Accountancy XII Exam Handbook For 2024 Exam

Theoretical Concepts
& Accounting
Treatment NOTES
for
CBSE Examination 2024
(Strictly Based on NCERT Books 2023-24
and CBSE Papers Marking Scheme)
Theory, MCQs and Competency Based Questions Accountancy XII Exam Handbook for 2024 Exam 49
NOTES for 2024 Exam
Chapter 7
Analysis
of Financial
Statements
Theoretical Concepts & As per Latest NCERT The original cost or historical cost is the basis of recording
Accounting Treatment Textbooks 2023-24 Edition transactions. The assets purchased at different times and at
different prices are put together and shown at costs. As these
Meaning, Nature and Uses and importance of are not based on market prices, the financial statements do
7.1 not show current financial condition of the concern.
Financial Statements
2. Accounting Conventions: Use of accounting conventions
Meaning of Financial Statements
makes financial statements comparable, simple and realistic.
Financial statements are the basic and formal annual reports
• The convention of valuing inventory at cost or market price,
through which the corporate management communicates
whichever is lower, is followed.
financial information to its owners and various other external
• The valuing of fixed assets at cost less depreciation principle
parties which include investors, tax authorities,government,
for balance sheet purposes is followed.
employees, etc. These refer to:
• The convention of materiality is followed in dealing with
1. Balance Sheet (position statement)
small items like pencils, pens, postage stamps, etc. These
2. Statement of profit and loss (income statement)
items are treated as expenditure in the year in which they
3. Cash flow statement
are purchased even though they are assets in nature.
Nature of Financial Statements
• The stationery is valued at cost and not on the principle of
1. Recorded Facts: Financial statements are prepared on the
cost or market price, whichever is less.
basis of facts in the form of cost data recorded in accounting books.
50 Accountancy XII Exam Handbook for 2024 Exam Shree Radhey Publications (Subhash Dey)
3. Postulates: Financial statements are prepared on certain Current and Non-current Classification
basic assumptions (pre-requisites) known as postulates such An item is classified as current:
as going concern postulate, money measurement postulate, • If it is involved in entity’s operating cycle or,
realisation postulate, etc.
4. Personal Judgements: Facts and figures presented Top Tip
through financial statements are based on personal opinion, Operating cycle is the time between the acquisition of assets for
estimates and judgements. E.g. Provisions for doubtful debts processing and their realization into cash or cash equivalents.
are made on estimates and personal judgements. Similarly,
• Operating cycle may vary from few days to few years.
while deciding either cost of inventory or market value of
• Where the operating cycle cannot be identified, it is assumed
inventory, many personal judgements are to be made.
to have a duration of 12 months.
Uses and Importance of Financial Statements
1. Report on stewardship function: The gaps between the • If it is expected to be realised/settled within 12 months or,
management performance and ownership expectations can • If it is held primarily for trading or,
be understood with the help of financial statements. • If it is cash and cash equivalent or,
2. Basis for fiscal policies: The fiscal policies, particularly • If the entity does not have unconditional rights to defer
taxation policies of the government, are related with the settlement of liability for at least 12 months after the
financial performance of corporate undertakings. reporting period.
3. Basis for granting of credit: Credit granting institutions Other assets and liabilities are non-current.
take decisions for granting of credit on the basis of the Reserves and Surplus
financial performance of the undertakings. (i) Capital Reserve (e.g. gain on reissue of forfeited shares)
4. Basis for prospective investors: Financial statements
(ii) Capital Redemption Reserve
help the investors to assess long-term and short-term
(iii) Securities Premium Reserve
solvency as well as the profitability of the concern.
(iv) Debenture Redemption Reserve
Balance Sheet of Company with major headings (v) Revaluation Reserve
7.2
and sub headings (vi) Stock Options Outstanding Account
(vii) Other Reserves (e.g. General Reserve, Subsidy Reserve)
Particulars Note Current Previous (viii) Surplus, i.e. Balance in Statement of Profit and Loss
No. year (`) year (`) (disclosing appropriation such as dividend, bonus shares,
I. EQUITY AND LIABILITIES transfer to/from reserve, etc.)
1. Shareholders’ Funds
(a) Share Capital
(b) Reserves and Surplus Top Tip
(c) Money received against share 1. A reserve specifically represented by earmarked investments shall be
warrants termed as “Fund”.
2. Share Application money 2. ‘Debit’ balance of statement of profit and loss shall be shown as a
pending allotment negative figure under ‘Surplus’ head.
3. Non-current Liabilities 3. The balance of “Reserve and Surplus” after adjusting negative balance
(a) Long term borrowings of Surplus, if any, shall be shown under “Reserve and Surplus” head
(b) Deferred tax liabilities (net) even if the resulting figure is ‘negative’.
(c) Other long term liabilities 4. Preliminary expenses and discount/loss on issue of debentures will be
(d) Long term provisions shown under Reserves and Surplus as a negative item. This is because
4. Current Liabilities they are to be written-off completely in the same year from securities
(a) Short-term borrowings premium reserve (if any) and the balance from statement of profit & loss.
(b) Trade payables 5. Share options outstanding account has been recognised as a separate
(c) Other current liabilities item under ‘Reserve and Surplus’.
(d) Short-term provisions
Total
ICAI’s Guidance Note on Accounting for Employee share
II. ASSETS
1. Non-Current Assets based payments requires a credit balance in the ‘Stock
(a) Property, Plant & Equipment and option outstanding Account’ to be disclosed in balance
Intangible Assets sheet under separate heading’ between share capital and reserves
(i) Property, Plant and and surplus as a part of shareholders fund.
Equipment
Money received against share warrants
(ii) Intangible assets
(iii) Capital work-in-progress It is the amount received by the company which are converted
(iv) Intangible assets under into shares at a specified date on a specified rate. The instrument
development issued against the amount so received as share warrants.
(b) Non-current investments Money received against share warrants’ to be disclosed as a
(c) Deferred tax assets (net) separate line item under ‘shareholder’s fund’.
(d) Long-term loans and advances Share application money pending allotment
(e) Other non-current assets Share application money not exceeding the issued capital and
2. Current Assets
to the extent non-refundable shall be classified as non-current.
(a) Current investments
(b) Inventories
(c) Trade receivables
Top Tip
(d) Cash and cash equivalents Share application money to the extent refundable or where
(e) Short term loans and advances minimum subscription is not met, such amount shall be shown
(f) Other current assets separately under ‘Other Current liabilities’.
Total
Borrowings
Total borrowings are categorised into long-term borrowings, Top Tip
short-term borrowings and current maturities to long-term debt. Provision for Depreciation/Accumulated Depreciation will be
(i) Loans which are repayable in more than 12 months/operating deducted from Property, Plant and Equipment under notes
cycle are classified as long-term borrowings under non- to account and the net value will be shown on the face of the
current liabilities on the face of balance sheet. Examples: balance sheet under this head.
• Debentures/Bonds/Long-term loans (e.g. term-loan
from bank, Mortgage Loan) repayable after one year Intangible Assets
• Long-term deposits • Goodwill • Patents and other intellectual property rights
• Public deposits • Brand • Trademarks • Copyrights • Licenses and franchise
(ii) Loans repayable on demand or whose original tenure is • Computer Software • Masthead and Publishing titles
not more than 12 months/operating cycle are classified • Mining rights • Recipes • Formulae
as short-term borrowings under current liabilities on • Models, Designs and Prototypes
the face of balance sheet. Examples: Non-Current Investments
• Bank Overdraft Non-current investments are investments which are held not
• Loans repayable on demand from banks and other parties with the purpose to resell but to retain them.
• Short-term deposits payable on demand Non-current Investments are further classified into ‘Trade
(iii) Current maturities to long-term loan include amount Investments’ and ‘Other Investments’.
repayable within 12 months/operating cycle under other • Trade Investments are investments made by a company
current liabilities with Note to Account. in shares or debentures of another company, not being its
Examples of Other Current Liabilities : subsidiary, to promote its own trade and business.
• Unpaid/Unclaimed dividends • Other Investments are those investments which are not trade
• Interest accrued and due or not due on long-term investments, e.g. Investment in Land for investment purpose.
borrowings (e.g. debentures)
• Income received in advance/Unearned income (e.g. Top Tip
advance from customers) Investments are classified into current and non-current categories.
• Calls in advance and Accrued Interest on calls in advance • Investments expected to realise within 12 months are
• Outstanding expenses considered as current investments under current assets.
• Provident Fund payable/ESI payable/GST payable • Others are classified as non-current investments under non-
• Application money received for allotment of securities current assets.
and due for refund and interest due thereon Both are, however, shown on the face of the balance sheet.
• Unpaid matured debentures or deposits and interest thereon
Other Long-term Liabilities Long-term Loans and Advances
• Trade payables to be settled beyond 12 months from the date • Capital Advances
of balance sheet/operating cycle. • Security Deposits, e.g. for telephones, electricity, etc.
• Premium on redemption of debenture. Current Investments
Provisions Current investments are those investments which are held
• The amount of provision settled within 12 months from to be converted into cash within a short period i.e., within
balance sheet date/operating cycle is classified as short- 12 months. Examples:
term provisions and shown under current liabilities on the • Marketable securities • Treasury bills
face of balance sheet. Examples: • Debenture Redemption Investment
— Provision for tax • Long-term Investments in Equity Instrument, Preference
— Provision for bad and doubtful debts shares, Government Securities, Debentures, or Mutual
• All provisions for which the related claims are expected to Funds with maturity period of less than 12 months
be settled beyond 12 months after the reporting date are Inventories
classified as long-term provisions. Examples All inventories are always treated as current.
— Provision for employee benefits/ Retirement benefits • Stock of raw materials • Work-in-progress
payable to employees e.g. Provident Fund • Stock of finished goods • Stores and Spares
— Provision for Warranties • Loose tools • Goods in transit
Trade payables • Stock in trade (i.e. Goods required for trading)
A trade payable refers to the amount due on account of Trade Receivables
goods purchased or services rendered in the normal course of Trade receivables refer to the amount due on account of goods
business, e.g. Creditors, Bills Payable or Acceptance. sold or services rendered in the normal course of business. It
• Trade payables to be settled beyond 12 months from the includes both Debtors and Bills receivables.
date of balance sheet/operating cycle are classified under • Trade receivables to be realised beyond 12 months from
“other long-term liabilities” with Note to Account. reporting date/operating cycle are classified as “Other non-
• The balance of trade payables are classified as current current assets” under the head Non-Current Assets.
liabilities on the face of balance sheet. • Others are classified as current assets.
Property, Plant and Equipment Cash and cash equivalents
Examples: • Balance with banks; Cheques, drafts on hand and Cash on hand
• Land • Buildings • Earmarked balances with banks (e.g., for unpaid dividend)
• Plant and Machinery • Furniture, Fixture and Fittings • Balances with banks held as margin money or security
• Vehicles • Office Equipment against the borrowings
• Livestock • Computer and Related Equipment • Bank deposits with more than 12 months maturity
Other Current Assets Other income

• Prepaid expenses, e.g. unexpired insurance, prepaid rent, (i) Interest and Dividend incomes (in case of a non-finance
advance to suppliers company)
• Accrued incomes, e.g. interest accrued on investments (ii) Net gain on sale of investments
• Advance tax (iii) Other non-operating incomes (net of expenses directly
• Goodwill, Patents, etc. to be written off within 12 months attributable to such income).
• Interest due on calls-in-arrears Expenses
Proposed Dividend is a Contingent Liability. • Cost of Materials consumed: It applies to manufacturing
Dividend is proposed by the Board of Directors and declared companies. It consists of raw materials and other materials
(approved) by the shareholders in their Annual General Meeting. consumed in manufacturing of goods.
Board of Directors propose the dividend after the annual • Purchase of Stock-in-trade: It means purchases of
accounts for the year have been prepared. Annual General goods for the purpose of trading.
Meeting of the shareholders is held thereafter, i.e. held in the • Changes in inventories of finished goods, work-in-
next financial year. progress (WIP) and stock-in-trade:
Opening inventory – Closing inventory
Top Tip • Employees benefit expenses: Expenses incurred on
Shareholders may reduce the amount of proposed dividend but employees towards salary, wages, leave encashment, staff
cannot increase it. welfare, etc.
• Finance costs
• Since declaration of proposed (final) dividend is contingent – Interest paid on long-term borrowings such as
upon shareholders approval, Proposed dividend is a debentures, long-term loans, etc.
contingent liability. – Interest on bank overdraft
• AS-4, Contingencies and Events Occurring after the – Interest paid on public deposits
Balance Sheet Date prescribes that proposed dividend will – Loss on issue on debentures
be shown in the Notes to Accounts.
• After the Proposed dividend is declared by the shareholders, Top Tip
Dividend payable becomes a liability for the company and is
Other financial expenses such as Bank Charges are shown
shown under ‘other current liabilities’ in the balance sheet.
under ‘Other Expenses’.
Proposed dividend of previous year will be declared (approved) • Depreciation and Amortisation Expenses:
by the shareholders in the current year and this declared – Depreciation is the decrease in the value of fixed assets
(approved) dividend will be accounted during the current (e.g. depreciation on plant and machinery).
year, whereas, proposed dividend for the current year will be – Amortisation is writing off the amount relating to
relevant for the next financial year. intangible assets (e.g. goodwill or patents written off).
• Other expenses: All other expenses which do not fall in
7.3 Statement of Profit and Loss
the above categories are shown under ‘Other Expenses’.
Note: Other expenses may further be categorised into direct
Particulars Note Current Previous
No. year (`) year (`)
expenses, indirect expenses and non-operating expenses.
I Revenue from operations 7.4 Analysis of Financial Statements

II Other income Meaning of ‘Financial Statement Analysis’
III Total Revenue (I+II) ‘Financial Analysis’ is the process of identifying the
financial strengths and weaknesses of the firm by properly
IV Less: Expenses:
establishing relationships between the various items of
• Cost of materials consumed
the balance sheet and the statement of profit and loss.
• Purchases of stock-in-trade
It essentially involves regrouping and analysis of information
• Changes in inventories of provided by financial statements to establish relationships
finished goods work-in-
progress and stock-in-trade
and throw light on the points of strengths and weaknesses of
a business enterprise, which can be useful in decision-making
• Employee benefits expense
involving comparison with other firms (cross-sectional analysis/
• Finance costs
inter-firm comparison) and with firm’s own performance over a
• Depreciation and amortisation
expense time period (time series analysis/intra-firm comparison).
• Other expenses
Top Tip
Total expenses
The term ‘financial analysis’ includes both ‘analysis’ and
V Profit before tax (III–IV) ‘interpretation’.
VI Less: Tax provision • ‘Analysis’ means simplification of financial data by
VII Profit after tax (V–VI) methodical classification given in the financial statements.
• ‘Interpretation’ means explaining the meaning and
Revenue from operations significance of the data.
This includes: (i) Sale of products (ii) Sale of services (iii) Other These two are complimentary to each other. Analysis is useless
operating revenues without interpretation, and interpretation without analysis is
Note: In respect to a finance company, revenue from difficult or even impossible.
operations shall include revenue from interest, dividend and
income from other financial services.
4. Profitability Ratios: Profitability refers to the analysis of 7.7 Solvency Ratios — Computation and Significance
profits in relation to revenue from operations or funds (or
assets) employed in the business and the ratios calculated 1. Debt-Equity Ratio
to meet this objective are known as ‘Profitability Ratios’. Debt-Equity Ratio measures the relationship between long-
Profitability ratios are calculated to analyse the earning term debt and shareholders’ funds.
capacity of the business which is the outcome of utilisation Long-term Debts
Debt-Equity Ratio =
of resources employed in the business. Shareholders’ Funds
Profitability Ratios: • Long-term Debts (‘Debt’) = Non-Current Liabilities = Long
(i) Gross profit ratio (ii) Operating ratio term borrowings + Other long-term liabilities + Long-term
(iii) Operating profit ratio (iv) Net profit ratio provisions
(v) Return on Investment or Return on Capital Employed • Shareholders’ Funds (‘Equity’) = Share capital + Reserves
and Surplus + Money received against share warrants +
7.6 Liquidity Ratios — Computation and Significance
Share application money pending allotment
1. Current Ratio: Current ratio is the ratio of current assets to Significance: This ratio measures the degree of indebtedness
current liabilities. of an enterprise and gives an idea to the long-term lender
Current Assets regarding extent of security of the debt.
Current Ratio =
Current Liabilities • A low debt-equity ratio reflects more security of the debt.
Thus, capital structure with less debt and more equity is
Top Tips considered favourable as it reduces the chances of bankruptcy.
• (Net) Working capital = Current Assets – Current Liabilities • A high debt equity ratio is considered risky as company may
• In ratio analysis, Inventories do not include 'Loose Tools' and find difficulty in meeting its obligations to outsiders.
'Stores and Spares'. However, greater use of debt may help in ensuring higher returns
for equity shareholders (owners) if Return on Investment (ROI) >
Significance: It provides a measure of degree to which Rate of interest on long-term debt. This is called ‘Trading on
current assets cover current liabilities. The excess of current equity’.
assets over current liabilities provides a measure of safety
margin available against uncertainty in realisation of current Normally, it is considered to be safe if debt equity ratio is
assets and flow of funds. 2 : 1.
Current ratio should neither be very high nor very low.
2. Debt to Capital Employed Ratio
• A very high current ratio implies heavy investment in current
It refers to the ratio of long-term debt to the total of external
assets and reflects under/improper utilisation of resources.
and internal funds (i.e. capital employed or net assets).
• A low current ratio increases risk of facing a situation where
the company will not be able to pay its short-term debt on Long-term Debt
time. It may affect firm’s credit worthiness adversely. Debt to Capital Employed Ratio = Capital Employed (or Net Assets)
Normally, it is safe to have current ratio within the • Capital employed = Long-term debt + Shareholders’ funds
range of 2 : 1. • Alternatively, Capital employed = Net assets = Total assets
(non-current assets + current assets) – Current liabilities
2. Quick Ratio (or Liquid Ratio or Acid-Test Ratio) Significance: It shows proportion of long-term debts in
It is the ratio of quick assets (or liquid assets) to current capital employed. Low ratio provides security to lenders and
liabilities. high ratio helps management in trading on equity.
Quick Assets
Quick ratio =
Current Liabilities
Top Tip
Quick assets are defined as those assets which are quickly
Debt to Capital Employed Ratio can also be computed in
convertible into cash. While calculating quick assets we exclude
relation to total assets. In that case, it usually refers to the
the inventories at the end and other current assets such as
ratio of total debts (long-term debts + current liabilities) to
prepaid expenses, advance tax, etc., from the current assets
total assets, i.e., total of non-current and current assets (or
because they are not quickly convertible into cash, and hence
shareholders’ funds + long-term debts + current liabilities).
considered as non-liquid current assets.
Total Debts
Debt to Capital Employed Ratio =
Total Assets
Top Tip
Quick assets = Current assets – Closing inventory – Other 3. Proprietary Ratio
current assets (prepaid expenses, advance tax, etc.) Proprietary ratio expresses relationship of shareholders’ funds
(proprietors’ funds) to total assets.
Significance: The quick ratio provides a measure of the
capacity of the business to meet its short-term obligations Proprietary Ratio = Shareholders ' Funds
Total Assets
without any flaw.
Significance: Higher proportion of shareholders’ funds in
• Because of exclusion of non-liquid current assets, quick financing the assets is a positive feature as it provides security
ratio (or liquid ratio) is considered better than current to creditors.
ratio as a measure of liquidity position of the business.
• Quick ratio is also known as ‘Acid-Test Ratio’ because it is calculated to Top Tip
serve as a supplementary check on liquidity position of the business. Proprietary ratio can also be calculated as:
• It is advocated to be safe to have a quick ratio of 1 : 1 as low Shareholders ' Funds
ratio will be very risky and a high ratio suggests unnecessarily Proprietary Ratio =
Net Assets(= Capital employed)
deployment of resources in less profitable short-term investments.
Then, Debt to capital employed ratio + Proprietory ratio = 1
4. Total Assets to Debt Ratio Average Trade Receivables

This ratio measures the extent of the coverage of long-term
= Opening Trade Receivables + Closing Trade Receivables
debts by assets. 2
Total assets to Debt Ratio =

