(3800 x 1/3) (3800 x 1/3)
Distribute in PSR
66 333
Dr. Cr.
Dr. 267
Dr. 66
333
B Total
8000 18000
(80000 x 10/100 x 12/12)
Cr. Cr.
1800 4800
(30000 x 6/100 x 12/12)
Dr. Dr.
6200 13200
Cr. Cr.
Reverse
4950 13200
Dr. Dr.
(13200 x 3/8)
1250
(6200-4950)
Cr.
Dr. 1250
1250
Y Z Total
8000 9000 22000

(80000 x 10/100 x 12/12) (90000 x 10/100 x 12/12)
B C Total
3000 4500 12500
Cr Cr Cr.
2640 600 5580

(8000 x 12 x 6/100 x 5.5/12) (5000 x 4 x 6/100 x 6/12)
Dr. Dr. Dr.
2000 2000
Cr. Cr.
3000 6000
Cr. Cr.
3360 5900 14920

Cr. Cr. Cr.
5968 2984 14920

Dr. Dr.
(14920 x 2/5) (14920 x 1/5)
2608 2916
(5968-3360) (5900-2984)
Dr. Cr.
Dr. 308
Dr. 2608
2916
Vijay Anil
25000 20000
-8000 -8000
17000 12000
4000 3000
21000 15000
330000 660000
Palak Lotus
330000 660000
-30000 -30000
360000 360000
660000 990000
-60000 -90000
600000 900000
Palak Lotus Total

72000 108000 216000
(600000 x 12/100 x 12/12) (900000 x 12/100 x 12/12)
Cr. Cr. Cr.
48000 48000 144000

(144000 x 1/3) (144000 x 1/3) Cr.
Cr. Cr.
Gurenteed Profit
B C
70000 35000
(210000 x 2/6) (210000 x 1/6)
-2000 5000
(5000 x 2/5)
68000 40000
Profit earned 100000

(-) Interest on capital
A = 10000
B = 12000
C = 15000 -37000
Sharing Profit 63000
A B
21000 21000
7000 -3500
28000 17500
Rs.45000 along with interest on capital.
C
34333
(103000 x 1/3)
Cr.
Particulars Amount
Net Profit 70000
Rohit = (1000 x 12) x 3/100 x 6.5/12 = 195
Ali = (1000 x 12) x 3/100 x 6.5/12 = 195
Sneh = (1000 x 12) x 3/100 x 6.5/12 = 195 585
By Sharing loss
Rohit = 23077
Sneh = 11538 34615
Total 70585
Ali Sneh
18154 9077
61846
-20615
(61846 x 1/3)
80000 -11538
propriation A/c Cr.
Net profit 1500000
Neha interest on capital

200000 x 5% 10000
Kamal = 20000
Lalit = 40000 60000
Total 1570000
Lalit Neha Anita
377700 251800 251800
48200
-19280 -9640
(48200 x 2/5) (48200x1/5)
358420 242160 300000

Net profit
65000
Commission
10000
Steps
C Interest on capital
C Interest on current A/c
D Interest on drawings
MEIN xxxx
R Remuneration
C Commission
R Reserve
S Sharing profit
Irregular drawings
Drawings at any time

of any amount
Simple Product
Method Method
5000 x 10/100 x 12/12 500
12000 x 10/100 x 9/12 900
10000 x 10/100 x 8/12 667
5000 x 10/100 x 7/12 292
15000 x 10/100 x 3/12 375
3000 x 10/100 x 2/12 50
5000 x 10/100 x 1/12 42
Total 2825
Product (Multiplication = Amount x Months)

60000
108000
80000
35000
45000
6000
5000
339000
Total Product x Rate of interest / 100 x 1/12

339000 x 10/100 x 1/12
2825
6.5
Fixed capital A/c
Here, Capital of the business will be fixed.

It will not used for daily income and expense
of the business.
For daily expense and income, Partners bring
additional amount from their home which is
called current account balance.
Fluctuating capital A/c Cr.
Z Particulars X Y Z
By Balance b/d (Opening capital)
By Interest on capital
BY remuneration
BY Commission
BY Sharing profit
Total
Fixed capital A/c Cr.

Z Particulars X Y Z
By Balance c/d (Opening capital)
BY Additional Capital
Total
Current A/c Cr.