Total assets Top Tip
Long-term debts Debtors should be taken before making any provision for doubtful debts.
Significance: This ratio indicates the rate of external funds Significance: This ratio indicates the speed (number of times)
in financing assets and the extent of coverage of long-term with which trade receivables are realised, i.e. converted into
debts by assets. The higher ratio indicates that assets have cash in an accounting year.
been mainly financed by owners’ funds and the long-term loan This ratio helps in working out the average collection period.
is adequately covered by assets. Months in a year/ Days in a year
Average collection period =
Trade Receivables Turnover Ratio
Top Tip A high ratio means speedy collection from trade receivables.
It is better to take the net assets (capital employed) instead of 3. Trade Payables Turnover Ratio
total assets for computing Total Assets to Debt Ratio also. Trade payables turnover ratio indicates the pattern of payment
Net assets (capital employed) of trade payables. As trade payables arise on account of
Total assets to Debt Ratio = credit purchases, it expresses relationship between net credit
Long-term debts
purchases and average trade payables.
Then, Total Assets to Debt Ratio = 1/Debt to Capital Employed Ratio
5. Interest Coverage Ratio (ICR) Trade Payables Turnover ratio = Net Credit Purchases
Average Trade Payables
ICR deals with the servicing of interest on long-term debts.
Note: Trade payables =Creditors + Bills payable
Net Profit before Interest and Tax Opening Trade Payables + Closing Trade Payables
Interest Coverage Ratio = Average Trade Payables = .
Interest on long term debts 2
Significance: It reveals average payment period.
Significance: It reveals the number of times interest on long- Number of days / months in a year
Average Payment Period =
term debts is covered by the profits available for payment of Trade Payables Turnover Ratio
interest. It is a measure of security of interest payable on long- Lower Trade Payables Turnover ratio means:
term debts. A higher interest coverage ratio ensures safety of (i) Credit allowed by the supplier is for a long period, or
interest on debts. (ii) Delayed payment to suppliers, which is not a good policy as
it may affect the reputation of the business.
7.8 Activity (or Turnover or Efficiency) Ratios
4. Net Assets Turnover Ratio (or Capital Employed
1. Inventory Turnover Ratio Turnover Ratio or Investment Turnover Ratio)
It expresses the relationship between the cost of revenue from It reflects relationship between revenue from operations and net
operations and average inventory. assets (capital employed) in the business.
Cost of Revenue from Operations Net Revenue from Operations
Inventory Turnover Ratio = Net Assets Turnover ratio = Capital Employed (or Net assets))
Aveerage Inventory
Opening Inventory + Closing Inventory Significance: It reflects the efficiency in utilisation of capital
• Average Inventory = employed/net assets. A high ratio reflects efficient utilisation of
2
• Cost of Revenue from Operations capital employed resulting in higher liquidity and profitability.
= Revenue from Operations – Gross Profit (or + Gross Loss)
Alternately, Cost of Revenue from Operations Capital employed turnover ratio is analysed by two
= Opening Inventory turnover ratios — Fixed Assets Turnover Ratio and Working
+ Net Purchases (cash purchases + credit purchases – returns outward) Capital Turnover Ratio.
+ Direct Expenses (wages, carriage inward, etc.) 5. Fixed Assets Turnover Ratio
– Closing Inventory It reflects relationship between revenue from operations and net
fixed assets.
Top Tip
Cost of Revenue from Operations = Net Purchases + Direct Fixed asset turnover Ratio = Net Revenue from Operations
Net Fixed Assets
Expenses + Decrease in Inventories (Opening Inventory – Closing Inventory)
Note: Net fixed assets = Fixed assets – Accumulated depreciation
Significance: It studies the frequency of conversion of Significance: It reflects the efficiency in utilisation of fixed
inventory of finished goods into revenue from operations assets. A high ratio is a good sign and reflects efficient
during an accounting period. It determines how many times utilisation of fixed assets resulting in higher liquidity and
inventory is purchased or replaced during a year. profitability in the business.
• Low inventory turnover ratio may be due to bad buying, 6. Working Capital Turnover Ratio
obsolete inventory, etc., and is a danger signal. It reflects relationship between revenue from operations and
• High inventory turnover ratio is good but it may be due to working capital.
buying in small lots or selling quickly at low margin to realise Net Revenue from Operations
cash. Thus, it throws light on utilisation of inventory of goods. Working Capital Turnover Ratio =
Working Capital
2. Trade Receivables Turnover Ratio
It expresses the relationship between net credit revenue from Note: Working Capital = Current Assets – Current Liabilities
operations and average trade receivables. Significance: It reflects relationship between revenue from
operations and working capital. A high ratio is a good sign
Net Credit Revenue from Operations
Trade Receivables Turnover ratio = and reflects efficient utilisation of working capital, resulting in
Average Trade Receivabless
higher liquidity and profitability in the business.
Note: Trade receivables = Debtors + Bills Receivable
7.9 Profitability Ratios — Computation and Significance 4. Net Profit Ratio

Net profit ratio is based on all inclusive concept of profit. It
1. Gross Profit Ratio relates revenue from operations to net profit after operating as
Gross profit ratio as a percentage of revenue from operations well as non-operating expenses and incomes.
is computed to have an idea about gross margin.
Gross Profit Net profit
Gross Profit Ratio = × 100 Net Profit Ratio = ¥ 100
Net Revenue of Operations Net Revenue from Operations
Significance: It indicates gross margin on products sold. It

also indicates the margin available to cover operating expenses, Top Tip
non-operating expenses, etc. Generally, Net Profit refers net profit after tax. However, as per
• Higher gross profit ratio is always a good sign as it indicates CBSE guideline, Net Profit Ratio is to be calculated on the basis of
higher gross margin on products sold. net profit before and after tax.
• A low gross profit ratio may indicate unfavourable purchase Significance: It is a measure of net profit margin in relation
and sales policy. to revenue from operations. It reflects the overall efficiency
of the business, assumes great significance from the point of
Top Tip view of investors.
Change in gross profit ratio may be due to change in selling price 5. Return on Investment (ROI) or Return on Capital
or cost of revenue from operations or a combination of both. Employed (ROCE)
2. Operating Ratio It explains the overall utilisation of funds by a business
Cost of Revenue from Operations + Operating Expenses
enterprise.
Operating Ratio = ¥ 100 Net Profit before Interest and Tax
Net Revvenue from Operations Return on Investment = × 100
Capital Employed
Note: Operating expenses = Office expenses +
Capital employed (i.e. the long-term funds employed in the
Administrative expenses+ Selling expenses + Distribution
business) = Shareholders’ Funds + Long-term Debts (or
expenses + Depreciation + Employee benefit expenses
Non-current liabilities)
Significance: It is computed to analyse cost of operations
Alternately, Capital employed = Non-current assets +
excluding financial charges in relation to revenue from
Working capital
operations. Lower operating ratio is a very healthy sign.
Significance: ROI measures return on capital employed in the
Top Tip business. It reveals the efficiency of the business in utilisation
of funds entrusted to it by shareholders, debenture-holders
Cost of operations is determined by excluding non-operating
and long-term loans.
incomes and non-operating expenses.
• For inter-firm comparison, ROI is considered a good
• Non-operating expenses = Loss by fire/Accidental loss, Loss on
measure of profitability.
sale of non-current assets, Interest on long-term debts paid,
• It also helps in assessing whether the firm is earning a
Bank charges, etc.
higher ROI as compared to the interest rate paid on long-
• Non-operating incomes = Interest received, Rent received,
term debts. This is so because if ROI > Rate of Interest on
Dividend received, Profit on sale of non-current assets,
Debt, it is advantageous for a company to use more debt to
Speculation gain, etc.
increase Earnings per share (Trading on equity).
3. Operating Profit Ratio: Net profit after tax and preference dividend
It may be computed directly as under: Note: Earnings per share (EPS) =
Number of equity shares
Operating Profit
Operating Profit Ratio = ¥ 100
Revenue from Operations How is any accounting ratio affected if there
is change in the amount of its numerator or
Alternately, it may be computed as a residual of operating ratio. denominator or both?
Operating Profit Ratio = 100 – Operating Ratio Case I: When only numerator increases: The ratio increases.
Case II: When only numerator decreases: The ratio decreases.
Significance: Operating Profit Ratio is calculated to reveal
Case III: When only denominator increases: The ratio decreases.
operating margin. It helps to analyse the performance of business
and throws light on the operational efficiency of the business. Case IV: When only denominator decreases: The ratio increases.
It is very useful for inter-firm as well as intra-firm comparisons. Case V: When numerator increases while denominator
decreases: The ratio increases.
Top Tip Case VI: When numerator decreases while denominator
increases: The ratio decreases.
Particulars Amt (`) Case VII: When both numerator and denominator increase
Gross Profit xxx by the same amount: There may be three situations:
Less: Operating expenses (xxx) Situation (i): If the original ratio> 1, the ratio decreases.
Add: Operating incomes (e.g. commission, fees xxx Situation (ii): If the original ratio < 1, the ratio increases.
and royalty received) Situation (iii): If the original ratio = 1, the ratio remains
Operating profit xxx the same.
Less: Non-operating expenses (xxx) Case VIII: When both numerator and denominator decrease
Add: Non-operating incomes xxx by the same amount: There may be three situations:
Situation (i): If the original ratio > 1, the ratio increases.
Net profit before tax xxx
Situation (ii): If the original ratio < 1, the ratio decreases.
Less: Tax provision (xxx) Situation (iii): If the original ratio = 1, the ratio remains
Net profit after tax xxx the same.
Multiple Choice
Questions (MCQs)
for
(Strictly as per CBSE Standards and
Expectations for 2024 Examination)
Q.15 ________ are especially interested in the average payment

period, since it provides them with a sense of the bill-paying
patterns of the firm.
(a) Customers (b) Stockholders
Multiple Choice Questions (MCQs) (c) Lenders and suppliers (d) Borrowers and buyers
Q.16 The ________ ratios provide the information critical to the long
Q.1 If the Operating Ratio of Pathway Ltd. is 30%, its Operating run operation of the firm
Profit Ratio will be: (a) liquidity (b) activity (c) solvency (d) profitability
(a) 100% (b) 30% (c) 130% (d) 70% Q.17 The following groups of ratios which primarily measure risk:
Q.2 Which of the following are not tools of Financial Analysis? (a) liquidity, activity, and profitability
(i) Cash Flow Statement (ii) Income Statement (b) liquidity, activity, and inventory
(iii) Balance Sheet (iv) Ratio Analysis (c) liquidity, activity, and debt
(a) (i) and (ii) (b) (ii) and (iv) (c) (ii) and (iii) (d) (iii) and (iv) (d) liquidity, debt and profitability
Q.3 ________ ratios are calculated to determine the ability of the Q.18 The ________ ratios are primarily measures of return:
business to service its debt in the long run. (a) liquidity (b) activity (c) debt (d) profitability
(a) Profitability (b) Solvency (c) Liquidity (d) Turnover Q.19 The ________ of business firm is measured by its ability to
Q.4 Which one of the following statement is/are correct? satisfy its short-term obligations as they become due:
(i) Quick Ratio is considered better than Current Ratio as a (a) activity (b) liquidity (c) debt (d) profitability
measure of liquidity position of business. Q.20 ________ ratios are a measure of the speed with which various
(ii) Debt-equity ratio measures the short-term solvency of the accounts are converted into revenue from operations or cash:
business. (a) activity (b) liquidity (c) debt (d) profitability
(iii) Interest Coverage Ratio reveals the number of times interest Q.21 Which of the following statements is False?
on long-term debts is covered by the profits available for (i) The only purpose of financial reporting is to keep the
interest. managers informed about the progress of operations.
(a) All are correct. (b) (i) and (iii) are correct. (ii) Analysis of data provided in the financial statements is
(c) (ii) and (iii) are correct. (d) (i) and (ii) are correct. termed as financial analysis.
Q.5 __________ ratios are calculated for measuring the efficiency of (iii) Long-term borrowings are concerned about the ability of a
operations of business based on effective utilization of resources. firm to discharge its obligations to pay interest and repay the
(a) Profitability (b) Turnover (c) Solvency (d) Liquidity principal amount.
Q.6 The Debt-Equity Ratio of a company is 2 : 1. Which of the (a) Only (i) (b) Only (i) and (ii)
following transactions will increase the Debt-Equity Ratio? (c) Only (ii) and (ii) (d) All the statements
(a) Issue of shares `1,00,000 Q.22 Which of the following statements is True?
(b) Issue of 9% debentures `4,00,000 (i) A ratio is always expressed as a quotient of one number
(c) Issue of bonus shares `3,00,000 divided by another.
(d) Payment of creditors `50,000 (ii) Ratios help in comparisons of a firm’s results over a number
Q.7 The current assets of X Ltd. are `2,00,000 and its current of accounting periods as well as with other business
liabilities are `1,50,000. If its working capital turnover ratio is 6 enterprises.
times, its revenue from operations will be : (iii) A ratio reflects quantitative and qualitative aspects of results.
(a) `2,00,000 (b) `3,00,000 (c) `2,50,000 (d) `1,50,000 (a) Only (i) (b) Only (ii)
Q.8 From the following information, the Proprietors’ funds are: (c) Only (i) and (ii) (d) All the statements
Current Assets `20,00,000 Q.23 Going concern postulate, money measurement and realisation
Non-Current Assets `40,00,000 assumptions are known as _________.
Long Term Borrowings `25,00,000 (a) Accounting Conventions (b) Postulates
Proprietary Ratio 25% (c) Accounting concepts (d) Accounting policies
(a) `10,00,000 (b) `14,00,000 (c) `24,00,000 (d) `15,00,000 Q.24 Valuing inventory at cost or market price, whichever is lower is
Q.9 The ‘Inventory Turnover Ratio’ from the following information will an example of _________.
be: (a) Accounting Conventions (b) Postulates
Revenue from operations`12,00,000 (c) Accounting concepts (d) Accounting policies
Average Inventory `2,00,000 Q.25 Which of the following statements is/are correct?
Gross loss ratio 20% (i) Small items like pencils, pens, postage stamps, etc. are
(a) 6 times (c) 7.2 times (b) 5 times (d) 3 times treated as expenditure in the year in which they are
Q.10 If revenue from operations is `9,00,000 ; gross profit is 25% on purchased even though they are assets in nature.
cost and operating expenses are `90,000, the Operating Profit (ii) The stationery is valued at cost and not on the principle of
Ratio will be : cost or market price, whichever is less.
(a) 100% (b) 50% (c) 90% (d) 10% (iii) Provisions for doubtful debts are made on estimates and
Q.11 During the year ended 31st March, 2022, Shradha Ltd. earned personal judgements.
net profit of `15,00,000 before interest and tax. The company (iv) In valuing inventory, cost or market value, whichever is less
has a 10% long term debt of `50,00,000. The tax rate is 40%. is being followed.
The Interest Coverage Ratio of the company will be : 1 (a) Only (iv) (b) Only (iii) and (iv)
(a) 2 times (b) 3 times (c) 1·2 times (d) 1·5 times (c) Only (i) and (iv) (d) All are correct
Q.12 The _________ is useful in evaluating credit and collection Q.26 Which of the following statements is/are incorrect?
policies. (i) ICAI’s Guidance Note on Accounting for Employee share
(a) average payment period (b) current ratio based payments requires a credit balance in the ‘Stock
(c) average collection period (d) net assets turnover ratio option outstanding Account’ to be disclosed in balance sheet
Q.13 The ________ may indicate that the firm is experiencing under separate heading’ between share capital and reserves
stockouts and lost sales. and surplus as a part of shareholders fund.
(a) average payment period (b) inventory turnover ratio (ii) Preliminary expenses are to be written-off completely in the
(c) average collection period (d) quick ratio year in which such expenses are incurred. They should be
Q.14 ABC Co. extends credit terms of 45 days to its customers. Its written-off first from securities premium and the balance if
credit collection would be considered poor if its average collection any, from statement of profit & loss.
period was: (iii) Proposed dividend is a current liability.
(a) 30 days (b) 36 days (c) 47 days (d) 37 days (iv) Liquid liabilities refer to current liabilities less bank overdraft.
Competency
Based Questions
for
Comprehensively based on:

National Education Policy
&
National Curriculum Framework for School Education
2023
(v) Obtained a loan from ICICI Bank `1,00,000 payable after

5 years
(vi) Purchased machinery for cash `1,50,000
(vii) Further issue of equity shares `2,00,000
(viii) Issued equity shares for purchase of machinery of `5,00,000
to the vendors (4 marks)
Q.3 From the following information, calculate Operating Ratio and
hence Operating Profit Ratio. Also, explain the significance of
these two accounting ratios. (3 marks)
Revenue from Operations `10,00,000; Gross profit ratio
60%; Selling and distribution expenses`60,000; Office and
administrative expenses `70,000; Depreciation on fixed assets
`20,000; and Employees’ benefit expenses `50,000.
Q.4 From the following details, calculate Interest Coverage Ratio
(ICR), Return on Investment (ROI) and Debt Equity Ratio. Also
comment on the significance of these ratios on the basis of the
calculated values. (4 marks)
Net Profit after Tax `2,00,000; 10% Long term debt `5,00,000;
Tax rate 50%; Share capital `1,50,000; Reserve and Surplus
`50,000; Money received against share warrants `20,000; and
Share application money pending allotment `30,000.
Q.5 From the following information, calculate the value of opening
and closing inventory. Also explain the significance of Inventory
Turnover Ratio. (3 marks)
Inventory Turnover Ratio = 4 times
Gross Profit =20% on Revenue from operations
Revenue from operations =`10,00,000
Opening inventory is 25% of the inventory at the end.
Q.6 Calculate Revenue from operations of ‘BN Ltd.’ from the following
information:
Current Assets `8,00,000; Quick ratio 1.5 : 1; Current ratio 2 : 1;
Inventory turnover ratio 6 times
Goods were sold at a profit of 25% on cost. (3 marks)
Q.7 Calculate Gross Profit Ratio from the following information and
explain the significance of this ratio. (3 marks)
Average Inventory `1,60,000; Inventory Turnover Ratio 8
times, Average Trade Receivables `2,00,000; Trade Receivables
Turnover Ratio 6 times and Cash Sales 25% of Total Sales.
Q.8 From the following information, calculate Working Capital
Turnover Ratio and explain the significance of this ratio.
Capital Employed `1,00,000
Non-Current Assets `80,000
Cost of Revenue from Operations `3,20,000
Gross Profit Ratio 20% (3 marks)
Q.9 Calculate Debt to Equity Ratio and explain the significance of this
ratio:
Total Assets `6,00,000; Reserves and Surplus `1,00,000; Total
Debt `4,00,000; Current Liabilities `1,00,000 (3 marks)
Q.10 ‘Viyo Ltd.’ is a company manufacturing textiles. It has a share
capital of `60 lakhs. For diversification, the company requires
additional capital of `40 lakhs. The company raised funds by
issuing 10% debentures for the same. During the current year
the company earned profit of `8 lakhs on capital employed. It
Competency Based Questions paid tax @ 40%. Calculate: (4 marks)
Q.1 The Current Ratio of Zenith Ltd. is 2 : 1. State giving reasons, (i) Return on Investment
which of the following transactions will improve, reduce or not (ii) Interest coverage ratio
change the current ratio: (4 marks) Also explain the significance of these two accounting ratios.
(i) Payment to creditors `20,000 Q.11 Sunrises Ltd. dealing in readymade garments, is planning to
(ii) Purchased goods on credit `80,000 expand its business operations in order to cater to international
(iii) Cash received from debtors `15,000 market. For this purpose the company needs additional
(iv) Issue of equity shares `5,00,000 `80,00,000 for replacing machines with modern machinery of
(v) Sale of furniture of `8,000 at a loss of `2,000 higher production capacity. It involves committing the finance on a
(vi) Purchase of goods for cash `60,000 long term basis. The management of the company wishes to raise
(vii) Purchase of fixed assets for cash `2,00,000 the required funds by issuing debentures. The debt can be issued
(viii) Sale of goods costing `20,000 for `23,000 on credit at an estimated cost of 10%. The Net profit before interest and
Q.2 Debt-Equity Ratio of Vrinda Ltd. is 2: 1. State with reason tax (PBIT) for the previous year of the company was `8,00,000
whether the following transactions will improve, decline or will and total capital investment was `1,00,00,000. Is the decision
not change the debt-equity ratio: of the management of Sunrises Ltd. to issue 10% debentures
(i) Conversion of `3,00,000,9% debentures into equity shares justified? Explain with the help of accounting ratio. (3 marks)
(ii) Cash received from debtors `1,00,000 Q.12 ‘Smart Stationery Ltd.’ wants to raise funds of `40,00,000 for its
(iii) Redemption of `10,00,000,11% debentures new project. The management is considering the following mix of
(iv) Purchase of goods on credit `4,00,000 debt and equity to raise this amount:
Absolute Percentage
Alternative I Alternative II Alternative III Note 2021-22 2022-23 Increase (+) Increase (+)
Particulars
No. (`) (`) or Decrease or Decrease
Equity `40,00,000 `30,00,000 `10,00,000 (–) (`) (–) (%)
Debt 0 `10,00,000 `30,00,000 I. Revenue from operations 20,00,000 25,00,000 _____ 100
II: Other income 1,00,000 2,50,000 _____ 10
Other details are as follows: III. Total Revenue 21,00,000 27,50,000 105 110
Interest Rate on Debt 10% IV. Expenses
Face Value of Equity Shares (`)100 each (a) Cost of Material consumed _____ 8,00,000 30 32
(b) Change in Inventory 1,00,000 2,00,000 _____ 8
Tax Rate 30% (c) Employee Benefit Expense _____ 4,50,000 15 18
Net profit before interest and tax (PBIT) (`) 8,00,000 (d) Other expenses _____ 2,25,000 10 9
Which mix of debt and equity should the management of the Total expenses 12,00,000 16,75,000 _____ 67
company choose and why? (3 marks) V. Profit before Tax (III-IV) 9,00,000 10,75,000 45 43
Q.13 ‘Foods India Ltd.’ is an unlevered company engaged in the Less : Tax 2,00,000 2,50,000 10 _____
production of packaged juice since 2010. The company’s paid VI. Profit after Tax 7,00,000 8,25,000 35 33
up share capital is `50 crores and Net profit before interest and Q.19 From the following Balance Sheets of Vinayak Ltd. as at 31st
tax (PBIT) is `7.5 crores. Over this period, a large number of March, 2023, prepare a comparative Balance Sheet.
competitors have entered the market and are putting a tough
Particulars Note 31.3.2023 31.3.2022
challenge to ‘Foods India Ltd.’. To face this challenge and to
increase its market share, the company has decided to replace No. (`) (`)
the old machinery with an estimated cost of `100 crores. To raise I. EQUITY AND LIABILITIES
the finance, the company decided to issue 10% debentures, 1. Shareholder’s Funds
(a) Share Capital 21,00,000 20,00,000
which is likely to increase the PBIT by 3 times more.
(b) Reserves and Surplus 2,30,000 2,00,000
Calculate the estimated return on investment (ROI), interest 2. Non-Current Liabilities
coverage ratio (ICR) and debt to equity ratio of the company Long- term borrowings 5,60,000 2,00,000
after the expansion plan. Is the company’s decision to issue 10% 3. Current Liabilities
debentures justified? Explain. (4 marks) Trade Payables 2,80,000 1,00,000
Q.14 From the information extracted from the statement of Profit & Total 31,70,000 25,00,000
Loss of Shree Radhey Ltd for the year ended 31st March 2022 II. ASSETS:
and 31st March 2023,prepare a Common Size Statement of Profit 1. Non-Current Assets
& Loss: (4 marks) Property, Plant and Equipment and
Particulars Note No. 2022-23(`) 2021-22(`) Intangible Assets
(i) Property, Plant and Equipment 21,00,000 20,00,000
Revenue from operations 8,00,000 10,00,000 (ii) Intangible Assets 3,00,000 2,00,000
Gross Profit 60% 70% 2. Current Assets
(a) Inventories 5,60,000 2,00,000
Other Expenses (% of cost of 15% 10%
(b) Cash and Cash Equivalents 2,10,000 1,00,000
revenue from operations)
Total 31,70,000 25,00,000
Tax rate @50%
Q.15 Prepare Comparative Statement of Profit and Loss from the Q.20 From the following Balance Sheets of Govinda Ltd. as at 31st
following information: (4 marks) March,2023, Prepare a Common-size Balance Sheet.
Particulars 2021-22 (`) 2022-23 (`) Particulars Note 31.3.2023 31.3.2022
No. (`) (`)
Revenue from operations 4,50,000 9,60,000
I. EQUITY AND LIABILITIES
Other income 20,000 10,000
1. Shareholder’s Funds
Interest on bank overdraft 5,000 –
(a) Share Capital 30,50,000 20,00,000
10% debentures 2,00,000 2,00,000
(b) Reserves and Surplus 2,80,000 6,00,000
Other expenses 20,000 10,000
2. Current Liabilities
Tax rate @50%
(a) Trade Payables 6,70,000 4,00,000
Q.16 Prepare Comparative Statement of Profit and Loss from the Total 40,00,0000 30,00,000
following information: (4 marks) II. ASSETS
Particulars 2021-22 (`) 2022-23 (`) 1. Non-Current Assets
(a) Property, Plant and Equipment and
Intangible Assets
Opening stock 30,000 60,000
(i) Property, Plant and Equipment 16,00,000 12,00,000
Closing stock 150% of opening stock 40,000 more than opening stock (ii) Intangible Assets 2,00,000 3,00,000
Depreciation and 2. Current Assets
amortisation expenses 20,000 20,000 (a) Inventories 8,00,000 3,00,000
Tax rate @30% (b) Trade Receivables 12,00,000 10,00,000
(c) Cash and Cash Equivalents 2,00,000 2,00,000
Q.17 Prepare Comparative Statement of Profit and Loss from the
following information: (4 marks) Total 40,00,000 30,00,000
Particulars 2021-22 (`) 2022-23 (`) Answers

Cost of materials consumed 35,000 80,000 1.
Sales 4,80,000 10,00,000
Effect Reason
Returns inward 30,000 40,000
Profit on sale of investments 20,000 10,000 (i) Increase/improve Decrease in Current Assets and Current Liabilities
Other expenses 20,000 10,000 (ii) Decrease/Reduce Increase in Current Assets and Current Liabilities
Tax rate @30% (iii) No Change No change in Current Assets and Current Liabilities
(iv) Increase/improve Increase in Current Assets with No change in Current
Q.18 Fill in the amounts left blank in the following Common Size Liabilities
Statement of Profit and Loss for the year ended 31st March, (v) Increase/improve Current assets would increase, while current liabilities
2023. remain the same.
Common-size Statement of Profit & Loss for the year ended 31st
(vi) No change No change in both current assets and current liabilities.
March, 2023
(vii) Decrease/Reduce Current assets decrease with no change in current liabilities.
(viii) Increase/improve Current assets increase with no change in current liabilities
Explanation
of Important
Adjustments
(Chapter-wise)
for
CBSE 2024 Exam
• Revaluation account is credited with increase in the value of Revaluation Account Adjustments
each asset and decrease in its liabilities because it is a gain.
• Revaluation account is debited with decrease in the value of Adjustments TYPE 1 Change in Value of Assets and Liabilities
assets and increase in its liabilities because it is a loss.
• Similarly unrecorded assets are credited and unrecorded Balance Sheet
liabilities are debited to the revaluation account. Liabilities Amt. (`) Assets Amt. (`)
• If the revaluation account finally shows a credit balance, Sundry creditors 1,00,000 Furniture 40,000
then it indicates a net gain. Employee Provident Fund 20,000 Building 5,00,000
• If the revaluation account finally shows a debit balance, Outstanding expenses 10,000 Stock 80,000
then it indicates a net loss. Patents 7,500
• Net gain or net loss on revaluation will be transferred Plant and Machinery 80,000
to the capital accounts of the old partners in their Investment 50,000
old profit sharing ratio.
Adjustments:
Dr. Revaluation A/c Cr. (a) Furniture is reduced by 10%.
Particulars ` Particulars ` (b) Building is appreciated by 20%.
4. To Asset A/c (Decrease in xxx 1. By Asset A/c (Increase xxx (c) Furniture is brought up to `50,000.
value of Asset) xxx in value of asset) xxx (d) Building appreciated at/to `5,50,000.
5. To Liability A/c (Increase xxx 2. By Liability A/c xxx (e) Furniture is revalued at `30,000.
in amount of liability) xxx (Decrease in amount xxx (f) Furniture is reduced to 60%.
6. To Unrecorded Liability or of liability) (g) Stock is overvalued by `4,000.
Cash/Bank A/c 3. By Unrecorded Asset
(h) Stock is undervalued by `5,000.
7. (a) To Profit credited to or Cash/Bank A/c
old partners’ capital A/cs 7. (b) By Loss debited (i) Stock is undervalued by 20%.
(individually) in old profit to old partners’ capital (j) 5% provision/reserve is created on creditors for discount.
sharing ratio A/cs (individually) in (k) A creditor of `2,000 is not likely to claim his money and is
old profit sharing ratio to be written off.
xxxx xxxx (l) Patents are valueless./Patents will be completely written off.
(m) Employees’ Provident Fund is to be increased by `5,000.
Journal (n) Stock includes `1,000 for obsolete items.
Date Particulars L.F. Dr. (`) Cr. (`) (o) Stock is overvalued by 60%.
1. For increase in the value of an asset:
(p) Sundry creditors were unrecorded to the extent of `5,000./A
Asset A/c (gain) Dr. creditor of `5,000 not recorded in the books was to be taken
To Revaluation A/c into account.
(q) Sundry creditors were valued at `1,10,000, one bill for
2. For reduction in the value of a liability: goods purchased have been omitted from books.
Liability A/c (gain) Dr. (r) 10% depreciation on plant and machinery.
To Revaluation A/c
(s) Plant and machinery be revalued at 125%.
3. For recording or selling an unrecorded (t) Outstanding expenses were brought down to `9,000.
asset: (u) Outstanding expenses will be paid off.
Unrecorded Asset /Bank A/c Dr. (v) Furniture of `30,000 were taken over by A and B equally at
To Revaluation A/c book value. Remaining furniture were revalued at `8,000.
4. For reduction in the value of an asset: (w) Market value of investments is `45,000.
Revaluation A/c Dr. (x) Investments were revalued at `60,000.
To Asset A/c (loss) (y) Stock was taken over by a partner, Krishna at `90,000.
(z) A liability on account of damages of `7,000, included in
5. For increase in the amount of a liability: Sundry Creditors, is settled at `12,000.
Revaluation A/c Dr.
To Liability A/c (loss) Treatment in Revaluation A/c and New Balance Sheet:
Dr. Revaluation A/c Cr.
6. For recording or making payment of an
Particulars ` Particulars `
unrecorded liability:
(a) To Furniture A/c 4,000 (b) By Building A/c 1,00,000
Revaluation A/c Dr.
(e) To Furniture A/c 10,000 (c) By Furniture A/c 10,000
To Unrecorded Liability/Bank A/c (f) To Furniture A/c 16,000 (d) By Building A/c 50,000
7.(a) For transfer of gain on revaluation in (g) To Stock A/c 4,000 (h) By Stock A/c 5,000
old ratio: (l) To Patents A/c 7,500 (i) By Stock A/c 20,000
(m) To Employee Provident (j) By Provision
Revaluation A/c Dr. Fund A/c 5,000 for discount on
To Old Partners’ Capital A/cs (n) To Stock A/c 1,000 creditors 5,000
(individually) (o) To Stock A/c 30,000 (k) By Creditors A/c 2,000
(p) To Creditors A/c 5,000 (s) By Plant and
Or
(q) To Creditors A/c 10,000 Machinery A/c 20,000
(b) For transferring loss on revaluation in (r) To Plant and (t) By Outstanding
old ratio: Machinery A/c 8,000 expenses 1,000
Old Partners’ Capital A/cs Dr. (v) To Furniture A/c 2,000 (x) By Investments 10,000
(individually) (w) To Investments A/c 5,000 (y) By Stock 10,000
(z) To Provision for
To Revaluation A/c Damages A/c 5,000
Balance Sheet of the Reconstituted Firm (h) There was a claim on account of workmen’s compensation
Liabilities ` Assets ` of `10,000
(i) Investment worth `6,000 (not mentioned in the balance
(j) Creditors 1,00,000 (a) Furniture 36,000
Less: Prov. 5,000 95,000 (b) Building 6,00,000 sheet) is to be taken into account.
(k) Sundry Creditors 98,000 (c) Furniture 50,000 (j) A provision be made for `2,000 for outstanding legal charges.
(m) Employee P.F. 25,000 (d) Building 5,50,000 (k) Two months salary @`6,000 p.m. was outstanding.
(p) Sundry Creditors 1,05,000 (e) Furniture 30,000 (l) An old computer previously written off was sold for `4,000.
(q) Sundry Creditors 1,10,000 (f) Furniture 24,000 Treatment in Revaluation A/c and New Balance Sheet:
(t) O/s expenses 9,000 (g) Stock 76,000 Dr. Revaluation A/c Cr.
(z) Prov. for Damages 5,000 (h) Stock 85,000
Sundry Creditors 1,00,000 (i) Stock 1,00,000 Particulars ` Particulars `
(n) Stock 79,000 (a) To Reserve for O/s 1,300 (c) By Prepaid/
(o) Stock 50,000 Bill for repair Unexpired Insurance 2,000
(r) Plant and Mach. 72,000 (b) To O/s Salary A/c 3,000 *(d)By Bank A/c 2,000
(s) Plant and Mach. 1,00,000 (e) To Prov. for Elec. Bill 2,000 (unrecorded
(v) Furniture 8,000 (f) To Provision for claim 5,000 typewriter)
(w) Investments 45,000 for damages A/c (i) By Investment A/c 6,000
(x) Investments 60,000 (g) To Liability for B/R 18,000 (l) By Bank A/c 4,000
discounted A/c (unrecorded
computer)
(h) To Workmen’s Comp. 10,000
Claim A/c
(j) To Provision for O/s 2,000
Adjustment (i): Stock is undervalued by 20% means that the legal charges
stock shown in balance sheet at `80,000 is 80%. Therefore, (k) To Outstanding Salary 12,000
current value of stock = 80,000/80 × 100 = `1,00,000. Thus, *On the assets side of the revised balance sheet, bank balance will increase by `2,000,
value of stock increased by `20,000. i.e. amount realised by selling unrecorded typewriter.
Adjustment (o): Stock is overvalued by 60% means that the Balance Sheet of the Reconstituted Firm
stock shown in balance sheet at `80,000 is 160%. Therefore, Liabilities ` Assets `
current value of stock = 80,000/160 × 100 = `50,000. Thus,
value of stock decreased by `30,000. (a) Reserve for O/s Bill 1,300 (c) Prepaid/Unexpired 2,000
(b) O/s Salary 3,000 Insurance 6,000
Adjustment (u): Outstanding expenses will be paid off. Balance
(e) Prov. for Electricity Bill 2,000 (i) Investment
of Bank will decreased by `10,000 on assets side of the balance (f) Prov. for claim 5,000
sheet. Outstanding expenses will not be shown in the revised (g) Liab. for B/R discounted 18,000
balance sheet on the liabilities side. (h) Workmen’s Comp. Claim 10,000
Adjustment (v): Furniture of `30,000 taken over by partners (j) Prov. for O/s legal charges 2,000
A and B equally. A‘s and B’s capital accounts will debited with (k) To Outstanding Salary 12,000
Furniture A/c by `15,000 each. Adjustments TYPE 3 Bad Debts and Provision for Doubtful Debts
Adjustment (y): Book value of stock is `80,000. The same I. Balance Sheet
is taken over by a partner, Krishna at `90,000. Thus, gain on
revaluation of stock is `10,000, which will be credited to revaluation Liabilities ` Assets `
account. Also, Krishna’s capital account will debited with Stock A/c Debtors/Book debts 30,000
by `90,000. No stock will be shown in the balance sheet. Less: Prov. for doubtful debts (5,000) 25,000
Adjustment (z): Provision for damages `5,000 will be debited
to revaluation account and will shown on the liabilities side of Instead of deducting from debtors, provision for
balance sheet separately. Sundry Creditors will appear in the doubtful debts may also appear on the liabilities side of
balance sheet at the same value `1,00,000. balance sheet.
Adjustments TYPE 2 Unrecorded Assets and Unrecorded Liabilities
Adjustments:
Adjustments: (a) Provision for doubtful debts is created up to/equal to/at
(a) A reserve of `1,300 to be made for outstanding bill for 20% of debtors. OR Debtors were revalued at book value
repair./ There was an outstanding repairs bill of `1,300 less 20% provision for bad and doubtful debts.
which will be shown in the books of accounts. (b) Provision for doubtful debts is raised to `7,000.
(b) A liability to the extent of `3,000 created in respect of (c) Provision for doubtful debts is reduced by `3,000.
outstanding salary. (d) Provision for doubtful debts is reduced to 10% on debtors.
(c) Prepaid/unexpired insurance `2,000. (e) Provision for doubtful debts was found in excess by `1000.
(d) There is a typewriter of `2,000 (not recorded in the books) (f) Bad debts to be written off `6,000.
was sold at the same amount. (g) All debtors are considered good./Provision for doubtful
(e) `2,000 be provided for an outstanding electricity bill. debts is no longer required.
(f) There is a claim against the firm for damages, a liability to (h) An old customer, whose account was written off as bad
the extent of `5,000 should be created./A claim of `5,000 debts, has promised to pay `1,000 in settlement of his full
for damages against the firm was likely to be maintained. debt of `3,000.
Provision for the same was to be made. (i) An amount of `1,000 due from Gopal, a debtor, was
(g) A liability of `18,000 will be created against bills receivables doubtful and a provision for the same was required.
discounted.
Dr. Realisation Account Cr. 2. Ayush and Aditya are partners, who share profits in the ratio of 5
Particulars ` Particulars `
: 3. Their firm was dissolved on March 31, 2023. Liabilities side of
Balance sheet showed the following items: Creditors ` 3,60,000,
To Sundry Assets (excluding cash, By External Liabilities
Mrs. A’s Loan `60,000, B’s Loan`1,00,000, Ayush’s Capital
bank and the fictitious assets e.g. • Secured loans (e.g.
profit and loss A/c Dr., deferred Mortgage Bank loan) `2,00,000 and Aditya’s Capital `1,00,000.
revenue expenditure) • Unsecured loans (e.g. The journal entry for the transfer of liabilities:
• Tangible fixed assets (e.g. Plant and Sundry creditors, Bills Creditors A/c Dr. 3,60,000
Machinery, Furniture and Fittings, payable, O/s expenses) Mrs. A’s Loan A/c Dr. 60,000
Land and buildings) • Provisions (e.g. Provision To Realisation A/c 4,20,000
• Intangible fixed assets (e.g. for doubtful debts, 3. On the date of dissolution of the firm, Investment Fluctuation Fund
Goodwill, Patents, Copyright, etc.) Provision for depreciation,
appeared in the Balance Sheet at `15,000.
• Non-current investments (e.g. Investment fluctuation
Shares in ABC Ltd., x% Bonds) fund and Repairs and Investment Fluctuation Fund A/c Dr. 15,000
• Current assets (e.g. Sundry renewal reserve) To Realisation A/c 15,000
debtors, Bills receivables, Stock) • Bank overdraft 4. On the date of dissolution of the firm, Goodwill appeared on the
• Loan to other parties • Partner’s relative’s loan assets side of the Balance Sheet at `20,000.
To Bank A/c (payment of external • Employees’ provident fund Realisation A/c Dr. 20,000
liabilities by the firm at agreed By Bank A/c (assets sold/ To Goodwill A/c 20,000
amount, e.g. Bank loan, Creditors, realised at realised
Bills payable, Partner’s relative’s loan amount) II. For settlement of Assets including unrecorded
but excluding partner’s loan) By Bank A/c (sale of assets, if any:
To Bank A/c (payment of unrecorded unrecorded assets
liabilities by the firm) including goodwill, if any • Realisation of assets: Assets sold/realised at realised amount.
To Bank A/c (amount paid to a at realised amount) Bank A/c Dr.
creditor as agreed value of asset By Partner’s Capital A/c To Realisation A/c
taken over by the creditor is less (assets or unrecorded • Asset taken over by partner: Assets or unrecorded asset taken
than the amount due to him) asset taken over by a over by a partner at agreed amount.
To Partner’s Capital A/c (external partner at agreed amount)
Partner’s Capital A/c Dr.
liability or unrecorded liability By Bank A/c (amount
discharged by a partner) received from a creditor
To Realisation A/c
To Bank A/c (Payment of realisation as agreed value of asset • Unrecorded assets
expenses/dissolution expenses/cost taken over by the creditor (i) If any unrecorded asset including goodwill is sold:
of dissolution by the firm) exceeds the amount due) Bank A/c Dr.
To Partner’s Capital A/c (realisation By Partner’s Capital A/c To Realisation A/c
expenses paid by a partner) (Loss transferred to (ii) If unrecorded asset is taken over by a partner:
To Partner’s Capital A/c partners’ capital accounts
Partner’s Capital A/c Dr.
(remuneration, e.g. commission, in their profit sharing
salary, etc. paid to the partner) ratio) (individually) To Realisation A/c
To Partner’s Capital A/c
(Profit transferred to partners’ Top Tip
capital accounts in their profit
sharing ratio) (individually) • If an asset is sold to a partner, the entry will be through Bank
xx xx Account as asset sold is different from asset taken over.
• If the realized value of tangible assets is not given it should be
JOURNAL ENTRIES considered as realized at book value itself.
I. For transfer of assets and liabilities • If the realized value of intangible assets is not given it should
be considered as nil (zero value).
• Transfer of assets: All asset accounts excluding cash, bank and
the fictitious assets (P&L A/c Dr., deferred revenue expenditure) are Important Adjustments
closed by transfer to the debit of Realisation Account at their book
1. Land and Building (book value `1,60,000) sold for `3,00,000
values.
through a broker, who charged 2% commission on the deal.
Realisation A/c (Book value) Dr.
Bank A/c Dr. 2,94,000
To Assets A/c (Individually)
To Realisation A/c 2,94,000
Note: Sundry debtors are transferred at gross value and the
2. Investment (face value `4,000 and market value `3,000) was
provision for doubtful debts is transferred to the credit side of
realised at 33 13 % less in the open market.
Realisation Account along with liabilities. Similarly, Provision for
Bank A/c Dr. 2,000
depreciation is transferred to the credit side of Realisation Account.
To Realisation A/c 2,000
• Transfer of external liabilities: All external liability accounts 3. Debtors amounting to `1,40,000 were handed over to a debt
including provisions (e.g. provision for doubtful debts, provision collection agency which charged 5% commission. The remaining
for depreciation) are closed by transferring them to the credit of debtors were `47,000, out of which debtors of `17,000 could not
Realisation account. be recovered because the same became insolvent.
External Liabilities A/c (individually) Dr. Bank A/c Dr. 1,63,000
To Realisation A/c (Book value) To Realisation A/c 1,63,000
4. Furniture of `70,000 was sold for `68,000 by auctioneer and
Important Adjustments auctioneer’s commission amounted to `2,000.
1. Shreya and Vrinda are partners, who share profits in the ratio of Bank A/c Dr. 66,000
3 : 2. Their firm was dissolved on March 31, 2023. Assets side of To Realisation A/c 66,000
Balance sheet showed the following items: Cash and Bank ` 40,500, 5. Land and building was sold to Raman, a partner for cash
Stock `7,500, Sundry debtors `21,500 less Provision for doubtful `5,00,000.
debts `500, Fixed Assets `36,500 and Profit and Loss A/c `4,500. Bank A/c Dr. 5,00,000
The journal entry for the transfer of assets to realisation account: To Realisation A/c 5,00,000
Realisation A/c Dr. 65,500 6. There was an old typewriter which had been written-off
completely from the books. It was estimated to realise `400. It
To Stock A/c 7,500
was taken away by Priya at an estimated price less 25%.
To Sundry Debtors A/c 21,500 Priya’s Capital A/c Dr. 300
To Fixed Assets A/c 36,500 To Realisation A/c 300
7. There were 100 shares of `10 each in Star Limited acquired at a 22. Total investments were `1,40,000. Romesh took over some of
cost of `2,000 which had been written-off completely from the the Investments at `8,100 (book value less 10%). The remaining
books. These shares are valued @ `6 each and divided among investments were taken over by Bhawan at 90% of the book
the partners Paras and Priya in their profit sharing ratio 2 : 1. value less `900 discount.
Paras’ Capital A/c Dr. 400 Romesh’s Capital A/c Dr. 8,100
Priya’s Capital A/c Dr. 200 Bhawan’s Capital A/c Dr. 1,17,000
To Realisation A/c 600 To Realisation A/c 1,25,100
8. An unrecorded furniture realised `5,500. 23. Stock has book value of `24,000. Kanav took over 40% of the
Bank A/c Dr. 5,500 stock at 20% less than book value. Remaining stock was sold at
To Realisation A/c 5,500 a gain of 10%.
9. There was an old computer which was written-off in the books
Kanav’s Capital A/c Dr. 7,680
of accounts in the previous year. The same was sold to a partner,
Bank A/c Dr. 15,840
Nitin for `3,000.
Bank A/c Dr. 3,000
To Realisation A/c 3,000 24. Total debtors were `25,000. Debtors realised 90% only and
10. The firm’s goodwill was realised at `30,000. `1,200 were recovered for bad debts written-off last year.
Bank A/c Dr. 30,000 Bank A/c Dr. 23,700
To Realisation A/c 30,000 To Realisation A/c 23,700
11. Paras agreed to takeover the firm’s goodwill (not recorded in the 25. Total debtors were `24,200. A takes over debtors amounting to
books of the firm), at a valuation of `30,000. `20,000 at `17,200. The remaining debtors were sold to a debt
Paras’ Capital A/c Dr. 30,000 collecting agency at 50% of the Book value.
To Realisation A/c 30,000 A’s Capital A/c Dr. 17,200
12. A machine that was not recorded in the books was taken over Bank A/c Dr. 2,100
by Chander at `3,000 whereas its expected value was `5,000. To Realisation A/c 19,300
Chander’s Capital A/c Dr. 3,000 26. Sundry assets were `17,000. B is to take over some sundry
To Realisation A/c 3,000 assets at `7,200 (being 10% less than the book value). C is to
13. Amitesh, an old customer whose account for `60,000 was written take over remaining sundry assets at 90% of the book value.
off as bad debt in the previous year, paid 90%. B’s Capital A/c Dr. 7,200
Bank A/c Dr. 54,000 C’s Capital A/c Dr. 8,100
14. The firm had stock of `80,000. Ankit took over 50% of the stock 27. There was a typewriter which realised `500 and goodwill was
at a discount of 20% while remaining stock was sold off at a sold for `5,000.
profit of 30% on cost.
Bank A/c Dr. 5,500
Ankit’s Capital A/c Dr. 32,000
Bank A/c Dr. 52,000
28. Stocks were of `25,000. Y took over part of stock at `4,000 (being
15. Stock of `7,500 included obsolete items worth `500, which could 20% less than the book value). Balance stock realised 50%.
not be realised. Remaining stock realised in full. Y’s Capital A/c Dr. 4,000
Bank A/c Dr. 7,000 Bank A/c Dr. 10,000
16. Total debtors were `2,40,000. Anju takes over debtors amounting 29. Carol took over half of the investments worth `30,000 at 2%
to `2,00,000 at `1,85,000. Sanju takes over remaining debtors at discount and the remaining investments were sold at a profit of
80% of book value. 18% of the book value.
Anju’s Capital A/c Dr. 1,85,000 Carol’s Capital A/c Dr. 14,700
Sanju’s Capital A/c Dr. 32,000 Bank A/c Dr. 17,700
To Realisation A/c 2,17,000 To Realisation A/c 32,400
17. There was a Motor Cycle in the firm which was bought out of the
firm’s money, was not shown in the books of the firm. It was now III. For discharge/settlement of External Liabilities
sold to Lily for `10,000. including unrecorded liabilities, if any:
Bank A/c Dr. 10,000
• Payment of external/outside liabilities: Payment of external/
18. Total debtors were `2,00,000. Sunil, a debtor of `50,000 had to outside liabilities by the firm at agreed amount, e.g. Bank loan,
pay the amount due 3 months after the date of dissolution. He Creditors, Bills payable, Partner’s relative’s loan but excluding
was allowed a discount of 5% for making payment immediately. partner’s loan.
The remaining debtors were collected in full. Realisation A/c Dr.
Bank A/c Dr. 1,97,500 To Bank A/c
To Realisation A/c 1,97,500 • For a liability which a partner takes responsibility to discharge
19. Total stock were `1,50,000. 50% of the stock was taken over by Realisation A/c Dr.
Ragini at market price which was 20% less than the book value To Partner’s Capital A/c
and the remaining was sold at market price. • For settlement of any unrecorded liability
Ragini’s Capital A/c Dr. 60,000 Realisation A/c Dr.
Bank A/c Dr. 60,000 To Bank A/c
To Realisation A/c 1,20,000 • For settlement with the creditor through transfer of assets
20. Buildings realised for `1,90,000, Bills receivable realised for (a) When a creditor accepts asset in full settlement of his claim:
`1,10,000; Stock realised `1,50,000; and Machinery was sold to No entry
Sonia, a partner for `50,000 and furniture for `75,000. (b) When the creditor accepts an asset as part payment of his dues:
Bank A/c Dr. 5,75,000 The entry will be made for cash payment by the firm only.
To Realisation A/c 5,75,000 Realisation A/c Dr.
21. Total stock were `70,000. Ganesh took over part of stock at To Bank A/c
`8,000 (being 20% less than the book value). Balance of the (c) When a creditor accepts an asset whose value is more than
Stock was sold at 30% discount. the due amount: The creditor will pay cash to the firm for the
Ganesh’s Capital A/c Dr. 8,000 difference.
Bank A/c Dr. 42,000 Bank A/c Dr.
To Realisation A/c 50,000 To Realisation A/c
Important TIPS for
CBSE Accountancy XII
2024 Examination
to
Score 100%
CBSE Sample Question Papers for 2024 Exam Accountancy XII Exam Handbook for 2024 Exam
75
CBSE Sample Question Papers