Z Particulars X Y Z
BY Balance b/d (Opening current A/c balance)
BY Interest on capital
By Remuneration
BY Commission
By Sharing profit
Total
Commission to partner
Commission after deducting commission amount
(Net profit x Rate of commission ) / 100 + rate of commiss

5% commission
(Net profit x 5) / 105
P/L Appropropriation and Capital A/c sums
Dr. Partners' fluctuating capital A/c

Particulars X Y Particulars
To Drawings 10000 20000 BY balance b/d
To Interest on drawings 250 500 By Interest on capital
By Remuneration
By Commission
By Sharing profit
To Balance c/d 846000 774000
Total 856250 794500 Total

10250 20500
Current A/c = Cr. = Int. on Capital = P/L Dr. and Current Cr.
Current A/c = Dr. = int. on Drawings = P/L Cr. And Current Dr.
nse (remaining profit)
Dr. Partners' current A/c

Particulars A B Particulars
To Balance b/d - 25000 By Balance b/d
To Drawings 60000 108000 By Interest on capital
To interest on drawings 1625 2475 BY Remuneration
By Commission
By Sharing profit
To Balance c/d 333338 142834

61625 135475
Dr. Partners' Fixed capital A/c A/c
Particulars A B Particulars
By Balance b/d
To balance c/d 300000 200000
Note : Rent to partner and interest loan given by partner are not appr
It is charged against profit. Therefore, it will come in profit and loss A/
and not in Profit and loss Appropriation A/c.
So, IN profit and loss appropriation A/c, we will deduct these rent and
loan given by partner and correct profit will be recorded in amount co
Past Adjustment
Rectification of error
Profit distributed by acco 180000
(+) IOC 10% 30000
60000
90000
Business actual profit 360000
(-) IOC 12% -216000
144000
C
21000
-3500
17500
19500
mmission amount
n ) / 100 + rate of commission

Cr.
X Y
500000 550000
50000 55000
25000 10000
12000 -
269250 179500
856250 794500
856250 794500
Cr.
A B
15000 -
30000 20000
15000 35000
- 55827
334963 167482
394963 279309
394963 278309
Cr.
A B
300000 200000
300000 200000
n by partner are not appropriation,

come in profit and loss A/c
will deduct these rent and interest on

be recorded in amount coloum.
Example: A, B and C are sharing profit and loss in 40%, 40% and 20%
After a period of time they decided to change their Profit s
to 30%, 30% and 40%.
Calculate who will benifited (Gain) and Lose (Sacrifice).
Answer: A=
B=
C=
Sacrifice =
C=
A=
Gain =
Question: A, B and C are partners sharing profit and loss in 3:2:1.

After a period of time they changed their profit sharing rati
to 2:2:1.
Calculate sacrifice and Gain of each partner.

Answer: A
Old share ..3:
New share: ..2:
Sacrifice = Old share
A= 3
6
15
B= 2
6
10
C= 1
6
Question: M
Old share 3
New share 2
Question: A, B and C are parters sharing Profit in 2:2:1.

After a sometime they decided to change their PSR
as Mr.C is giving more time to the business.
So now, Mr.C will take 1/10th share from Mr.A and
1/20th share From Mr. B.
Calculate Sacrifice and Gain of each partner.
Answer:
A
Old share ..2:
Old share
A= 2
5
20
B= Old Share
2
5
40
C= Total shares received
New share =
Question: L, P and G are partners sharing profit and loss in 3:1:2.
They changed their PSR.
Mr. P got 2/30th share from Mr. L and 1/30th share from Mr.G.
Answer:
L= Old share
3
6
90
G= Old share
2
6
60
P= L
2
30
Question: A, B and C are sharing Profits in 2:2:1.
They changed their PSR.
Mr.C got 20% of Mr.A and 30% of Mr.B.
Answer:
A= Old share
2
5
B= Old Share
2
5
C received = A
2
25

They changed their PSR from 1st April, 2021 as 2:3:2.
Firm's goodwill is valued at Rs. 30000.
Calculate sacrifice and Gain of each partner and also

provide journal entry for the adjustment of Goodwill.
Answer:
Sacrificing Ratio = Old share
A= 3
6
21
B= 2
6
14
C= 1
6
Goodwill account will not open and will be adjusted into c
Sacrifice
Gain
1)
2)
3)
Rules in Partnership Act:
Question:
Answer:
They changed their PSR to 2:1:2.
On that date following are the book values (Purchase price

and Market values of Assets and liabilities of the firm.
Book value
1) Building 120,000
2) Furniture 80,000
3) Creditors 50,000
4) Bills receivable 10,000
5) Machinery 180,000
6) Stock 60,000
7) Debtors 40,000
8) Debtors 30,000
Provision for doubtful debts 2,000
28,000
Question:
Liabilities Amount
Capital
A - 1,00,000
B - 1,20,000
C - 1,50,000 370,000
Creditors 150,000
Investment Fluctuation Reserve 100,000
Workmen compensation Reserve 80,000
Total 700,000
A, B and C are partners sharing profit and loss in 3:2:2. They changed their PSR on 31/03/2021 to
Balance sheet on that date has been given and following adjustments are there.
1) Machinery to be valued at Rs.2,00,000.