(2023-24 and 2022-23),
CBSE Practice Question Paper
and 25 Sample Papers for
Practice (with Solutions)
Important Tips for CBSE Accountancy XII Examination 2024

 During 15 minutes reading time, first of all read the questions having internal choice (Accounting for
Share Capital, Accounting for Debenture, Reconstitution of Partnership Firm, etc.) and make selection
of the option in those questions. Then, read all the MCQs and Calculate their answers.
 Use the Formats of Journal and Ledger Accounts given in the Answer Sheet to save your time from drawing
these formats.
 Don’t forget to write Account Heads – Revaluation Account, Partners’ Capital Accounts, etc. in Ledger
Accounts.
 Don’t forget to write Question Number you are answering.
 Read all questions word for word. Otherwise you may miss important information, e.g. X Ltd. issued
1,00,000 shares at a premium of `10 per share payable as `10 on Application, `30 (including premium)
on Allotment and `10 on first and final call each. In this question there are two calls of `10 each. So the
Face Value of a share is `50.
Similarly, the profit sharing ratio of partners, sometimes, may not be given in the beginning but at the end of the
question.
 Write Working Notes only when asked in the questions with instructions – ‘Show your workings clearly.’
 Answer each question from new page (except 1 mark questions)
 Always follow Step by Step Calculation in questions related to Ratio Analysis, Valuation of Goodwill, etc.
 If you are a slow-writer and not able to finish the paper on time in your school examinations, you
must follow the following important tips to be able to finish your paper on time with some revision
time on hand:
• You needn’t write ‘To’ and ‘By’ in Ledger Accounts. It will save at least 5 minutes of time in total.
• Write narrations of the journal entries as briefly as possible without writing ‘Being’ or ‘For’, for
example, ‘Forfeiture of 1,000 shares.’
 Attempting to answer all the questions in paper on time with 20-25 minutes Revision Time on hand is
necessary to score 100%. The following Time Schedule will help you to manage your time when sitting
in the examination hall.
Time Schedule
S. No. Questions Marks Duration Time
1. Part B – Analysis of Financial Statements 20 marks 40 minutes 11:10 a.m.
• 4 MCQs of 1 mark each = 4 marks
• 2 short questions on Ratio Analysis and Balance Sheet = 6 marks
• 1 short question on Comparative/Common Size Statement = 4 marks
• 1 long question on Cash Flow Statement = 6 marks
Accountancy XII Exam Handbook for 2024 Exam Shree Radhey Publications (Subhash Dey)
76
2. 4 Long Questions of 6 marks 24 marks 50 minutes 12:00 p.m.

• Accounting for Share Capital (1 question) = 6 marks
• Accounting for Debentures (1 question) = 6 marks
• Accounting for Partnership Firms — Basic Concepts/Admission
of a new partner/Retirement or Death of a partner/Dissolution of a
partnership firm (2 questions of 6 marks each) = 12 marks
3. 2 Short Questions of 4 marks 8 marks 15 minutes 12:15 p.m.
• 1 short question from Accounting for Partnership Firms = 4 marks
• 1 short question from Accounting for Share Capital = 4 marks
4. 4 Short Questions of 3 marks 12 marks 25 minutes 12:40p.m.
• 3 short questions from Accounting for Partnership Firms = 12 marks
• 1 short question from Accounting for Share Capital/Debenture = 4 marks
5. Part-A 16 MCQs of 1 mark each 16 marks 20 minutes 1:00 p.m.
Revision 30 minutes 1:30 p.m.
During Revision Time: First, ensure that you've attempted to answer all questions and written the question
number of the answers. Then read the questions and your answers checking all calculations.
 Accountancy Paper is not a Theory Paper and requires a relaxed mind when attempting to answer the
Question Paper. ‘Study the whole night before the exam’ is the major cause of under-performance.
Successful students always have given a proper rest to their mental faculty so as to do all calculations
correctly when sitting in the Examination Hall.
In my teaching career, I’ve seen many students making calculations as 2 × 3 = 5 who ultimately score
70 to 80 per cent only, just because they had spent the whole night solving questions on Accounting for
Share Capital, Cash Flow Statement, Death of a Partner and so on one after the other.
 I hope these tips will help you take CBSE Accountancy XII Exam 2021 successfully and you will score
excellently. I’ll take great pleasure in resolving any of your queries/doubts related to the subject through
Whatsapp Number 9810475716.
Finally I pray to the Supreme Divine to bestow blessing on you.
Regards
Your servant
SUBHASH DEY
B.Com. (Hons.), M.Com. (DSE), M.A. (Economics), PGDBA (Finance), B.Ed, PGD in Labour and
Administrative Laws
• Author and Publisher of CBSE Books – Accountancy, Business Studies, Economics, English,
Mathematics, Legal Studies, Physical Education and Entrepreneurship
• M.Com (Delhi School of Economics)– Gold Medalist, Topper of Delhi University
• Consecutive four years’ Economics topper of Delhi University
• Resource Person and Educationist conducting Workshops/Seminars of Teachers and Students in Schools
and Colleges
• Founder of ‘Shree Radhey Publications’ and ‘DEY’SEDU.COM’
CBSE Practice Question Paper
for 2024 Exam
with
Marking Scheme
CBSE
Practice Question Paper
for
2024 Exam
Part-A
(Accounting for Partnership Firms and Companies)
Q.1 Accounting Standard-26 requires that goodwill is to be recorded in the books of accounts only when money or money’s worth
has been paid for it. At the time of admission, Vivaan, a new partner was unable to bring in his share of goodwill in cash, so
according to Accounting Standard-26 his: (1 mark)
(a) Current A/c will be credited. (b) Current A/c will be debited. (c) Capital A/c will be debited. (d) Capital A/c will be credited.
Q.2 Assertion (A): Michael, Mike and Stephen were partners sharing profits and losses in the ratio 3 : 2 : 1. Stephen, being a
partner, wants that he should be exempted from sharing the losses in the firm.
Reasoning (R): According to Partnership Act 1932, “It may be agreed between the partners that one or more of them shall not
be liable for losses.”
(a) Both A and R are correct, and R is the correct explanation of A. (b) A is correct but R is incorrect.
(c) Both A and R are correct, but R is not the correct explanation of A. (d) A is incorrect but R is correct. (1 mark)
Q.3 According to Section 50 of the Companies Act 2013, the amount of Calls in Advance can be accepted by the Company only
when it is authorised by: (1 mark)
(a) Board of Directors (b) Equity Shareholders (c) Articles of Association (d) Memorandum of Association
OR
Tulip Ltd. took up a loan from Punjab National Bank and issued its Debentures as Collateral Security. The bank to whom these
debentures are issued: (1 mark)
(a) will be entitled to interest on such debentures. (b) will not be entitled to interest on such debentures.
(c) will be entitled to interest on primary security. (d) will not be entitled to interest on loan taken up from the bank.
Q.4 Danish, Zaid and Mihir who were sharing profits and losses equally decided to share the future profits and losses in the ratio of
5 : 4 : 3 with effect from 1st April 2023. An extract of their Balance Sheet as at 31st March 2023 is: (1 mark)
Liabilities Amount (`) Assets Amount (`)
Investment Fluctuation Reserve 85,000 Investments (at Cost) 8,00,000
At the time of reconstitution, if the market value of Investment was `7,06,000, the Revaluation A/c will be:
(a) Debited with `15,000 (b) Debited with `9,000 (c) Credited with `2,000 (d) Credited with `12,000
OR
Sam, Tom and Jerry were partners sharing profits and losses equally. Sam sold a land costing `5,00,000 belonging to the firm,
without informing other partners and made a profit of `50,000 on sale of such land. Which decision should be taken by the
firm to rectify this situation? (1 mark)
(a) Sam needs to return only `5,00,000 to the firm. (b) Sam is required to return `50,000 to the firm.
(c) Sam is required to pay back `50,000 only equally to Tom and Jerry. (d) Sam needs to return `5,50,000 to the firm.
Q.5 Mike and Ken were two partners sharing profits and losses in the ratio 4 : 3. Ken was in need of funds, so he took a loan of
`50,000 from the firm at an agreed rate of interest being 10% p.a. If Interest is charged on loan to the partner it will be: (1 mark)
(a) Debited to Profit and Loss A/c (b) Credited to Profit and Loss A/c
(c) Debited to Profit and Loss Appropriation A/c (d) Credited to Profit and Loss Appropriation A/c
Q.6 Cadilla Ltd. allotted 2,000 8% Debentures of `100 each to their underwriters to pay their commission. Which of the following
journal entry is correct, if 8% Debentures are allotted to underwriters? (1 mark)
(a)8% Debentures A/c Dr (b) 8% Debentures A/c Dr
To Underwriting Commission A/c To Underwriter’s A/c
(c)Underwriter’s A/c Dr (d) Underwriter’s A/c Dr
To Underwriting Commission A/c To 8% Debentures A/c
OR
Which of the following statements is correct about debentures? (1 mark)
(a) Interest on debentures is an appropriation of profits. (b) Debentureholders are the creditors of a company.
(c) Debentures cannot be issued to vendors at discount. (d) Interest is paid on Debentures issued as Collateral Security.
78
Q.7 Assertion (A): Under Section 62(1)(b) of the Companies Act, 2013, a Company may offer shares to its employees under a
scheme of ‘Employees Stock Option’ which means the option (right) given to the whole-time directors, officers or permanent
employees of a company to purchase or subscribe the securities offered by the company at a future date, at a pre-determined
price, which is lower than the market price.
Reason (R): The company need not pass a special resolution to this effect.
(a) Both Assertion (A) and Reason (R) are Correct and Reason (R) is the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are Correct, but Reason (R) is not the correct explanation of Assertion (A)
(c) Assertion (A) is incorrect, but Reason (R) is Correct.
(d) Assertion (A) is correct, but Reason (R) is incorrect (1 mark)
Q.8 Neil, Nitin and Nitesh were partners in the firm sharing profits and losses equally. Neil retires from the firm and on his
retirement, he is entitled for the payment due to him after all the adjustments. At the time of retirement, if nothing is mentioned
about the payment made due to him, in which account, the amount will be transferred: (1 mark)
(a) Retiring Partner’s Current A/c (b) Retiring Partner’s Capital A/c(c) Retiring Partner’s Loan A/c (d) Retiring Partner’s Bank A/c
OR
Stella, Grace and Carol were partners in the firm sharing profits and losses in the ratio 3 : 2 : 1. Carol was guaranteed a profit of
`15,000 after making all adjustments. Any deficiency is to be borne by Grace. The net profit for the year 31st March 2023 was
`60,000. Capital Account of Grace will be ________ by ________. (1 mark)
(a) Credited, `6,500. (b) Debited, `5,000. (c) Credited, `7,500. (d) Debited, `2,500.
Read the following hypothetical situation and answer question no. 9 and 10.
Ana and Anne started a partnership business on 1st April, 2022. Their capital contributions were `3,00,000 and `1,00,000 respectively.
Ana rented her property to carry on business for `2,500 p.m. Interest on capitals @12% p.a. Ana, to get a salary of `4,000 p.m. Anne
to get a commission of 2% of the net profit. Profits are to be shared in the ratio of 3 : 2. The profits for the year ended 31st March,
2023 before providing for rent was `2,00,000.
Dr. Profit and Loss Appropriation Account for the year ended 31st March, 2023 Cr.
Particulars Amount (`) Particulars Amount (`)
To Interest on capital: Ana _______ By Profit and Loss A/c _______(2)
Anne _______
To Partner’s Salary: Ana 48,000
To Anne’s commission _____(1)
To Profit transferred to:
Ana’s Capital A/c _______
Anne’s Capital A/c _______
_______ _______
Q.9 The amount to be reflected in blank (1) will be: (1 mark)
(a) `3,720 (b) `3,400 (c) `2,800 (d) `2,940
(a) `1,62,000 (b) `1,74,500 (c) `1,71,400 (d) `1,70,000
Q.11 Which of the following is a right of a partner? (Modified) (1 mark)
(i) Sharing losses with other partners in the agreed ratio (ii) Inspecting and having a copy of the books of accounts
(iii) Retiring from the firm without giving a notice (iv) Taking part in the conduct of the business
(a) Only (i) and (ii) (b) Only (ii) and (iii) (c) Only (i) and (iii) (d) Only (ii) and (iv)
Q.12 Skyline Ltd. took over running business worth `70,00,000 from Grand Ltd. by paying 20% through bank draft and balance by
issue of shares of `100 each at a premium of 10%. The journal entry will be: (Modified) (1 mark)
Date Particulars L.F Dr Cr
(a) Grand Ltd. Dr. 70,00,000
To Share Capital A/c 50,90,900
To Securities Premium A/c 5,09,090
To Bank A/c 14,00,000
To Statement of Profit and Loss 10
(b) Grand Ltd. Dr. 70,00,000
To Bank A/c 14,00,010
CBSE Practice Question Paper for 2024 Exam Accountancy XII Exam Handbook for 2024 Exam
79
(c) Grand Ltd. Dr. 70,00,000

To Bank A/c 14,00,000
(d) Grand Ltd. Dr. 70,00,000
To Bank A/c 14,00,000
Q.13 Mayfair Ltd. forfeited 2,000 shares of `10 each, `7 called up, on which only `4 per share (including `2 premium) and `2 per
share on first call has not been paid. Out of these 500 shares were re-issued as fully paid that `750 was transferred to Capital
Reserve. On re-issue, how much amount will be transferred to Bank A/c? (1 mark)
(a) `3,250 (b) `4,250 (c) `2,250 (d) `5,500
Q.14 David and Garry are partners in a firm with capitals of `90,000 and `80,000 respectively. Zenith brings `70,000 as his capital
for 1/4th share in profits. Zenith’s share of goodwill will be: (1 mark)
(a) `34,000 (b) `29,000 (c) `10,000 (d) `14,000
Q.15 Edward and Hayward are partners. Edward draws a fixed amount at the beginning of every quarter. Interest on drawings is charged
@10% p.a. At the end of the year, interest on Edward’s drawings amounted to `7,500. Drawings of Edward were: (1 mark)
(a) `34,000 per quarter (b) `44,000 per quarter (c) `30,000 per quarter (d) `60,000 per quarter
OR
Ayan, Azan and Aqib are partners carrying on furniture business. Ayan withdrew `5,000 at the end of each month. Azan
withdrew `10,000 at end of each quarter. Aqib withdrew `40,000 at the end of each month for six months. The partnership
deed provides for interest on drawings @ 12% p.a. The interest on drawings charged from Ayan, Azan and Aqib at the end of
the year will be: (Modified) (1 mark)
(a) Ayan - `3,300, Azan - ` 1,800, Aqib - `6,000 (b) Ayan - `2,400, Azan - `1,200, Aqib - `5,000
(c) Ayan - `1,400, Azan - `3,200, Aqib - `2,000 (d) Ayan - `3,200, Azan - `2,300, Aqib - `8,000
Q.16 At the time of dissolution, Harry, a creditor of the firm agreed to take over the furniture of the book value of `1, 00,000 at
`89,000 and the balance in cash in full settlement of his account of `1,10,000. Which journal entry will be passed for the
balance to be paid in cash? (1 mark)
(a) Realisation A/c Dr. 35,000
To Bank A/c 35,000
(b) Realisation A/c Dr. 21,000
To Bank A/c 21,000
(c) Realisation A/c Dr. 11,000
To Bank A/c 11,000
(d) Realisation A/c Dr 15,000
To Bank A/c 15,000
Q.17 Mac, Jack and Lac were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1 (Modified) (3 marks)
Balance Sheet (extract) as at 31st March, 2023
Workmen’s Compensation Reserve 5,00,000
On Jack’s retirement from the firm on 1st April, 2023, he had a balance of `8,00,000 (cr.) in his capital account. The liability of
Workmen’s Compensation Reserve was `5,75,000. Jack was given an unrecorded computer worth `25,000 and the balance of
his dues was transferred his loan account.
You are required to pass journal entries and show how much amount is transferred to his loan account?
Q.18 Viraf, Virat and Vaibhav were partners with capitals of `2,30,000, `1,20,000 and `2,40,000. After distributing the profit of
`5,20,000 for the year ended 31st March 2023 in their agreed ratio of 3 : 2 : 1 it was observed that Interest on capital was
provided at 14% p.a. instead of 10% p.a. You are required to pass adjustment entry. (3 marks)
OR
Eden and Ivon were partners in a firm sharing profits and losses in the ratio of 5:4. Their capitals were `75,000 and `90,000
respectively. After the accounts for the financial year ending March 31, 2023 have been prepared, it is observed that interest on
capital @ 10% per annum and salary to Eden @ `9,000 per annum, as provided in the partnership deed has not been credited
to the partners’ capital accounts before distribution of profits. You are required to give necessary rectifying entries using Profit
and Loss Adjustment Account. (3 marks)
80
Q.19 Glen Ltd. took over the running business of Hayward Ltd. having assets of `22,00,000 and liabilities of `6,00,000 by issuing
20,000, 11% Debentures of `100 each at 5% discount. You are required to pass the journal entries in the books of Glen Ltd. if
debentures were redeemed at 10% premium. (3 marks)
OR
Frank Ltd. issued 1,00,000 Equity shares of `10 each. The amount was duly received except on 5,000 Equity shares on which
`5 per share was received. These shares were forfeited and 2,500 Equity shares were reissued for `9 each fully paid-up. You are
required to prepare Share Forfeiture Account. (3 marks)
Q.20 Kate and Vincet were partners in a firm. On 1st April, 2022, the firm had assets of `90,000 including cash of `8,000. The
partners’ capital accounts showed a balance of `70,000 and reserves constituted the rest. The normal rate of return is 30%
and average profits of the firm are valued at `47,000. You are required to find out the value of goodwill of the firm at 4 years
purchase of super profits. (3 marks)
Q.21 Klen Ltd. was registered with an authorized capital of `10,00,000 divided into Equity Shares of `10. Out of these 8,000 shares
were issued to vendors as fully paid as purchase consideration for a business acquired. The company offered 20,000 shares for public
subscription and called up `8 per share and received the entire amount. You are required to prepare the Balance Sheet of the company
as per Schedule III of Companies Act, 2013, showing Share Capital balance and also prepare Notes to Accounts. (4 marks)
Q.22 Carol and Lacy were partners. They decided to dissolve their firm. Pass the journal entries for the following after various assets
and external liabilities have been transferred to Realisation A/c:
(i) Carol took over half of the investments worth `30,000 at 2% discount and the remaining investments were sold at a profit
of 18% of the book value.
(ii) Lacy is allowed a remuneration of `13,000 for dissolution work and is to bear all the expenses of realisation which amounted
to `5,000 were paid by the firm.
(iii) Carol had given a loan of `89,000 to the firm which was duly paid.
(iv) Lacy agreed to pay off her brother’s loan of `13,000 at a discount of 5%. (4 marks)
Q.23 Royal Fans Ltd. invited applications for 1,00,000 Equity Shares of `100 each at a premium of 10%. The amount was payable as
follows:
On Application `50 per share
On Allotment `35 per share (including premium)
On First and Final Call `25 per share
Applications for 1,50,000 shares were received. Applicants for 25,000 shares did not get any allotment and their money returned.
Allotment was made pro-rata to the remaining applicants. Excess application money was adjusted towards sum due on allotment.
Mr. Hanoz who was allotted 600 shares failed to pay the amount due on allotment and call money. The company forfeited his
shares and subsequently re-issued at `110 per share fully paid-up. You are required to pass journal entries to record the above
transactions in the books of the company, assuming that the company does not maintain Calls-in-Arrears Account. (6 marks)
OR
Phizer Ltd. invited applications for 4,000 equity shares of `100 each at a premium of `30 per share. The amount was payable as
follows:
On Application `40 (Including premium `10)
On Allotment `60 (Including premium `20)
On First and Final Call Balance
Applications for 5,000 shares were received. Allotment was made to all the applicants on pro-rata basis. Excess application
money was adjusted towards sum due on allotment. Rocky, to whom 40 shares were allotted, failed to pay allotment and call
money. Ali, to whom 90 shares were allotted, failed to pay the call money. These shares were forfeited. The forfeited shares were
re-issued @ `80 per share fully paid-up. You are required to pass journal entries to record the above transactions in the books of
the company, assuming that the company does not maintain Calls-in-Arrears Account. (Modified) (6 marks)
Q.24 On 31st March 2023 the Balance sheet of Zoya and Zara who were sharing profits and losses in the ratio of 3 : 2 was as follows.
Creditors 29,000 Cash at bank 9,000
Bills payable 6,000 Debtors 20,000
General reserves 16,000 Less : Provision 1000 19,000
Capitals: Stock 15,000
Zoya 50,000 Land and Building 25,000
Zara 35,000 85,000 Plant and Machinery 30,000
Goodwill 10,000
Profit and Loss account 28,000
1,36,000 1,36,000
81
They decided to admit Sara for 1/5th share on 1st April, 2023 in the firm on the following terms:
(a) Goodwill of the firm is valued at `28,000.
(b) Depreciate Plant and Machinery by 10%, appreciate Land and Building by 40%.
(c) The provision for doubtful debts was to be increased by `800.
(d) A liability of `1,000 included in the creditors is not likely to arise.
(e) New profit sharing ratio between Zoya, Zara and Sara shall be 5 : 3 : 2 respectively.
(f ) Sara was to contribute capital equal to 1/5th of the total capital of Zoya and Zara after all adjustments.
You are required to prepare Revaluation Account and Partners’ Capital Accounts. (6 marks)
OR
Mark, Musk and Alen were partners in a firm sharing profits in 2 : 2 : 1 ratio. On 31.3.2023 Alen retires from the firm. On the
date of Alen’s retirement, the Balance Sheet of the firm was as follows:
Creditors 54,000 Bank 55,000
Bill Payable 24,000 Debtor 12,000
Outstanding Rent 4,400 Less: Provision for Doubtful Debts 800 11,200
Provision for Legal Claim 12,000 Stock 18,000
Capitals: Furniture 8,200
Mark 92,000 Premises 1,94,000
Musk 60,000
Alen 40,000 1,92,000
2,86,400 2,86,400
On Alen’s retirement it was agreed that:
(a) Premises will be appreciated by 5%. (b) Furniture will be appreciated by `2,000.
(c) Stock will be depreciated by 10%. (d) Provision for bad debts was to be made at 5% on debtors.
(e) Provision for legal claim to be made for `14,400. (f ) Goodwill of the firm is valued at ` 48,000.
(g) `50,000 from Alen’s Capital A/c will be transferred to his Loan A/c and balance will be paid by cheque.
Prepare Revaluation A/c, Partners Capital A/cs and Balance Sheet of Mark and Musk after Alen’s Retirement. (6 marks)
Q.25 Ester, Emma and Lucy were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on 31st March
every year. On 30th September, 2022 Lucy died. The partnership deed provided that on the death of a partner her executors
will be entitled to the following:
(a) Balance in her capital account which amounted to `3,15,000 and interest on capital @9% p.a.
(b) Her share in the profits of the firm till the date of her death amounted to `70,000.
(c) Her share in the goodwill of the firm. The goodwill of the firm on Lucy’s death was valued at `1,50,000.
(d) The amount due to Lucky’s executors in excess by `4,00,000 was paid immediately and balance on 30th September 2023
with interest at the rate as specified under Section 37 of the Partnership Act, 1932.
You are required to:
(i) Calculate the amount to be transferred to Lucy’s Capital A/c.
(ii) Prepare Lucky’s Executors’ Account till it is finally settled. (Modified) (6 marks)
Q.26 Akon Ltd issued 12,000, 14% debentures of `100 each on 1st April, 2022 at 5% premium. The issue was oversubscribed
by to two times more and hence all debentures were allotted on pro-rata basis. According to the terms of issue, interest on
debentures is payable half-yearly on 30th September and 31st March and tax deducted at source is 15%. According to the terms
of redemption, these debentures were to be redeemed after 5 years at a premium of 7.5%. You are required to pass the necessary
entries related to issue of debentures, the debenture interest for the half-yearly ending on 31st March, 2023, transfer of interest
on debentures to statement of profit and loss, and writing off ‘Loss on Issue of Debentures’. (Modified) (6 marks)
Part-B
(Analysis of Financial Statements)
Q.27 Operating Cycle is the time between the acquisition of assets for processing and their realisation into: (1 mark)
(a) Current Assets (b) Non-current Assets
(c) Other Current Assets (d) Cash and Cash Equivalents
OR
Interest Accrued but not Due on Debentures will be shown under the heading: (1 mark)
(a) Current Assets (b) Current Liabilities
(c) Contingent liability (d) Non-current Assets
82
Q.28 Vibgyor Ltd. has current assets worth `3,50,000 and it needs to pay off its obligations worth `2,00,000. If the firm has to make
a payment of a current liability worth `50,000, what will be the current ratio? (1 mark)
(a) 3 : 1 (b) 0.75 : 1 (c) 1 : 1 (d) 2 : 1
Q.29 Statement I: Increase in provision for doubtful debts should be added back for calculating cash from operations.
Statement II: Dividend received is a Financing Activity.
(a) Statement I is correct and Statement II is incorrect (b) Statement I and II is correct
(c) Statement I and Statement II is incorrect (d) Statement I is incorrect, and Statement II is correct (1 mark)
OR
Decrease in Bank Overdraft is shown under which heading in a Cash Flow Statement? (1 mark)
(a) Operating (b) Financing (c) Investing (d) Cash and Cash Equivalent
Q.30 Prayas Ltd. made a profit of `1,75,000 after considering the following items: (1 mark)
(i) Goodwill written off `6,000 (ii) Depreciation on Furniture `3,400
(iii) Loss on sale of Building `89,000 (iv) Gain on sale of Land `4,250
Operating Profit before Working Capital changes will be:
(a) `2,25,149 (b) `2,69,150 (c) `2,35,160 (d) `2,53,145
Q.31 Classify the following items under Major heads and Sub heads (If any) in the Balance Sheet of Beltek Ltd. as per Schedule III of
the Companies Act, 2013. (3 marks)
Building under construction 80,000 Interest Accrued and due on Unsecured Loan 6,000
Unpaid Dividend 63,000 Design 49,000
Securities Premium 47,000 Mortgage Loan 1,10,000
Q.32 Following is the Balance Sheet of Yorkshire Ltd. as at 31st March, 2023 (Modified) (3 marks)
Particulars 31.3.2023
I. EQUITY AND LIABILITIES:
(1) Shareholders’ funds
(a) Share capital 1,80,000
(b) Reserves and surplus 2,800
(c) Money received against share warrants 10,000
(2) Share Application Money pending Allotment 20,000
(3) Non- Current liabilities
Long term Borrowings( 12% Debentures) 60,000
(4) Current liabilities
(a) Trade Payable 20,000
(b) Other current liabilities 2,000
(c) Short-term provisions 20,000
Total 3,14,800
II. ASSETS:
(1) Non-current Assets
(a) Property, Plant and Equipment and Intangible Assets 1,96,400
(i) Property, Plant and Equipment 18,800
(ii) Intangible Assets 14,000
(b) Non-current investments
(2) Current assets
(a) Inventories 31,200
(b) Trade Receivables 43,200
(c) Cash and Cash Equivalents 11,200
Total 3,14,800
You are required to calculate: (i) Debt to Equity Ratio (ii) Current Ratio (iii) Return on Investment
Q.33 Prepare Comparative Statement of Profit and Loss of Gem Ltd. from the following: (4 marks)
Particulars Note No. 2023 (`) 2022 (`)
Other income 10,00,000 4,00,000
Expenses 21,00,000 15,00,000
Rate of income tax was 50%.
83
Q.34 From the following Balance Sheet of Havels Ltd. as at 31-3-2023, you are required to prepare a Cash Flow Statement:
Particulars Note 31.3.2023 (`) 31.3.2022 (`)
(1) Shareholders Funds
(a) Share Capital 7,90,000 5,80,000
(b) Reserves and Surplus 1 4,60,000 1,20,000
(2) Non-Current Liabilities
Long term Borrowings 2 5,00,000 3,00,000
(3) Current Liabilities
(a) Short term borrowings 3 1,15,000 42,000
(b) Short term Provisions 4 1,18,000 46,000
Total 19,83,000 10,88,000
II. ASSETS
(1) Non-Current Assets
(a) Property, Plant and Equipment and Intangible Assets
(i) Property, Plant and Equipment 5 9,80,000 6,35,000
(ii) Intangible Assets 6 2,68,000 1,70,000
(2) Current Assets
(a) Current Investments 1,40,000 70,000
(b) Trade Receivables 4,40,000 1,50,000
(c) Cash and Cash Equivalents 1,55,000 63,000
Total 19,83,000 10,88,000

Notes to Accounts:
Note No. Particulars 31.3.2023 (`) 31.3.2022 (`)
1 Reserve and Surplus
Surplus (Balance in statement of Profit & Loss) 3,20,000 60,000
General Reserve 1,40,000 60,000
4,60,000 1,20,000
2 Long-term Borrowing
12% Debentures 5,00,000 3,00,000
3 Short-term Borrowing
Bank Overdraft 1,15,000 42,000
4 Short-term Provisions
Provision for Tax 1,18,000 46,000
5 Plant and Machinery 11,00,000 7,50,000
Less: Accumulated Depreciation (1,20,000) (1,15,000)
9,80,000 3,35,000
6
Intangible Assets
Patents 2,68,000 1,70,000
Additional Information: 12% debentures were issued on 1st September, 2022. (6 marks)
Marking Scheme
1. (b) 2. (a) 3. (c) OR (b) 4. (b) OR (d) (ii) Unrecorded Computer A/c Dr. 25,000
5. (b) 6. (d) OR (b) 7. (d) 8. (c) OR (b) To Revaluation A/c 25,000
9. (b) 10. (d) 11. (d) 12. (b) (Unrecorded computer credited)
13. (b) 14. (c) 15. (c) OR (a) 16. (b) (iii) Mac’s Capital A/c Dr. 20,000
17. Jack’s Capital A/c Dr. 20,000
Date Particulars L.F Dr Cr Lac’s Capital A/c Dr. 10,000
To Revaluation A/c 50,000
(i) Workmen compensation reserve A/cDr. 5,00,000 (Loss on revaluation debited to Partner’s
Revaluation A/c Dr. 75,000 Capital A/c in their old profit-sharing ratio)
To Provision for Workmen’s 5,75,000
Compensation Claim A/c (iv) Jack’s Capital A/c Dr. 7,80,000
(Provision made for workmen claim and To Unrecorded Computer A/c 25,000
shortfall charged to revaluation account) To Jack’s Loan A/c 7,55,000
(Settlement of amount due to Jack)
CBSE Sample Question Papers
2023-24 and 2022-23
with
Marking Scheme
Sample Question Papers
CBSE Sample Question Paper 2023-24 Accountancy XII Exam Handbook for 2024 Exam
87
CBSE Sample Question