2) Furniture will be market at Rs. 1,90,000.
3) Stock is undervalued by 20%.
4) PFDD to be made at 10% of the debtors.
5) There is a claim of workmen of Rs. 50,000 which is accepted.
6) Goodwill is to be valued at Rs.70,000.
Prepare Revaluation A/c, Partners' capital A/c and Balance sheet of the new firm.
Answer: Dr. Revaluation A/c

Particulars Amount
To Furniture A/c 20,000.00
To Debtors / PFDD 5,000.00
To Revaluation Profit: (3:2:2)

A - 21000 x 3/ 7 = 9000
B = 21000 x 2/7 = 6000
C = 21000 x 2/7 = 6000
21,000.00
Total 46,000.00
25,000.00
Balance sheet at 31/03/2021

Liabilities Amount
Capital:
A - 166714
B - 155144
C - 199143 521,000.00
Creditors 150,000.00
Workmen compensation claim outstan 50,000.00
Total 721,000.00
Working note:
A
Old PSR 3
New PSR 2
Sacrificing ratio = Old share
A= 3
7
15
B= 2
7
10
C= 2
7
10
sharing profit and loss in 40%, 40% and 20%.
of time they decided to change their Profit sharing ratio
will benifited (Gain) and Lose (Sacrifice).
Old share
40%
Old share
40%
Old share
20%
Old share
New share
40%
New share
30%
New share
partners sharing profit and loss in 3:2:1.

of time they changed their profit sharing ratio
fice and Gain of each partner.

B
..2:
..2:
(-)
(-)
(-)
30
3
30
(-)
(-)
30
-2
30
(-)
(-)
30
-1
30
N
1
3
B
..2:
(-)
(-)
50
15
50
(-)
(-)
100
35
100
(-)
180
78
180
(-)
-
180
54
180
(+)
3
30
(x)
2
25
(x)
3
25
(+)
5
25
(-)
(-)
(-)
42
9
42
(-)
(-)
42
-4
42
(-)
(-)
42
-5
42
unt will not open and will be adjusted into capital Account. / Pass single Adjustment entry of goodwill adjustment.
Cr.
Dr.
PSR Change =
4/1/2021
Business Balance sheet

Reserves and Surplus
Profit and loss A/c
Ficticious Assets / Deffered Revenue Expenditure---->
At the time of Reconstitution of firm (Change in PSR, Admission of new partner or Retirement of exisiting partner)
all reserves and surplus, Profit and loss and ficticious assets will be distributed between old partners in old profit sharing r
A, B and C are partners sharing profit and loss in 3:2:1.

from 1-4-2021 they changed profit sharing ratio to 2:2:1.
on that date following balances were exist in balance sheet.
Profit and loss (Cr.) =

General Reserve (cr.)=
Advertisment suspense A/c (Dr.)=
Situation - 1: Partners are agree to open each item's A/c.
Situation - 2: Partners don't want to open individual acount and
Situation - 1: Partners are agree to open each item's A/c.
Sr. No.
1
3
Situation - 2: Partners don't want to open individual acount and
Sacrificing ratio =
A=
B=
C=
Partnership Act, 1932:
Rule:
partners sharing profit and loss in 3:2:1.

their PSR to 2:1:2.
ollowing are the book values (Purchase price)

alues of Assets and liabilities of the firm.
Market value
150,000
60,000
10% creditors don't exist
20% bad debts
it is overvalued by 10%
It is to be overvalued by 10%.
Provision for dobutful debts to be made @ 10%.
PFDD to be kept at 10% of debtors
Question: Workmen compensation Reserve (Liability) =
Adjustment: Workemen compansation claim accepted
A and B sharing Profit and loss in 3:2.
They changed their PSR in 2:1.
Workmen compensation Reserve A/c Dr. 1,00,000

To Workmen compensation Claim outstanding A/c 80000
To A's capital / current A/c 12000
To B's capital / current A/c 8000
(Being workmen compenation reserve account transferred)

Workemen compensation Reserve A/c Dr. 1,00,000

Workmen compensation Reserve A/c Dr.