Paper 2023-24
Part-A
Q.1 A and B are partners sharing profits and losses in the ratio of 3 : 2. C is admitted for 1/4 and for which `30,000 and `10,000
are credited as a premium for goodwill to A and B respectively. The new profit sharing ratio of A : B : C will be: (1 mark)
(a) 3 : 2 : 1 (b) 12 : 8 : 5 (c) 9 : 6 : 5 (d) 33 : 27 : 20
Q.2 Assertion: Batman, a partner in a firm with four partners has advanced a loan of `50,000 to the firm for last six months of the
financial year without any agreement. He claims an interest on loan of `3,000 despite the firm being in loss for the year.
Reason: In the absence of any agreement / provision in the partnership deed, provisions of Indian Partnership Act, 1932 would apply.
Q.3 If 10,000 shares of `10 each were forfeited for non-payment of final call money of `3 per share and only 7,000 of these shares
were re-issued @`11 per share as fully paid up, then what is the minimum amount that company must collect at the time of re-
issue of the remaining 3,000 shares? (1 mark)
(a) `21,000 (b) `9,000 (c) `16,000 (d) `30,000
OR
On 1st April 2022, Galaxy Ltd. had a balance of `8,00,000 in Securities Premium account. During the year company issued
20,000 Equity shares of `10 each as bonus shares and used the balance amount to write off Loss on issue of Debenture on
account of issue of 2,00,000, 9% Debentures of `100 each at a discount of 10% redeemable @ 5% Premium. The amount to
be charged to Statement of P&L for the year for Loss on issue of Debentures would be: (1 mark)
(a) `30,00,000. (b) `22,00,000. (c) `24,00,000. (d) `20,00,000.
Q.4 A, B and C who were sharing profits and losses in the ratio of 4 : 3 : 2 decided to share the future profits and losses in the ratio
to 2 : 3 : 4 with effect from 1st April 2023. An extract of their Balance Sheet as at 31st March 2023 is: (1 mark)
Workmen Compensation Reserve 65,000
At the time of reconstitution, a certain amount of Claim on workmen compensation was determined for which B’s share of loss
amounted to `5,000. The Claim for workmen compensation would be:
(a) `15,000 (b) `70,000 (c) `50,000 (d) `80,000
OR
A, B and C are in partnership business. A used `2,00,000 belonging to the firm without the information to other partners and
made a profit of `35,000 by using this amount. Which decision should be taken by the firm to rectify this situation? (1 mark)
(a) A need to return only `2,00,000 to the firm. (b) A is required to return `35,000 to the firm.
(c) A is required to pay back `35,000 only equally to B and C. (d) A need to return `2,35,000 to the firm.
Q.5 Interest on Partner’s loan is credited to: (1 mark)
(a) Partner’s Fixed capital account. (b) Partner’s Current account. (c) Partner’s Loan Account. (d) Partner’s Drawings Account.
Q.6 Alexa Ltd. purchased building from Siri Ltd for `8,00,000. The consideration was paid by issue of 6%debentures of `100 each
at a discount of 20%. The 6% Debentures account is credited with: (1 mark)
(a) `10,40,000 (b) `10,00,000 (c) `9,60,000 (d) `6,40,000
OR
Which of the following statements is incorrect about debentures?
(a) Interest on debentures is an appropriation of profits. (b) Debenture holders are the creditors of a company.
(c) Debentures can be issued to vendors at discount. (d) Interest is not paid on Debentures issued as Collateral Security.
Q.7 Assertion (A): A company is registered with an authorised capital of 5,00,000 Equity Shares of `10 each of which 2,00,000
Equity shares were issued and subscribed. All the money had been called up except `2 per share which was declared as ‘Reserve
Capital’. The Share Capital reflected in the Balance Sheet as ‘Subscribed and Fully paid up’ will be Zero.
Reason ( R): Reserve Capital can be called up only at the time of winding up of the company.
88
Q.8 G, S and T were partners sharing profits in the ratio 3:2:1. G retired and his dues towards the firm including Capital balance,
Accumulated profits and losses share and Revaluation gain amounted to `5,80,000. G was being paid `7,00,000 in full settlement.
For giving that additional amount of `1,20,000, S was debited for `40,000. Determine goodwill of the firm. (1 mark)
(a) `1,20,000 (b) `80,000 (c) `2,40,000 (d) `3,60,000
OR
Annu, Banu and Chanu are partners. Chanu has been given a guarantee of minimum profit of `8,000 by the firm. Firm
suffered a loss of `5,000 during the year. Capital account of Banu will be ________ by `_________. (1 mark)
(a) Credited, `6,500. (b) Debited, `6,500. (c) Credited, `1,500. (d) Debited, `1,500.
Read the following hypothetical situation, answer question no. 9 and 10.
Richa and Anmol are partners sharing profits in the ratio of 3 : 2 with capitals of `2,50,000 and `1,50,000 respectively. Interest on
capital is agreed @ 6% p.a. Anmol is to be allowed an annual salary of `12,500. During the year ended 31st March 2023, the profits
of the year prior to calculation of interest on capital but after charging Anmol’s salary amounted to `62,000.A provision of 5% of this
profit is to be made in respect of manager’s commission. Following is their Profit & Loss Appropriation Account:
To Interest on Capital By Profit & loss account ___(2)___
Richa – (After manager’s commission)
Anmol –
To Anmol’s Salary A/c 12,500
Richa’s Capital A/c ___(1)___
Anmol’s Capital A/c -----------
----------- -----------
(a) `37,200 (b) `44,700 (c) `22,800 (d) `20,940
(a) `62,000. (b) `74,500. (c) `71,400. (d) `70,775.
Q.11 In the absence of an agreement, partners are entitled to: (1 mark)
(i) Profit share in capital ratio. (ii) Commission for making additional sale.
(iii) Interest on Loans & Advances by them to the firm. (iv) Salary for working extra hours.
(v) Interest on Capital.
Choose the correct option:
(a) Only (i), (iv) and (v). (b) Only (ii) and (iii). (c) Only (iii). (d) Only (i) and (iii).
Q.12 Rancho Ltd. took over assets worth `20,00,000 from PK Ltd. by paying 30% through bank draft and balance by issue of shares
of ` 100 each at a premium of 10%. The entry to be passed by Rancho Ltd for settlement will be: (1 mark)
(a) PK Ltd. Dr. 20,00,000
To Bank A/c 6,00,000
To Statement of P&L 30
(Being settlement of amount due to vendors)
(b) PK Ltd. Dr. 20,00,000
(c) PK Ltd. Dr. 20,00,000
(d) PK Ltd. Dr. 20,00,000
89
Q.13 A company forfeited 3,000 shares of `10 each, on which only `5 per share (including `1 premium) has been paid. Out of these
few shares were re-issued at a discount of `1 per share and `6,000 were transferred to Capital Reserve. How many shares were
re-issued? (1 mark)
(a) 3,000 shares (b) 1,000 shares (c) 2,000 shares (d) 1,500 shares
Q.14 X and Y are partners in a firm with capital of `18,000 and `20,000. Z brings `10,000 for his share of goodwill and he is
required to bring proportionate capital for 1/3rd share in profits. The capital contribution of Z will be: (1 mark)
(a) `24,000. (b) `19,000. (c) `12,667. (d) `14,000.
Q.15 A and B are partners. B draws a fixed amount at the end of every quarter. Interest on drawings is charged @15% p.a. At the end
of the year interest on B’s drawings amounted to `9,000. Drawings of B were: (1 mark)
(a) `24,000 per quarter. (b) `40,000 per quarter (c) `30,000 per quarter (d) `80,000 per quarter
OR
Shyam, Gopal & Arjun are partners carrying on garments business. Shyam withdrew `10,000 in the beginning of each quarter.
Gopal withdrew garments amounting to `15,000 to distribute it to flood victims, and Arjun withdrew `20,000 from his capital
account. The partnership deed provides for interest on drawings @ 10% p.a. The interest on drawing charged from Shyam,
Gopal & Arjun at the end of the year will be: (1 mark)
(a) Shyam- ` 4,800; Gopal- ` 1,000; Arjun- ` 2,000. (b) Shyam- `4,800; Gopal- ` 1,000; Arjun- ` 2,000.
(c) Shyam- ` 2,500; Gopal- ` 750; Arjun- Nil. (d) Shyam- ` 4,800; Gopal- Nil; Arjun- Nil.
Q.16 On the day of dissolution of the firm ‘Roop Brothers’ had partners’ capital amounting to `1,50,000 , external liabilities `35,000,
Cash balance `8,000 and P&L A/c (Dr.) `7,000. If Realisation expenses and loss on Realisation amounted to `5,000 and
`25,000 respectively, the amount realised by sale of assets is: (1 mark)
(a) `1,64,000 (b) `1,45,000 (c) `1,57,000 (d) `1,50,000
Q.17 Anshul, Babita and Chander were partners in a firm running a successful business of car accessories. They had agreed to share
profits and losses in the ratio of 1/2 : 1/3 : 1/6 respectively. After running business successfully and without any disputes for
10 years,Babita decided to retire due to old age. Anshul and Chander decided to share future profits and losses in the ratio of
3 : 2. The accountant passed the following journal entry for Babita’s share of goodwill and missed some information. Fill in the
missing figures in the following Journal entry and calculate the gaining ratio. (3 marks)
Date Particulars L.F Dr Cr
Anshul’s Capital A/c Dr ----------
Chander’s Capital A/c Dr 21,000 ------------
To Babita’s Capital A/c
(Chander’s share of Goodwill debited to the accounts of continuing partners
in their gaining ratio)
Q.18 P, Q and R were partners with fixed capitals of ` 40,000, `32,000 and `24,000 respectively. After distributing the profit of
`48,000 for the year ended 31st March 2023 in their agreed ratio of 3 : 1 : 1 it was observed that:
(1) Interest on capital was provided at 10% p.a. instead of 8% p.a.
(2) Salary of `12,000 was credited to P instead of Q.
You are required to pass a single journal entry in the beginning of the next year to rectify the above omissions. (3 marks)
OR
Cheese and Slice are equal partners. Their capitals as on April 01, 2022 were `50,000 and ` 1,00,000 respectively. After the
accounts for the financial year ending March 31, 2023 have been prepared, it is observed that interest on capital @ 6% per
annum and salary to Cheese @ `5,000 per annum, as provided in the partnership deed has not been credited to the partners’
capital accounts before distribution of profits.
You are required to give necessary rectifying entries using P&L adjustment account. (3 marks)
Q.19 Pioneer Fitness Ltd. took over the running business of Healthy World Ltd. having assets of `10,00,000 and liabilities of
`1,70,000 by issuing 8,000 8% Debentures of `100 each at 5% premium redeemable after 6 years @ `110; and Cheque for
`50,000. Pass the Journal entries in the books of Pioneer Fitness Ltd. (3 marks)
OR
Lilly Ltd. forfeited 100 shares of `10 each issued at10% premium (`8 called up ) on which a shareholder did not pay `3 on
allotment (including premium) and first call of `2. Out of these 60 shares were reissued to Ram as fully paid for `8 per share
and 20 shares to Suraj as fully paid up @ `12 per share at different intervals of time. Prepare Share Forfeiture account.
Q.20 Calculate goodwill of a firm on the basis of three years purchases of the Weighted Average Profits of the last four years. The
profits of the last four years were:
Years (ending 31st march) 2020 2021 2022 2023
Amount (`) 28,000 27,000 46,900 53,810
90
(a) On 1st April, 2020 a major plant repair was undertaken for `10,000 which was charged to revenue. The said sum is to be
capitalized for calculation of goodwill subject to adjustment of depreciation of 10% on reducing balance method.
(b) For the purpose of calculating Goodwill the company decided that the years ending 31.03.2020 and 31.03.2021 be
weighted as 1 each (being COVID affected) and for year ending 31.03.2022 and 31.03.2023 weights be taken as 2 and 3
respectively. (3 marks)
Q.21 Atishyokti Ltd. company was registered with an authorized capital of ` 20,00,000 divided into 2,00,000 Equity Shares of `10 each,
payable `3 on application, ` 6 on allotment (including ` 1 premium) and balance on call. The company offered 80,000 shares
for public subscription. All the money has been duly called and received except allotment and call money on 5,000 shares held by
Manish and call money on 4,000 shares held by Alok. Manish’s shares were forfeited and out of these 3,000 shares were re-issued
`9 per share as fully paid up. Show share capital in the books of the company. Also prepare notes to accounts. (4 marks)
Q.22 Sun and Kiran are partners sharing profits and losses equally. They decided to dissolve their firm. Assets and Liabilities have
been transferred to Realisation Account. Pass necessary Journal entries for the following: (4 marks)
(a) All partners are agreed that the process of realisation at the time dissolution will be accomplished by Sun for which he
will be paid `10,000 along with the amount of expense which amounted to 2% of total value realised from the Assets on
dissolution. Some assets were sold for Cash at a cumulative value of `12,00,000 and the remaining were taken over by
creditors at a valuation of `3,00,000.
(b) Deferred Revenue Advertisement Expenditure A/c appeared in the books at `28,000.
(c) Out of the Stock of `1,20,000; Kiran (a partner) took over 1/3 of the stock at a discount of 25% and 50% of remaining
stock was taken over by a Creditor of `30,000 in full settlement of his claim. Balance amount of stock realized at `25,000.
(d) An outstanding bill for repairs and renewal of `3,000 was settled through an unrecorded asset which was valued at `10,000.
Balance being settled in Cash.
Q.23 The Directors of Rockstar Ltd. invited applications for 2,00,000 shares of ` 10 each, issued at 20% premium, payable as ` 5
on application, ` 4 (including premium) on allotment and balance on call. Public had applied for 3,20,000 shares out of which
applications for 20,000 shares were rejected and remaining were alloted on pro-rata basis.
Simba, an applicant of 15,000 shares failed to pay allotment and call money. His shares were forfeited and out of these 6,000
shares were reissued at a discount of `2 per share. Journalise. (6 marks)
OR
Shaktimaan Ltd. invited applications for issuing 1,00,000 Shares of `10 each at a premium of `2 per share. The amount was
payable as `4 on application (including premium); `5 on Allotment and balance on call. Applications were received shares
for 1,80,000 of which Applications for 30,000 shares were rejected and remaining applicants were allotted on pro-rata basis.
Manthan, holding 5,000 shares failed to pay call money and his shares were forfeited. Out of these 2,000 shares were re-issued
at premium of ` 3per share. Prepare Cash Book and pass necessary entries.
Q.24 Rajinder and Vijay were partners in a firm sharing profits in the ratio 3 : 2. On 31st March 2023 their balance sheet was as
follows:
Capital A/cs: Fixed Assets (Tangible) 3,60,000
Rajinder 3,00,000 Goodwill 50,000
Vijay 1,50,000 4,50,000 Investments 40,000
Current A/cs: Stock 74,000
Rajinder 50,000 Debtors 1,00,000
Vijay 10,000 60,000 Less: Provision for Doubtful Debts 4,000 96,000
Creditors 75,000 Bank 25,000
General Reserve 60,000
6,45,000 6,45,000
With an aim to expand business, it is decided to admit Ranvijay as a partner on 1st April 2023 on the following terms:
(a) Provision for doubtful debts is to be increased to 6% of debtors.
(b) An outstanding bill for repairs `50,000 to be accounted in the books.
(c) An unaccounted interest accrued of `7500 be provided for.
(d) Investments were sold at book value.
(e) Half of stock was taken by Rajinder at `42,000 and remaining stock was also to be revalued at the same rate.
(f ) New profit-sharing ratio of partners will be 5:3:2.
(g) Ranvijay will bring `1,00,000 as capital and his share of goodwill which was valued at twice the average profit of the last
three years ended 31st March 2023, 2022 and 2021, which were `1,50,000, `1,30,000 and `1,70,000 respectively.
Pass necessary journal entries. (6 marks)
91
OR
L, M and N were partners in a firm sharing profit & losses in the ratio of 2 : 2 : 3 . On 31st March 2023, their Balance Sheet
was as follows:
Creditors 80,000 Land and Building 5,00,000
Bank overdraft 22,000 Machinery 2,50,000
Long term debts 2,00,000 Furniture 3,50,000
Capital A/cs: Investments 1,00,000
L 6,25,000 Stock 4,00,000
M 4,00,000 Debtors 2,00,000
N 5,25,000 15,50,000 Bank 20,000
Employees provident fund 38,000 Deferred Advertisement Expenditure 70,000
18,90,000 18,90,000
On 31st March 2023 , M retired from the firm and remaining partners decided to carry on business. It was decided to revalue
assets and liabilities as under :
(a) Land and Building be appreciated by `2,40,000 and Machinery be depreciated 10%.
(b) 50% of investments were taken by the retiring partner at book value.
(c) Provision for doubtful debts was to be made at 5% on debtors.
(d) Stock will be valued at market price which is `1,00,000 less than the book value.
(e) Goodwill of the firm be valued at `5,60,000. L and N decided to share future profits and losses in the ratio of 2 : 3.
(f ) The total capital of the new firm will be `32,00,000 which will be in proportion of profit-sharing ratio of L and N.
(g) Gain on revaluation account amounted to `1,05,000.
Prepare Partners’ Capital accounts and Balance sheet of firm after M’s retirement. (6 marks)
Q.25 Sandeep, Maheep and Amandeep were partners in a firm sharing profits in the ratio of 2 : 2 : 1. The firm closes its books on
31st March every year. On 30th June, 2020 Maheep died. The partnership deed provided that on the death of a partner his
executors will be entitled to the following:
(a) Balance in his capital account which amounted to `1,15,000 and interest on capital till the date of death which amounted
to `5,000.
(b) His share in the profits of the firm till the date of his death amounted to `20,000.
(c) His share in the goodwill of the firm. The goodwill of the firm on Maheep’s death was valued at ` 1,50,000.
(d) Loan to Maheep amounted `20,000.
It was agreed that the amount will be paid to his executor in three equal yearly instalments with interest @10% p.a. The first
instalment was to be paid on 30.06.2021. Calculate the amount to be transferred to Maheep’s Executors’ Account and prepare
the Executors’ Account till it is finally settled. (6 marks)
Q.26 On July 01, 2022, Panther Ltd. issued 20,000, 9% Debentures of ` 100 each at 8% premium and redeemable at a premium of
15% in four equal instalments starting from the end of the third year. The balance in Securities Premium on the date of issue of
debentures was ` 80,000. Interest on debentures was to be paid on March 31 every year.
Pass Journal entries for the financial year 2022-23. Also prepare Loss on Issue of Debentures account. (6 marks)
Part-B
Q.27 ‘Freedom to choose the method of depreciation’ refers to which limitation of financial statement analysis? (1 mark)
(a) Historical analysis. (b) Qualitative aspect ignored. (c) Not free from bias. (d) Ignore Price level Changes.
OR
________ is included in current assets while preparing Balance Sheet as per revised Schedule III but excluded from current
assets while calculating Current Ratio (1 mark)
(a) Debtors. (b) Cash and Cash Equivalent.
(c) Loose tools and Stores and spares. (d) Prepaid Expense.
Q.28 Debt-Equity Ratio of Dhamaka Ltd is 3 : 1. Which of the following will result in decrease in this ratio? (1 mark)
(a) Issue of Debentures for Cash of `2,00,000.
(b) Issue of Debentures of `3,00,000 to Vendors from whom Machinery was purchased.
(c) Goods purchased on Credit of `1,00,000.
(d) Issue of Equity Shares of `2,00,000.
92
Q.29 Statement I: Sale of Marketable Securities will result in no flow of cash.

Statement II: Debentures issued as collateral security will result in inflow of cash.
(a) Both Statements are correct. (b) Both Statements are incorrect.
(c) Statement I is correct and Statement II is incorrect. (d) Statement I is incorrect and Statement I is correct. (1 mark)
OR
What will be the effect of issue of Bonus shares on Cash Flow Statement? (1 mark)
(a) No effect (b) Inflow in Financing Activity
(c) Inflow in Operating activity (d) Inflow in Investing Activity
Q.30 Aditya Sunrise Ltd. provides you the following information: (1 mark)
Particulars 31.3.2023(`) 31.3.2022(`)
10% Bank Loan Nil 1,00,000
Equity Share Capital raised during the year `3,00,000; 10% Bank Loan was repaid on 01.04.2022; Dividend received during the
year was `20,000; Dividend Proposed for the year 2021-22 was `50,000 but only `20,000 was approved by the Shareholders.
Find out the cash flow from Financing Activities.
(a) ` 1,50,000 (b) ` 2,00,000 (c) ` 1,70,000 (d) ` 1,80,000
Q.31 Classify the following items under Major heads and Sub-heads (if any) in the balance sheet of a Company as per schedule III of
the Companies Act 2013. (3 marks)
(i) Loose Tools (ii) Loan repayable on demand
(iii) Provision for Retirement benefits (iv) Pre-paid Insurance
(v) Capital advances (vi) Shares in Listed Companies
Q.32 (a) A company had a liquid ratio of 1.5, current ratio of 2 and inventory turnover ratio 6 times. It had total current assets of
`8,00,000. Find out annual sales if goods are sold at 25% profit on cost.
(b) Calculate debt to capital employed ratio from the following information: Shareholders’ funds `15,00,000; 8% Debentures
`7,50,000; Current liabilities `2,50,000; Non -current Assets `17,50,000; Current Assets `7,50,000 (3 marks)
Q.33 From the information extracted from the statement of Profit & Loss of Zee Ltd for the year ended 31st March 2022 and 31st
March 2023,prepare a Common Size Statement of Profit & Loss: (4 marks)
Particulars Note No. 2022-23(`) 2021-22(`)
Gross Profit 60% 70%
Other Expenses 2,20,000 2,60,000
Tax Rate 50% 50%
OR
From the following information , prepare Comparative Statement of Profit & Loss: (4 marks)
Particulars Note No. 2022-23(`) 2021-22(`)
Other Income 2,20,000 1,50,000
Cost of materials consumed 4,00,000 3,00,000
Change in inventories of finished goods and work in progress 2,00,000 1,00,000
Other Expenses(% of Revenue from Operations 15% 10%
Tax Rate 30% 30%
Q.34 Prepare a Cash Flow Statement from the following Balance Sheets of Arya Ltd.: (6 marks)
Particulars Note 31.3.2023(`) 31.3.2022(`)
I. Equity and Liabilities:
(1) Shareholders’ Funds:
(a) Share Capital 10,00,000 8,00,000
(b) Reserves and Surplus 1 6,40,000 5,40,000
(2) Non-Current Liabilities:
Long-term Borrowings 2 1,50,000 1,00,000
(3) Current Liabilities:
(a) Trade Payables 30,000 12,000
(b) Short-term Provisions 3 30,000 28,000
Total 18,50,000 14,80,000
93
II. Assets:
(1) Non-Current Assets:
(a) Property, Plant and Equipment and Intangible Assets:
Property, Plant and Equipment 4 7,75,000 4,90,000
(b) Non-current Investments 90,000 50,000
(2) Current Assets
(a) Inventory 6,20,000 4,13,000
(b) Trade receivables 3,20,000 4,94,000
(c) Cash & Cash Equivalents 45,000 33,000
Total 18,50,000 14,80,000

Notes to Accounts:
Particulars 31.3.2023 31.3.2022
1. Reserves & Surplus:
General Reserve 5,00,000 4,30,000
Capital Reserve 60,000 50,000
Surplus ie balance in statement of profit and loss 80,000 60,000
6,40,000 5,40,000
2. Long-term Borrowings:
10% Debentures 1,50,000 1,00,000
3. Short-term Provisions:
Provision for tax 30,000 28,000
4. Property, Plant and Equipment:
Plant and Machinery 7,75,000 4,90,000
Additional Information:
1. Tax provided during the year is `17,000.
2. Depreciation charged on plant and Machinery during the year amounted to `1,20,000.
3. Non-current Investments costing `30,000 were sold for `40,000 during the year. Gain on sale of Investments was credited
to Capital Reserve.
4. Additional Debentures were issued on 31.03.2023.
Marking Scheme
1. (d) 2. (d) 3. (b) or (c) 4. (d) or (d) Date Particulars L.F Dr Cr
5. (c) 6. (b) or (a) 7. (a) 8. (c) or (b)
9. (d) 10. (c) 11. (c) 12. (b) P’s Capital A/c Dr 11,648
13. (c) 14. (a) 15. (b) or (c) 16. (d) R’s Capital A/c Dr 96
17. To Q’s Capital A/c 11,744
(Being entry passed for adjustment of
Date Particulars L.F Dr Cr interest on capital and salary)
Anshul’s Capital A/c Dr 9,000 OR
Chander’s Capital A/c Dr 21,000
To Babita’s Capital A/c 30,000 Date Particulars L.F Dr Cr
(Chander’s share of Goodwill debited to P&L Adjustment A/c Dr. 9,000
the amounts of continuing partners in their To Cheese Capital A/c 3,000
gaining ratio) To Slice Capital A/c 6,000
Gaining Ratio is 3 : 7 (Being Interest on capital omitted earlier
now provided)
18.
P&L Adjustment A/c Dr. 5,000
Partners Interest on Salary Payable Salary Excess / Deficiency
To Cheese Capital A/c 5,000
Capital Paid (wrong (iii) Payable
(Being salary omitted earlier now
(2%) (i) credit) (ii) (iv)
provided)
P 800 Dr. 12,000 Dr. 1152 ---- 11,648 (Excess) Dr.
Cheese Capital A/c Dr. 7,000
Q 640 Dr. ---- 384 12,000 11,744 Slice Capital A/c Dr. 7,000
Cr. (Deficiency) Cr. To P&L Adjustment A/c 14,000
(Being Loss on Adjustment transferred to
R 480 Dr. ---- 384 ---- 96 (Excess) Dr.
partners)
1,920 1,920
Multiple Choice Questions
(Chapter-wise)
ACCOUNTANCY XII Exam Handbook Shree Radhey Publications (Subhash Dey)
60 (for CBSE Examination 2024)
Multiple Choice Questions (MCQs)
1. For which of the following situations, the old profit sharing ratio of partners is used at the time of admission of a new partner?
(a) When new partner brings only a part of his share of goodwill.
(b) When new partner is not able to bring his share of goodwill.
(c) When, at the time of admission, goodwill already appears in the balance sheet.
(d) When new partner brings his share of goodwill in cash.
2. Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5:1.
Balance Sheet (Extract)
Machinery 40,000
If value of machinery in the balance sheet is undervalued by 20%, then at what value will machinery be shown in new balance sheet:
(a) `44,000 (b) `48,000
(c) `32,000 (d) `50,000
3. Meera, Myra and Neera were partners sharing profits in the ratio of 2:2:1. They decided to share future profits in the ratio
of 7:5:3 with effect from 1st April, 2022. Their Balance Sheet as on that date showed a balance of `45,000 in Advertisement
Suspense Account. The amount to be debited respectively to the capital accounts of Meera, Myra and Neera for writing off the
amount in Advertisement Suspense Account will be:
(a) `18,000, `18,000 and `9,000 (b) `15,000, `15,000 and `15,000
(c) `21,000, `15,000 and `9,000 (d) `22,500,`22,500 and Nil
4. Mona and Tina were partners in a firm sharing profits in the ratio of 3 : 2. Naina was admitted with 1/6th share in the profits
of the firm. At the time of admission, Workmen’s Compensation Reserve appeared in the Balance Sheet of the firm at `32,000.
The claim on account of workmen’s compensation was determined at `40,000. Excess of claim over the reserve will be :
(a) Credited to Revaluation Account. (b) Debited to Revaluation Account.
(c) Credited to old partner’s Capital Account. (d) Debited to old partner’s Capital Account.
5. X and Y were partners in a firm sharing profits in the ratio of 7:3. Z was admitted for 1/5th share in the profits which he took
75% from X and remaining from Y. The sacrificing ratio of X and Y will be _________.
(a) 7:3 (b) 3:1
(c) 1:1 (d) 5:1
6. Sun and Star were partners in a firm sharing profits in the ratio of 2:1. Moon was admitted as a new partner in the firm. New
profits sharing ratio was 3:3:2. Moon brought the following assets towards his share of goodwill and his capital:
Machinery `2,00,000; Furniture `1,20,000; Stock `80,000 and Cash `50,000
If his capital is considered as ` 3,80,000, the goodwill of the firm will be:
(a) `70,000 (b) `2,80,000
(c) `4,50,000 (d) `1,40,000
7. Milan, Khilan and Silam were partners sharing profits in the ratio of 2 : 2 : 1. They decided to share future profits in the ratio
of 7 : 5 : 3 with effect from 1st April, 2022. After the revaluation of assets and re-assessment of liabilities, Revaluation account
showed a loss of `15,000. The amount to be debited in the capital account of Milan because of loss on revaluation will be:
(a) `15,000 (b) `6,000
(c) `7,000 (d) `5,000
8. Red, Blue and white were partners in a firm sharing profits in the ratio of 1 : 2 : 2. They decided to share future profits in the
ratio of 7 : 5 : 3 with effect from 1st April, 2022. Their Balance sheet as on that date showed a balance of `22,500 in Deferred
Revenue Expenditure Account. The amount to be debited respectively to the capital accounts of Red, Blue and white for
writing off Deferred Revenue Expenditure will be:
(a) `7,500, `7,500, and `7,500 (b) `4,500, `9,000, and `9,000
(c) `10,500, `7,500, and `4,500 (d) `11,250, Nil and `11,250
9. Aditya and Shiv were partners in a firm with capitals of ` 3,00,000 and 2,00,000, respectively. Naina was admitted as a new
partner for 1/4th share in the profits of the firm. Naina brought ` 1,20,000 for her share of goodwill premium and ` 2,40,000
for her capital. The amount of goodwill premium credited to Aditya will be:
Goodwill, Admission of a New Partner ACCOUNTANCY XII Exam Handbook
(for CBSE Examination 2024) 61
and Change in Profit Sharing Ratio
(a) `40,000 (b) `30,000
(c) `72,000 (d) `60,000
10. At the time of admission of a new partner in the firm, the new partner compensates the old partners for their loss of share in
the _________ of the firm for which he brings in an additional amount which is known as Premium for goodwill.
(a) Average profit (b) Normal profit
(c) Super profit (d) Actual profit
11. Mita and Sumit are partners in a firm with capitals of `6,00,000 and `4,00,000 respectively. Keshav was admitted as a new
partner for 1/5th share in the profits of the firm. Keshav brought `40,000 as his share of goodwill premium and 3,00,000 as
his capital. The amount of goodwill premium credited to Sumit will be:
(a) `20,000 (b) `24,000
(c) `16,000 (d) `40,000
12. Swati and Aman were partners in a firm. Their fixed capitals were `9,00,000 and `3,00,000, respectively. They shared profits
in the ratio of their capitals. Divya was admitted as a new partner for 1/4th share in the profits of the firm. Divya brought
`60,000 as her share of goodwill premium and `6,00,000 as her capital. The amount of goodwill premium credited to Swati’s
account will be:
(a) `60,000 (b) `30,000
(c) `45,000 (d) `15,000
13. Puneet and Deepak were in partnership sharing profits and losses in the ratio of 2:1.They admitted Manya as a new partner.
Manya brought ` 1,00,000 as her share of goodwill premium, which was entirely credited to Puneet’s capital account. On the
date of admission, goodwill of the firm was valued at ` 3,00,000. The new profit sharing ratio of Puneet, Deepak and Manya
will be ___________.
(a) 2:1:1 (b) Equal
(c) 2:1:2 (d) None of these
14. Ashok and Sudha were partners in a firm sharing profits and losses in the ratio of 3:1. They admitted Bani as a new partners.
Ashok sacrificed 1/4th of his share and Sudha sacrificed 1/4th of her share is favour of Bani. Bani’s share in the profits of the
firm will be:
(a) 5/8 (b) 1/8
(c) 1/4 (d) 7/16
15. Mahi and Rajat were in partnership sharing profits and losses in the ratio of 4 : 3. They admitted Kripa as a new partner.
Kripa brought `60,000 as her share of goodwill premium which was entirely credited to Mahi’s capital account. On the date of
admission, goodwill of the firm was valued at ` 4,20,000. New profit sharing ratio of Mahi, Rajat and Kripa will be ___________.
(a) 4:3:3 (b) Equal
(c) 3:3:1 (d) None of these
16. Krish and Laksh were partners in a firm sharing profits and losses in the ratio of 4 : 1. They admitted Rani as a new partner.
Krish sacrificed 1/4th of his share and Laksh sacrificed 1/5th of his share in favour of Rani. Rani’s share in the profits of the
reconstituted firm will be:
(a) 2/5 (b) 6/25
(c) 9/30 (d) 1/9
17. Anita and Babita were partners sharing profit and losses in the ratio of 3:1. Savita was admitted for 1/5th share in the profits. Savita
was unable to bring her share of goodwill premium in cash. The journal entry recorded for goodwill premium is given below:
Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)
Savita’s Current A/c Dr. 24,000
To Anita’s Capital A/c 8,000
To Babita’s Capital A/c
16,000
(Being adjustment of goodwill premium on Savita’s Admission )
The new profit sharing ratio of Anita, Babita and Savita,will be:
(a) 41:7:12 (b) 13:12:10
(c) 3:1:1 (d) 5:3:2
18. Avya, Divya and Kavya were equal partners. They decided to change the profit sharing ratio to 4:3:2. For this purpose the
goodwill of the firm was valued at ` 90,000.
The journal entry for the treatment of Goodwill on change in profit sharing ratio will be:

(a) Kavya’s Capital A/c Dr. 10,000
To Avya’s Capital A/c. 10,000
(b) Divya’s Capital A/c Dr. 10,000
To Avya’s Capital A/c 10,000
(c) Avya’s Capital A/c Dr. 90,000
To Kavya’s Capital A/c 90,000
(d) Avya’s Capital A/c Dr. 10,000
To Kavya’s Capital A/c 10,000
19. Disha and Abha were partners in a firm. Farad was admitted as a new partner for 1/5th share in the profits of the firm.
Farad brought proportionate capital. Capitals of Disha and Abha after all adjustments were `64,000 and `46,000 respectively.
Capital brought by Farad was:
(a) `22,000 (b) `27,500
(c) `55,000 (d) `28,000
20. Harit and Leela are partners in a firm sharing profits and losses in the ratio of 2:3 Yash was admitted as a new partner for 1/5th
share in the profits of the firm. Yash acquires his share from Leela. The new profit sharing ratio of Harit, Leela and Yash will be:
(a) 2:3:5 (b) 2:2:1
(c) 5:3:2 (d) 3:5:1
21. Bishan and Sudha were partners in a firm sharing profits and losses in the ratio of 5:3. Alena was admitted as a new partner.
It was decided that the new profit sharing ratio of Bishan, Sudha and Alena will be 10:6:5. The sacrificing ratio of Bishan and
Sudha will be :
(a) 5:3 (b) 25:78
(c) 6:5 (d) 2:1
22. The monopoly condition or limited competition enables the concern to earn (i)__________ profits which leads to
(ii)__________ value of goodwill.
(a) (i) high (ii) higher (b) (i) high (ii) lower
(c) (i) low (ii) lower (d) (i) low (ii) higher
23. If, at the time of admission of a new partner, provision for doubtful debts is to be reduced, it shall be __________ to Profit
and Loss Adjustment Account.
(a) Debited (b) Credited
(c) Added (d) Deducted
24. At the time of admission of a new partner, gain or loss arising from revaluation is shared by __________ in __________ ratio.
(a) old/existing partners, old profit sharing (b) new partner, old profit sharing
(c) old/existing partners, sacrificing (d) None of these
25. The circumstance in which sacrificing ratio may be applied are __________.
(a) Admission of a partner (b) Change in profit-sharing ratio
(c) Retirement of a partner (d) Both (a) and (b)
26. Purpose for admitting a new partner in a firm:
(a) The requirement of additional capital
(b) Managerial help
(c) Both (a) and (b)for the expansion of business
(d) None of these
27. A and B were partners in a firm with capitals of `3,00,000 and `2,00,000 respectively. The normal rate of return was 20% and
the capitalised value of average profits was `7,50,000.The goodwill of the firm by capitalisation of average profits method will
be _____.
(a) `32,50,000 (b) `1,50,000
(c) `2,50,000 (d) None of these
28. Average profit of a firm during the last few years is `1,50,000. In similar business, the normal rate of return is 10% of the capital
employed. What is the value of goodwill by capitalisation of super profit method if super profits of the firm are `50,000?
(a) `1,50,000 (b) `1,00,000
(c) `2,50,000 (d) `5,00,000
29. Goodwill is ______________.
(a) the value of reputation of a firm in respect of profits expected in future over and above the normal profits
(b) the present value of a firm’s anticipated excess earnings
(c) the capitalised value attached to the differential profit capacity of a business
(d) All the above
30. A, B and C were partners in a firm sharing profits and losses in the ratio of 1/2:1/3:1/6. D was admitted in the firm for 1/6th
share. C would retain his original share. The new profit sharing ratio will be _______.
(a) 12:8:5:5 (b) 2:2:1:1
(c) Equal (d) None of these
31. Which of the following is the right acquired by a newly admitted partner?
(a) Right to share the assets of the partnership firm (b) Right to share the profits of the partnership firm
(c) Right to share the property of the partners (d) Both (a) and (b)
32. The average profit of a partnership firm of the last five years was `1,60,000. Actual Capital of the firm was `5,00,000 while
the normal rate of return was 20%. The goodwill of the firm on the of 3 years’ purchase of super profits will be ____.
(a) `1,80,000 (b) `60,000
(c) `23,40,000 (d) `3,40,000
33. The reason for the preparation of ‘Revaluation Account’ at time of admission of a partner:
(a) To record the effect of revaluation of assets and liabilities.
(b) To ensure that the gain or loss on revaluation of assets and liabilities may be divided amongst the old partners in their old
profit sharing ratio.
(c) To ascertain whether the assets of the firm are shown in books at their current values.
(d) Both (a) and (b)
34. A and B are partners in a firm sharing profits in the ratio of 5 : 3. On March 31, 2021, their Balance Sheet showed a General
Reserve of `1,00,000. On 1st April, 2022 they decided to admit C for 1/5th share, to be contributed equally by A and B. It
was decided that the general reserve will not be distributed.
The journal entry for adjustment of general reserve will be:
(a) Debit General Reserve by `1,00,000 and credit A’s and B’s Capital Accounts by `62,500 and `37,500 respectively.
(b) Debit General Reserve by `1,00,000 and the Partners’ Capital Accounts by `50,000; `30,000 and `20,000 respectively.
(c) Debit C’s Capital A/c by `20,000 and credit A’s and B’s Capital A/cs by `12,500 and `7,500 respectively.
(d) Debit C’s Capital A/c by `20,000 and credit A’s and B’s Capital A/cs by `10,000 each.
35. Niyati and Aisha were partners in a firm sharing profit and losses in the ratio of 4 : 3. They admitted Bina as a new partner.
Niyati sacrificed 1/4th from her share and Aisha sacrificed 1/7th form her share in favour of Bina Bina’s share in the profits of
the firm will be:
(a) 2/7 (b) 10/49
(c) 11/28 (d) 7/16
36. On April l, 2022, a firm had total assets (excluding goodwill and fictitious assets) of `1,20,000. The external liabilities were
`10,000. If the normal rate of return is 8%, the Goodwill of the firm is valued at `60,000 at four years’ purchase of super
profit, the actual profits of the firm is:
(a) `23,800 (b) `24,600
(c) `6,200 (d) `15,800
37. Madhu and Neha were partners in a firm sharing profits and losses in the ratio of 3 : 5. Their fixed capitals were `4,00,000 and
`6,00,000 respectively. On 1.1.2022, Tina was admitted as a new partner for 1/4 th share in the profits. Tina acquired her share
of profit from Neha. Tina brought `4,00,000 as her capital which was to be kept fixed like the capitals of Madhu and Neha.
The goodwill of the firm on Tina’s admission will be:
(a) `6,00,000 (b) `2,00,000
38. Out of the following, in which situation(s) the reconstitution of a firm takes place:
(a) At the time of change in profit sharing ratio amongst the partners
(b) At the time of admission of a new partner
(c) Both (a) and (b)
(d) At the time of doing past adjustments
39. Loss on Revaluation at the time of admission of a new partner is borne by:
(a) Old partners in the old ratio (b) New partner only
(c) All partners in their new ratio (d) Old partners in their sacrificing ratio
40. Sita and Geeta are partners in a firm sharing profits and losses in the ratio of 3 : 1. On 1st April, 2022, they decided to change
their profits sharing ratio to 3 : 2. On that date, Plant and Machinery was appearing in the Balance Sheet at `99,000. At the
time of change in profit sharing ratio, it was found to be overvalued by 10%. At what value will Plant and Machinery be
shown in the new Balance Sheet?
(a) `88,600 (b) `87,800
(c) `90,000 (d) `89,100
41. R, S and T are partners in a firm sharing profits in the ratio of 3:3:2. From 1st April 2022, they decided to share profits in
the ratio of 3:2:1. On that date their Balance Sheet owned Contingency Reserve of `1,92,000. They decided to show this
Contingency Reserve in the new Balance Sheet. The correct accounting treatment for the above is:
(a) S’s capital account will be debited by `24,000 and R and T’s capital account will be credited by `8,000 and `16,000 respectively
(b) T’s capital account will be debited by `24,000 and R and S’s capital account will be credited by `8,000 and `16,000 respectively
(c) R’s capital account will be debited by `24,000 and S and T’s capital account will be credited by `8,000 and `16,000 respectively
(d) S and T’s capital account will be debited by `8,000 and `16,000 respectively and R’s capital account will be credited by `24,000
42. P,Q and R are partners sharing profits in the ratio of 3:2:1. They admitted U as a partner for 1/4th share. On the date of U’s
admission, the Workmen Compensation Fund was appearing in the books at `72,000. A claim of `24,000 was accepted against it.
The amount of Workmen Compensation Fund credited to Q’s Capital Account was:
(a) `16,000 (b) `24,000
(c) `8,000 (d) `48,000
43. The goodwill of a firm is `1,08,000. It was valued at 4 years’ purchase of super profits. The capital employed by the firm is
`4,00,000 and the normal rate of return is 10%. The average profit of the firm is:
(a) `47,000 (b) `67,000
(c) `40,000 (d) `49,000
44. Rajesh and Vikram are partners sharing profit and losses in the ratio of 3:2. They admitted Varun as a new partner. Rajesh
surrendered 2/5th of his share and Vikram 1/5th of his share in favour of Varun. The sacrificing ratio will be:
(a) 3:5 (b) 2:3
(c) 1:3 (d) 3:1
45. Robert and David are partners in a firm having capitals of `10,00,000 and `8,00,000 respectively. Max was admitted as a new
partner for 1/5th share in the profits of the firm. Max brought `6,00,000 as his capital. The goodwill of the firm was valued at
`8,00,000 . Max was unable to bring his share of goodwill premium in cash. It was decided to treat goodwill without raising
goodwill account. The amount of goodwill credited to Robert will be:
(a) `80,000 (b) `1,20,000
(c) `1,60,000 (d) No amount will be credited
46. L and M are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were `6,40,000 and `4,00,000
respectively. N was admitted for 1/5th share in the profits of the firm. He brought `4,80,000 as his capital. The goodwill of
the firm will be:
(a) `8,80,000 (b) `1,76,000
(c) `13,60,000 (d) `2,72,000
47. Amar and Akbar are partners sharing profits in the ratio of 2:1. They admitted Anthony as a partner for 1/5th share in the
profits. On the date of Anthony’s admission, the Profit and Loss Account showed a debit balance of `90,000. The journal
entry for the accounting treatment of this balance on Anthony’s admission will be:
(a) Profit & Loss A/c Dr 90,000
To Amar’s Capital A/c 60,000
To Akbar’s Capital A/c 30,000
(b) Amar’s Capital A/c Dr 60,000
Akbar’s Capital A/c Dr 30,000
To Profit & Loss A/c 90,000
(c) Profit & Loss A/c Dr 90,000
To Amar’s Capital A/c 48,000
To Akbar’s Capital A/c 24,000
To Anthony’s Capital A/c 18,000
(d) Amar’s Capital A/c Dr 48,000
Akbar’s Capital A/c Dr 24,000
Anthony’s Capital A/c Dr 18,000
To Profit & Loss A/c 90,000
48. Which of the following statement(s) is/are not correct?
(i) Goodwill is the present value of a firm’s anticipated excess earnings.
(ii) Goodwill is a fictitious asset.
(iii) Goodwill is an intangible asset.
(iv) Goodwill is affected by the location of business.
(a) only (i) (b) Both (i) and (iii)
(c) only (ii) (d) only (iv)
49. Madhur, Meena and Alka were partners sharing profits and losses in the ratio of 5:3:2. The partners agreed to share future
profits in the ratio of 2:2:1. The Sacrifice/gain of the partners will be:
(a) Madhur will sacrifice 1/10th and Alka will gain 1/10th
(b) Meena will sacrifice 1/10th and Alka will gain 1/10th
(c) Meena will sacrifice 1/10th and Madhur will gain 1/10th
(d) Madhur will sacrifice 1/10th and Meena will gain 1/10th
50. Li and Mi are partners in a business sharing profits and losses in the ratio of 4:1. Ni is admitted as a new partner in the firm. Li
surrendered 1/6th from his share and Mi surrendered 1/5th from his share in favour of Ni. What will be Ni’s share of profits?
(a) 2/11 (b) 1/5
(c) 11/30 (d) 1/30
51. X and Y were partners sharing profits in the ratio of 3:2. Z was admitted as a new partner for 1/5th share. X sacrificed 3/20
from his share and Y sacrificed 1/20 from his share in favour of Z, the new profit sharing ratio would be:
(a) 9 : 7 : 4 (b) 8 : 8 : 4
(c) 6 : 10 : 4 (d) 10 : 6 : 5
52. Mallika, Meera and Madhu were partners sharing profits in the ratio of 2 : 2 : 1. They decided to share future profits in
the ratio of 7 : 5 : 3. with effect from 1st April, 2022. Their Balance Sheet as on that date showed a balance of `30,000 in
Advertisement suspense account. Amount, that will be debited/credited to the Capital accounts of Malika, Meera and Madhu
if they decide to carry forward the amount of Advertisement Suspense Account.
(a) `12,000 (Dr); `12,000 (Dr) and `6,000 (Dr) respectively to the Capital Accounts of Malika, Meera and Madhu.
(b) Debit `10,000 each to all partner’s Capital Accounts.
(c) Debit Meera’s Capital A/c and Credit mallika’s Capital A/c by `2,000.
(d) Debit Mallika’s Capital A/c and Credit Meera’s Capital A/c by `2,000 each.
53. Arun, Babita and Charu are parnters in a firm sharing profits in the ratio of 3 : 3 : 2. They decided to share future profits and
losses in the ratio of 1 : 1 : 1 with effect from 1-4-2022. They decided to record the effect of the following without affecting
their Book values.
(i) Profit and Loss A/c (Cr) `8,000 (ii) General Reserve `4,000
The necessary adjusting entry for the same will be:
(a) Charu’s Capital A/c Dr. 1,000
To Arun’s Capital A/c 500
To Babita’s Capital A/c 500
(b) Arun’s Capital A/c Dr. 500
Babita’s Capital A/c Dr. 500
To Charu’s Capital A/c 1,000
(c) Charu’s Capital A/c Dr. 1,000
To Babita’s Capital A/c 1,500
(d) Charu’s Capital A/c Dr. 3,000
To Arun’s Capital A/c 1,500
To Babita’s Capital A/c 1,500
54. Amit and Sumit were partners in a firm with capitals of `3,00,000 and `2,00,000 respectively. The normal rate of return was
20% and the capitalised value of average profits was `8,50,000. The Goodwill of the firm by capitalization of average profits
method will be _________.
(a) `10,00,000 (b) `1,50,000
(c) `3, 50,000 (d) `5,00,000
55. Mani and Neeru are partners in a firm sharing profits in the ratio of 5:3. On 1-4-2022, they admitted Lily as a new partner on
the following terms:
(i) The new profit sharing ratio will be 2 : 3 : 3.
(ii) Lily will bring `1,00,000 for her capital and the necessary amount of goodwill premium in cash.
(iii) Goodwill of the fimr was valued at `1,40,000.