To Workmen compensation claim outstanding A/c 1,00,000

Workemen compensation Reserve A/c Dr. 1,00,000

Revaluation A/c Dr. 30,000
To workmen compensation claim outstanding A/c 1,30,000
as on 31/03/2021
Assets
Furniture
Machineries
Stock
Debtors 1,50,000
(-) PFDD (10,000)
Bills receivables
Cash and bank balance
Total
2. They changed their PSR on 31/03/2021 to 2:2:1.

wing adjustments are there.
alance sheet of the new firm.
Particulars
By Machinery A/c
By Stock A/c
Total
at 31/03/2021
Assets
Furniture 210000
(-) Revaluation loss (20000)
Machinery 180000
(+) Revaluation profit 20000
Stock 130000
(+) Revaluation profit 26000
Debtors 150000
(-) PFDD (15000)
Bills Receivables
Cash and Bank Balance
Total
B
2
(-)
(-)
(-)
35
1
35
(-)
(-)
35
-4
35
(-)
(-)
35
3
35
B's capital A/c Dr.

To A's capital A/c
To C's capital A/c
(-) New share
30%
10% Sacrifice
(-) New share

30%
10% Sacrifice
(-) New share

40%
-20% Gain
(-) New share
(-) Old share

20%
20% Gain
(-) old Share
40%
-10% Sacrifice
(-) Old share

C Total
..1 6
..1 5
New share
2
5
12
Sacrifice
2
5
12
Gain
1
5
Gain
O Total
1 5
1 6
C Total
..1 5
Given to C
1
10
Reamining share
Given to C
1
20
Remaining share
A (+)
1
10
20 (+)
200
30
200
Old share (+)

1
5
200 (+)
1000
350
1000
Given to P
2
30
12
Given to P
1
30
G
1
30
20
100
Given to C Sacrifice
30
100
Given to C Sacrifice
B
3
25
Gain
New Share
2
7
12
Sacrifice
3
7
18
Gain
2
7
12
Gain
ss single Adjustment entry of goodwill adjustment.
Reconstitution of firm
PSR Change
Profit = cr.
Liabilities
Admission of new partner or Retirement of exisiting partner)

assets will be distributed between old partners in old profit sharing ratio.
100,000
120,000
acount and
want to pass single adjustment entry.
Particulars LF
Profit and loss A/c Dr.
To A's Capital A/c
To B's Capital A/c
To C's Capital A/c
(100000 x 3:2:1)
(Being Profit and loss distributed)
General Reserve A/c Dr.

To A's Capital A/c
To B's Capital A/c
To C's Capital A/c
(120000 x 3:2:1)
(Being General Reserve distributed)
A's Capital A/c Dr.

B's Capital A/c Dr.
C's Capital A/c Dr.
To Advertisment Suspense A/c
(200000 x 3:2:1)
(Being Advertisment suspense A/c distributed)
acount and
want to pass single adjustment entry.
Old Ratio (-)
3 (-)
6
15 (-)
30
3
30
2 (-)
6
10 (-)
30
-2
30
1 (-)
6
5 (-)
30
-1
30
Profit and loss A/c Cr. 100000

General Reserve A/c Cr. 120000
Advertisment Suspense A/c Dr. 200000
Net off 20000 cr.
B's capital A/c Dr.

C's Capital A/c Dr.
To A's capital A/c
(Being Single adjustment entry passed)
Revaluation A/c
Re
On the event of reconstitution of the partnership firm, all assets and all liabilities will be revalued at current market price.
and any profit or loss on this revaluation will be transferred to old partners' capital / current account in old profit sharing
So, we prepare this Revaluation A/c to find out revaluation profit or loss.
Revaluation A/c is same as Profit and loss A/c. It is also known as Profit and loss Adjustment A/c.
Dr.
Particulars
To Furniture A/c
To Bill receivable / Bad debts
To machinery A/c
To PFDD / Debtors
To PFDD / Debtors
Profit / Loss
30000
-20000
5000 Total
-2000
-18000
6000
-4000
-1000
Workmen compansation Fund / Reserve
It is a kind of reserve made by the firm for the workmen working in factories. In case of any emergency arise,
then firm can make payment out of this.
Rule : In case of reconstitution of partnership firm, existing workemen compensation reserve will be treated
accordingly. Either it will be paid to workers if liability arise or it will be distributed among old partners in
old profit sharing ratio.
100,000
80,000
Liabilities
nding A/c 80000 Workmen compensation Claim outstandin

12000
8000
Partners' capital / current A/c:
100,000
0 Partners' capital / current A/c:
60000
40000
Liabilities
100,000 Workmen compensation Claim outstandin

100,000
g A/c 1,00,000
Liabilities
100,000 Workmen compensation Claim outstandin

130,000
Dr.
g A/c 1,30,000 To workmen compensation claim outstandi
It is a reserve created by partner in order to set off the l

do not reduce their current year's net profit.
Rule : In case of reconstitution of partnership firm, exis

accordingly. Either it will be set off if loss on investmen
old profit sharing ratio.
Question: Investment fluctuation reserve (Liability) 100,000

Investment (Assets) (at book value) 150,000
Adjustment : Current Market price of the investment is Rs. 1,30,000
They changed their PSR to 2:1.
Liabilities
Investment Flutuation Reserve A/c Dr. 20000
To Investment A/c 20000
Investment Fluctuation Reserve A/c Dr. 80000

To A's Capital / current A/c 48000
To B's Capital / current A/c 32000
Partners' capital / current A/c : (80000 in 3

Adjustment : Current Market price of the investment is Rs. 1,85,000
Investment Fluctuation Reserve A/c Dr. 100000 Partners' capital / current A/c : (100000 in
Liabilities
Investment A/c Dr. 35000
To Revaluation A/c 35000
Dr.
Liabilities

Adjustment : Current Market price of the investment is Rs. 30000
Investment Fluctuation Reserve A/c Dr. 100000 Liabilities

Revaluation A/c Dr. 20000
To Investment A/c 120000
Dr.
Liabilities
To Investment A/c
Sums
Amount
210,000
180,000
130,000
140,000
20,000
20,000
700,000
Cr.
Amount
20,000.00
26,000.00
46,000.00
46,000.00
Amount
190,000.00
200,000.00
156,000.00
135,000.00
20,000.00
20,000.00
721,000.00
C
2
New share
2
5
14
Sacrifice Cr
2
5
14
Gain Dr
1
5
Sacrifice Cr.
8000
Change in profit sharing ratio
Change in constitution (Partnership deed) of the firm
Note : In case of negative answer in sacrifice formula, then it will be gain.
Note: In case of negative answer in gain formula, then it will be sacrifice.

B
1
20
10
Total New share

30
200
150
old share
P's new share = 1
6
30
Goodwill Adjustments
B's capital A/c Dr.
C's Capital A/c Dr.
To A's capital A/c
(Being goodwill adjusted)
Sacrifice Partner Cr
Gain Partner Dr.
Adjustment of Reserves, Profit and loss and Ficticious / deffered Assets.

loss = dr.
Assets
Loss / Asset Balance sheet = Assets

(e.g.: Advertisment suspense A/c, Underwriting commiss
200,000
Debit (Rs.) Credit (Rs.)

100000
50000
33333
16667
120000
60000
40000
20000
100000
66667
33333
200000
New ratio
2
5
12
Sacrifice
2
5
12
Gain
1
5
Gain
1333
667
2000
Valuation
at current market price.

ount in old profit sharing ratio.
Revaluation A/c Cr.

20000 By Building A/c 30000
2000 By Creditors A/c 5000
18000 By stock 6000
4000 To Revaluation loss: (3:2:1)
1000 A - 4000 x 3/6 = 2000
B - 4000 x 2/6 = 1333
C - 4000 x 1/6 = 667
4000
45000 Total 45000
45000 41000
Journal Entry
Date Particulars LF
1 Building A/c Dr.
To Revaluation A/c
(Being Buidling Revalued)
2 Revaluation A/c Dr.

To Furniture A/c
(Being Furniture Revalued)
3 Creditors A/c Dr.

To Revaluation A/c
(Being creditors revalued)

To Bills receivable A/c
(Being…)

To Machinery A/c
(Being…)
6 Stock A/c Dr.

To Revaluation A/c

To Debtors A/c
(Being…)

To Debtors A/c
(Being…)
gency arise,
ll be treated
Balance sheet
Amount Asset Amount
80,000
A B
(Credit) Workmen compensatio 12000 8000
(Credit) Workmen compensatio 60000 40000

Balance sheet
Amount Asset Amount
100,000
Balance sheet
Amount Asset Amount
100,000
Revaluation A/c Cr.
30000
Investment Fluctuation Reserve
er in order to set off the loss of investments made by them. So that such loss
ar's net profit.
of partnership firm, existing Investment Fluctuation reserve will be treated

t off if loss on investment arise or it will be distributed among old partners in
Balance sheet
Investment 1,50,000
(-) Revaluation loss 130,000
A B
(Credit) 48000 32000
A B
(Credit) 60000 40000
Balance sheet
Investment 1,50,000
(+) Revaluation profit 185,000
Revaluation A/c Cr.

By Investment A/c 35000
Balance sheet
Investment 1,50,000
(-) Revaluation loss 30,000
Revaluation A/c Cr.
20000
Dr. Partners' capital A/c

Particulars A B C
To A's capital A/c 2,000.00
To C's capital A/c 6,000.00
To Balance c/d 166,714.00 155,144.00 199,143.00

Total 166,714.00 163,144.00 199,143.00
0 8,000.00 0
Total
7
5
2000
6000
sacrifice formula, then it will be gain.
gain formula, then it will be sacrifice.

Practice
2 (+) 1
6 6
3
6
2 (x) 3
6 6
6
36
From (- or +)
Of (x , - or +)
New Profit Ratio:
A B C
15 35 350
50 100 1000
3 7 7
10 20 20
6 7 7
20 20 20
6 7 7
+ Received
3
30
+ 18
180
48
180
2857
3571
6429
t and loss and Ficticious / deffered Assets.

sheet = Assets
vertisment suspense A/c, Underwriting commission A/c)
Debit (Rs.) Credit (Rs.)
30000
30000
20000
20000
5000
5000
2000
2000
18000
18000
6000
6000
4000
4000
1000
1000
Cr.
Particulars A B C
By Balance b/d 100,000.00 120,000.00 150,000.00
By Investment flutuation reserve A/c 42,857 28,572 28,571
By Workemen compensation Reserve 12,857 8,572 8,571
By B's capital A/c 2,000.00 6,000.00
By Revaluation profit A/c 9,000.00 6,000.00 6,000.00
Total 166,714.00 163,144.00 199,143.00
166,714 163,144 199,143
2 (+) 1
6 5
LCM
10 (+) 6
30
16
30

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Question: Which elements affects the goodwill

For the purpose for calculating goodwill,

2) Insurance premium of Rs.10000

3) Closing Stock of 2017-18 was overvalued

4) Closing Stock of 2019-20 was undervalued

5) Opening stock of Rs.2018-19 was undervalued

6) Opening Stock of 2019-20 was overvalued

7) Remuneration (Salary) to be paid to manager

8) X and Y two partners entitled to get remuneration

9) Purchased machinery of Rs.100000 debited to

10) Depreciation on above machinery was 10% p.a. WDV

11) There is Maintainance expense of Machinery of Rs.50000

12) Depreciation on above machinery was 10% p.a. WDV

Proceeds = Selling price

Cash / Bank A/c Dr. 11000

Qualilty products and services

Latest year = Highest

oldest year = Lowest weight

Minus from 2018-19

60000 minus every year

20000 minus every year

Plus in Current Year

Minus from 2018-19 to last

Minus in current year

Plus in 2019-20 and 2020-21

Step 1 Correct profit

Step 2 Weighted Average profit

Total Weighted profit

Weighted Average profit x Number of years purchase

Major plant repair = capital expenditure = Asset plus

Revenue = Profit and loss A/c

3/31/2016 3/31/2017 3/31/2018 3/31/2019

2015-16 2016-17 2017-18

Plant repair (Abnormal loss) 30000

Overvaluation of stock -12000 12000

Machinery sold -10000

Depreciation on machinery 1000 900

Weighted Average profit 104234

Super profit Method

Ajay Vijay Samar

Step 1: Correct profit

2016 2017 2018

Average profit = 120000

Step 2: Capital Employed (Capital Investment)

Step 3: Normal Profit

Capital Employed x Normal Profit Margin

Step 4: Super profit

Average profit - Normal profit

Super profit x Number of years purchase

Step 2 Capital Employed

Total Assets - Total Outside liabilities

Step 3 Normal Profit

Capital Employed x Normal rate of return

Step 4 Super profit

Average profit - Normal Profit

Super profit x Number of years purchase

Capitalisation of Super profit Method

Normal Profit Margin - 10%

If Investment is Rs.100 Then profit will be Rs.10