The journal Entry for treatment of goodwill premium brought by Lily will be
(a) Premium for Goodwill A/c Dr. 52,500
To Mani’s Capital A/c 37,500
To Neeru’s Capital A/c 15,000
(b) Premium for Goodwill A/c Dr. 52,500
(c) Premium for Goodwill A/c Dr. 52,500
Neeru’s Capital A/c Dr. 12,500
(d) Lily’s Current A/c Dr. 1,40,000
To Mani’s Capital A/c 1,00,000
To Neeru’s Capital A/c 40,000
56. At the time of admission of a new partner, general reserve appearing in the old balance sheet is transferred to:
(a) all partner’s capital accounts (b) new partners’s capital accounts
(c) old partner’s capital accounts (d) revaluation account
57. Seema and Teena are partners in a firm sharing profits and losses in the ratio of 3:2. They agreed to admit Reena into
partnership for 1/5th share of profits on 1st April, 2022. On that date, workmen’s compensation fund stood in the balance
sheet at `50,000. The liability against workmen’s compensation fund is determined at `20,000 which is to be paid later in
fund on the admission of new partner Reena?
What will be the Journal Entry for the treatment of Workmen compensation fund on the admission of new partner Reena?
(a) Workmen compensation func A/c Dr 3,000
To Seema’s Capital A/c 18,000
To Teena’s Capital A/c 12,000
(b) Workmen Compensation Fund A/c Dr 50,000
(c) Workmen Compensation Fund A/c Dr 50,000
To Workmen Compensation Claim A/c 20,000
(d) Workmen Compensation Fund A/c Dr 50,000
58. Gopal and Govind are partners in a firm sharing profits equally. They admitted Chetan for 1/3rd share in profits. On admission
debtor whose dues of `5,000 were earlier written off as bad-debts, paid `4,000 in full settlement. Bad debts recovered `4,000
will be debited to _________ and credited to _________.
(a) Cash/Bank A/c, Revaluation A/c (b) Bad debts recovered A/c, Bad debts A/c
(c) Cash/Bank A/c, Bad debts A/c (d) Revaluation A/c, Bad debts recovered A/c
59. Ram and Krishna were partners sharing profits and losses in the ratio of 2:1. They admitted Shanker as a partner for 1/5th
share in the profits. For this purpose the Goodwill of the firm was to be valued on the basis of three times of last five years
average profits. The profits for the last five years were:
Year 2017-18 2018-19 2019-20 2020-21 2021-22
Profit 50,000 40,000 75,000 (25,000) 50,000
Profit of 2018-19 was calculated after charging `10,000 for abnormal loss of goods by fire. The value of Goodwill of the firm’s
(a) `1,28,000 (b) `2,00,000
(c) `1,90,000 (d) `1,20,000
60. Santa and Banta are partners in a firm sharing profits in the ratio of 3:2. Kanta was admitted as a new partner for 1/5th share
of profits. On Kanta’s admission it was decided that machinery would be appreciated by 10% (Book value `80,000) and
Building would be depreciated by 20% (Book value `2,00,000). Unrecorded Debtors of `1,250 would be brought to books.
There was a liability of `2,750 included in Sundry Creditors that is not to be paid. What will be the gain/loss on Revaluation?
(a) Loss `28,000 (b) Loss `40,000
(c) Profit `28,000 (d) Profit `40,000
61. X and Y were partners in a firm sharing profits and losses equally. Their capitals were `2,00,000 and `3,00,000 respectively. Z
was admitted as a new partner for 1/4th share in the profits of the firm. Z brought `2,00,000 as his capital. The goodwill of
the firm was:
(a) `1,00,000 (b) `25,000
(c) `2,00,000 (d) `7,00,000
62. R and M were partners in a firm, sharing profits and losses in the ratio of 5:3. L was admitted as a new partner for 1/5th share
in the profits of the firm. The new profit ratio was 2:2:1. L brought `1,54,000 for his capital and did not bring his share of
goodwill premium. Goodwill of the firm on L’s admission was estimated at `4,50,000. It was decided not to raise goodwill
account on L’s admission.
Out of the following what will be the correct treatment of goodwill on L’s admission?
(a) Debit L’ s current A/c by `90,000 and credit R’ s and M’ s capital A/cs by `45,000 each.
(b) Debit L’ s current A/c by `90,000, Debit M’ s capital A/c by `11,250, credit R’ s capital A/c by `1,01,250.
(c) Debit L’ s current A/c by `90,000 and credit R’ s capital A/c by 56,250 and credit M’ s capital A/c `33,750.
(d) Debit L’ s current A/c by `4,50,000 and credit R’ s and M’ s capital A/c by `2,25,000 each.
63. Which of the following accounts will be debited for transfering loss on revaluation of assets and reassessment of liabilities at
the time of admission of a new partner into the partnership firm:
(a) Old partner’s capital accounts in old profit sharing ratio
(b) Old partner’s capital accounts in sacrificing ratio
(c) All partners capital accounts (including incoming partner) in new profit sharing ratio
(d) Revaluation account
64. A business earned average profits of `60,000 during the last three years. The normal rate of return on similar business is `12%.
The value of net assets of the business is `4,00,000. Its goodwill by capitalisation of Average Profits Method will be:
(a) `1,00,000 (b) `2,00,000
(c) `4,00,000 (d) `50,000
65. Due to change in the profit ratio, Anisha’s gain is 1/5th while Harit’s sacrifice is 1/5th. They decided to adjust the following
without affecting their book values, by passing a single adjustment entry:
General Reserve `20,000
Profit & Loss Account (Dr.) `30,000
The necessary adjustment entry will be:
(a) Debit Anisha’s capital account by `2,000 and credit Harit’s capital account by `2,000.
(b) Debit Anisha’s capital account by `10,000 and credit Harit’s capital account by `10,000.
(c) Debit Harit’s capital account by `2,000 and credit Anisha’s capital account by `2,000.
(d) Debit Harit’s capital account by `10,000 and credit Anisha’s capital account by `10,000.
66. Leela and Meeta were partners in a firm sharing profits and losses in the ratio of 7:3. Geeta was admitted as a new partner for
a 3/13 share of the firm. The new profit sharing ratio will be:
(a) 7 : 3 : 7 (b) 7 : 3 : 3
(c) 3 : 7 : 7 (d) 1 : 1 : 1
67. Amar and Samar were partners in a firm sharing profits and losses on the ratio of 1:5. On 1.4.2022 Ganesh was admitted for
1/5th share in the profits. On the date of Ganesh’s admission the balance sheet of Amar and Samar showed a debit balance
of `60,000 in the profit and loss account. The accounting treatment for the same in the books of accounts of the firm on
Ganesh’s admission will be:
(a) Amar’s and Samar’s Capital Accounts will be debited by `10,000 and `50,000 respectively and Profit and Loss Account
will be credited by `60,000.
(b) Profit and Loss Account will be debited by `60,000 and Amar’s and Samar’s Capital Accounts will be credited by `10,000
and 50,000 respectively.
(c) Revaluation Account will be debited by `60,000 and Profit and Loss Account will be credited by `60,000.
(d) Profit and Loss Appropriation Account will be debited by `60,000 and Profit and Loss Account will be credited by `60,000.
68. On the reconstitution of a firm, the value of land was to be appreciated by `2,00,000 and plant and machinery was to be
reduced to `7,00,000 from `10,00,000. Gain or Loss or revaluation will be:
(a) Gain `1,00,000 (b) Loss `1,00,000
(c) Loss `5,00,000 (d) Gain `5,00,000
69. When a new partner is admitted, the balance of ‘General Reserve’ appearing in the Balance Sheet is credited to:
(a) Profit and Loss Appropriation Account (b) Capital Accounts of all partners
(c) Revaluation Account (d) Capital Account of old partners
70. Kavita and Karan are partners in a firm sharing profits and losses in the ratio 4 : 1. On 1st April, 2022, they admitted Mohit
for 1/4th share in the profits of the firm. The balance sheet of Kavita and Karan showed stock at `45,000. On admission of
new partner, the stock was found undervalued by 10%. The journal entry to give effect to the above adjustment on Mohit’s
admission will be:
(a) Revaluation A/c Dr. 5,000
To Stock A/c 5,000
(b) Stock A/c Dr. 4,500
(c) Stock A/c Dr. 5,000
(d) Revaluation A/c Dr. 4,500
To Stock A/c 4,500
71. Roopa and Daya were partners in a firm. They admitted Navin as a new partner for 1/3rd share in the profits. On Navin’s
admission it was found that there was a claim against the firm for damages for which a liability for damages should be created.
Which of the following accounts will be debited for creating the liability.
(a) Profit and Loss Appropriation Account (b) Profit and Loss Account
(c) Revaluation Account (d) Profit and Loss Adjustment Account
72. Gain / loss on revaluation at the time of change in profit sharing ratio of existing partners is shared by ___(i)______ whereas
in case of admission of a partner it is shared by____(ii)_____.
(a) (i) Remaining Partners, (ii) All Partners. (b) (i) All Partners, (ii) Old partners.
(c) (i) New Partner, (ii) All partner. (d) (i) Sacrificing Partner, (ii) Incoming partner.
73. Arun and Vijay are partners in a firm sharing profits and losses in the ratio of 5:1.
Balance Sheet (Extract)
Liabilities ` Assets `
Machinery 40,000
If the value of machinery reflected in the balance sheet is overvalued by 33⅓ %, find out the value of Machinery to be shown
in the new Balance Sheet:
(a) ` 44,000 (b) `48,000
(c) ` 32,000 (d) `30,000
74. At the time of reconstitution of a partnership firm, recording of an unrecorded liability will lead to:
(a) Gain to the existing partners (b) Loss to the existing partners
(c) Neither gain nor loss (d) None of these
75. At the time of admission of a partner, what will be the effect of the following information? Balance in Workmen compensation
reserve `40,000. Claim for workmen compensation `45,000.
(a) `45,000 Debited to the Partner’s capital Accounts.
(b) `40,000 Debited to Revaluation Account.
(c) `5,000 Debited to Revaluation Account.
(d) `5,000 Credited to Revaluation Account.
76. Revaluation of assets at the time of reconstitution is necessary because their present value may be different from their:
(a) Market Value. (b) Net Value.
(c) Cost of Asset (d) Book Value.
77. If average capital employed in a firm is `8,00,000, average of actual profits is `1,80,000 and normal rate of return is10%, then
value of goodwill as per capitalization of average profits is:
(a) `10,00,000 (b) `18,00,000
(c) `80,00,000 (d) `78,20,000
78. Kalki and Kumud were partners sharing profits and losses in theratio of 5:3. On 1st April,2022 they admitted Kaushtubh as a
new partner and new ratio was decided as 3:2:1. Goodwill of the firm was valued as `3,60,000. Kaushtubh couldn’t bring any
amount for goodwill. Amount of goodwill share to be credited to Kalki and Kumud Account’s will be: -
(a) ` 37,500 and `22,500 respectively
(b) ` 30,000 and `30,000 respectively
(c) ` 36,000 and `24,000 respectively
(d) ` 45,000 and `15,000 respectively
79. Angle and Circle were partners in a firm. Their Balance Sheet showed Furniture at `2,00,000; Stock at `1,40,000; Debtors
at `1,62,000 and Creditors at `60,000. Square was admitted and new profit-sharing ratio was agreed at 2:3:5. Stock was
revalued at `1,00,000, Creditors of `15,000 are not likely to be claimed, Debtors for `2,000 have become irrecoverable and
Provision for doubtful debts to be provided @ 10%.Angle’s share in loss on revaluation amounted to `30,000. Revalued value
of Furniture will be:
(a) `2,17,000 (b) `1,03,000
(c) `3,03,000 (d) `1,83,000
80. Asha and Nisha are partner’s sharing profits in the ratio of 2:1. Kashish was admitted for 1/4 share of which 1/8 was gifted by
Asha. The remaining was contributed by Nisha. Goodwill of the firm is valued at ` 40,000. How much amount for goodwill
will be credited to Nisha’s Capital account?
(a) `2,500. (b) `5,000.
(c) `20,000. (d) ` 40,000.
81. At the time of admission of new partner Vasu, Old partners Paresh and Prabhav had debtors of `6,20,000 and a provision for
doubtful debts of `20,000 in their books. As per terms of admission, assets were revalued, and it was found that debtors worth
`15,000 had turned bad and hence should be written off. Which journal entry reflects the correct accounting treatment of the
above situation.
(a) Bad Debts A/c Dr. 15,000
To Sundry Debtors 15,000
Provision for Doubtful Debts A/c Dr. 15,000
To Bad Debts A/c 15,000
(b) Bad Debt A/c Dr. 15,000
To Sundry Debtors 15,000
Revaluation A/c Dr. 15,000
To Provision for Doubtful Debts A/c 15,000
(c) Revaluation A/c Dr. 15,000
To Sundry Debtors A/c 15,000
(d) Bad Debt A/c Dr. 15,000
82. Anubhav, Shagun and Pulkit are partners in a firm sharing profits and losses in the ratio of 2:2:1. On 1st April 2022, they
decided to change their profit-sharing ratio to 5:3:2. On that date, debit balance of Profit & Loss A/c `30,000 appeared in the
balance sheet and partners decided to pass an adjusting entry for it.
Which of the undermentioned options reflect correct treatment for the above treatment?
(a) Shagun’s capital account will be debited by `3,000 and Anubhav’s capital account credited by `3,000
(b) Pulkit’s capital account will be credited by `3,000 and Shagun’s capital account will be credited by `3,000
(c) Shagun’s capital account will be debited by `30,000 and Anubhav’s capital account credited by `30,000
(d) Shagun’s capital account will be debited by `3,000 and Anubhav’s and Pulkit’s capital account credited by `2,000 and
`1,000 respectively.
83. A and B are partners in the ratio of 3:2. C is admitted as a partner and he takes ¼th of his share from A. B gives 3/16 from his
share to C. What is the share of C?
(a) 1/4 (b) 1/16
(c) 1/6 (d) 1/16
Answer Key
1. (c) 2. (d) 3. (a) 4. (b) 5. (b) 6. (b) 7. (b) 8. (b)
9. (d) 10. (c) 11. (a) 12. (c) 13. (b) 14. (c) 15. (c) 16. (b)
17. (a) 18. (d) 19. (b) 20. (b) 21. (a) 22. (a) 23. (b) 24. (a)
25. (d) 26. (c) 27. (c) 28. (d) 29. (d) 30. (a) 31. (d) 32. (a)
33. (d) 34. (d) 35. (c) 36. (a) 37. (b) 38. (c) 39. (a) 40. (c)
41. (c) 42. (a) 43. (b) 44. (d) 45. (a) 46. (a) 47. (b) 48. (c)
49. (d) 50. (c) 51. (a) 52. (d) 53. (a) 54. (c) 55. (b) 56. (c)
57. (c) 58. (a) 59. (d) 60. (a) 61. (a) 62. (b) 63. (a) 64. (a)
65. (c) 66. (b) 67. (a) 68. (b) 69. (d) 70. (c) 71. (c) 72. (b)
73. (d) 74. (b) 75. (c) 76. (a) 77. (a) 78. (d) 79. (d) 80. (b)
81. (a) 82. (a) 83. (a)
Assertion-Reasoning
and
Statements
Based MCQs
(Chapter-wise)
Multiple Choice Questions (MCQ)

on Assertion-Reasoning Type/ Statements
1. Given below are two statements – Assertion (A) and Reason (R). Choose the correct alternative:
Assertion (A): A new partner should contribute towards goodwill on his/her admission.
Reason (R): It is because the new partner has to compensate the existing partners for the sacrifice they make in his/her favour.
(a) Both (A) and (R) are true, but (R) is not the correct explanation of (A)
(b) Both(A) and (R) are true and (R) is a correct explanation of (A).
(c) Both (A) and (R) are false.
(d) (A) is false, but (R) is true.
Assertion (A): There is a need for the revaluation of assets and liabilities on the admission of a partner .
Reason (R): It is always desirable to ascertain whether the assets and liabilities of the firm are shown in books at their current
values.
(a) Both (A) and (R) are correct and (R) is the correct reason of (A).
(b) Both (A) and (R) are correct but (R) is not the correct reason of (A).
(c) Only (R) is correct.
(d) Both (A) and (R) are wrong.
Assertion (A): It is necessary to revalue assets and liabilities of a firm in case of admission of a partner.
Reason (R): It is because the incoming partner is neither put to an advantage nor to disadvantage due to change in the value
of assets and liabilities.
(a) Both (A) and (R) are correct and (R) is the correct reason of (A).
Assertion (A): Change in the profit sharing ratio of the existing partners amounts to dissolution of the partnership firm.
Reason (R): Change in the profit sharing ratio of the existing partners results in a change in the existing agreement between
the partners leading to reconstitution of the firm.
(a) (A) is correct, but (R) is wrong. (b) (A) is wrong, but (R) is correct.
(c) Both (A) and (R) are correct. (d) Both (A) and (R) are wrong.
Assertion (A): Goodwill exists only when the firm earns super profits.
Reason (R): Any firm that earns normal profits or is incurring losses has no goodwill.
Assertion (A): The need for valuation of goodwill also arises when the firm is dissolved involving sale of business as a going concern.
Reason (R): Since the existing firm is dissolved, which involves sale of business as a going concern, goodwill must be valued.
(a) (A) is correct, but (R) is wrong. (b) Both (A) and (R) are correct.
(c) (A) is wrong, but (R) is correct. (d) Both (A) and (R) are wrong.
Assertion (A): When a new partner is admitted, it is necessary to ascertain new profit sharing ratio even for old partners.
Reason (R): In any case, the profit sharing ratio among the old partners will change keeping in view their respective
contribution to the profit sharing ratio of the new partner.
8. Nipun, Vasu and Sheetu are partners in a firm. They admitted their friend Varun into the firm as a partner. Varun brought
sufficient amount of capital and premium for goodwill for his share in the profits. Varun had given to the firm ` 5,00,000 @
12% p.a. interest as loan before he became a partner. Now the accountant of the firm is emphasising that the interest on loan
should be paid @ 6% p.a.
Given below are two statements – Assertion (A) and Reason (R). Choose the correct alternative:
Assertion (A): The accountant of the firm was not right in doing so.
Reason (R): He will get interest @12% p.a. because of the agreement between Varun and the firm.
Assertion (A): It is desirable to value goodwill on the basis of the super profits and not the actual profits.
Reason (R): The buyer’s real benefit does not lie in actual profits; it is limited to such amounts of profits which are in excess of
the normal profits in the similar business, i.e. super profits.
Assertion (A): For the purpose of calculation of goodwill by weighted average profits method, its is considered better to give a
higher weightage to the profits of the recent years.
Reason (R): The recent profit is likely to be maintained in the future by the firm.
Assertion (A): Change in the profit sharing ratio among the existing partners results in a change in their existing agreement.
Reason (R): Change in the profit sharing ratio among the existing partners results in a gain of additional share in future profits
for some partners while a loss of a part there of, for other partners.
(a) Both (A) and (R) are correct. (b) (A) is incorrect, but (R) is correct.
(c) only R is correct (d) Both (A) and (R) are incorrect.
12. Read the following statements carefully and choose the correct alternative:
Statement-I: Purchased goodwill should be written off as early as possible, but where it is to be written- off in more than one
accounting year, it should be written off in a period not exceeding 10 years.
Statement-II: At the time of admission of a new partner, general reserve appearing in the old balance sheet is transferred to all
partner’s capital account.
(a) Both the statements are true. (b) Both the statements are false.
(c) Statement-I is true, Statement-II is false. (d) Statement-II is true, Statement-I is false.
Assertion (A): Goodwill is an intangible asset.
Reason (R): It is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits.
(a) Both (A) and (R) are correct. (b) (A) is wrong but (R) is correct.
(c) (A) is correct but (R) is wrong. (d) Both (A) and (R) are wrong.
Assertion (A): Revaluation A/c is prepared at the time of Admission of a partner.
Reason (R): It is required to adjust the values of assets and liabilities at the time of admission of a partner, so that the true
financial position of the firm is reflected.
(a) Both (a) and (R) are correct and (R) is the correct reason of (A).
Statement-I: Reconstitution of the partnership firm results in an end of the existing agreement and a new agreement comes
into being with a changed relationship among the members of the partnership firm and/or their composition. However, the
firm continues.
Statement-II: The partners often resort to reconstitution of the firm in various ways such as admission of a new partner,
change in profit sharing ratio, retirement of a partner, death or insolvency of a partner.
Statement-I: According to the provisions of Partnership Act 1932 unless it is otherwise provided in the partnership deed a new
partner can be admitted only when the existing partners unanimously agree for it.
Statement-II: A partner can retire any time if the partnership is at will.
Assertion A: Sometimes the partners of a firm may decide to change their existing profit sharing ratio, without admission of a
new partner.
Reason R: This may happen an account of a change in the existing partners’ role in the firm.
(a) Both (A) and (R) are correct and (R) is correct reason for (A).
(b) Both (A) and (R) are correct but(R) is not correct reason for (A).
(c) Both (A) and (R) are incorrect .
(d) (A) is correct but (R) is incorrect.
Assertion A: In the case of an established firm which may be earning more profits than the normal rate of return on its capital
the new partner is required to contribute some additional amount known as premium or goodwill.
Reason R: This is done primarily to compensate the sacrificing partners for loss of their share in super profits of the firm.
(b) Both (A) and (R) are incorrect .
(c) (A) is correct, but (R) is incorrect.
(d) (A) is incorrect, but (R) is correct.
Statement-I: What will be the share of new partner and how he will acquire it from the existing partners is decided mutually
among the old partners.
Statement-II: In any case, on admission of a new partner, the profit sharing ratio among the old partners will change keeping
in view their respective contribution to the profit sharing ratio of the incoming partner.
Statement-I: Goodwill is an intangible asset.
Statement-II: Goodwill is the future value of a firm’s anticipated excess earnings.
Statement-I: Goodwill, if existing in the books of the firm, it is written off at the time of admission of a partner, among the
old partners in their sacrificing ratio.
Statement-II: Goodwill not brought by the new partner will be debited to current account of new partner while sacrificing
partners’ capital accounts will be credited for their respective shares.
Statement-I:Internally generated goodwill should not be recognised as an asset.
Statement-II: Purchased goodwill may be accounted for in the books and shown as an asset.
Assertion A: Accumulated Profits and Losses should be transferred to the old partners’ capital accounts.
Reason R: The new partner is not entitled to have any share in such accumulated profits/losses.
(b) Both (A) and (R) are correct but(R) is not correct reason for (A).
(c) Both (A) and (R) are incorrect .
(d) (A) is correct but (R) is incorrect.
Statement-I: Accumulated losses, in the form of a debit balance of profit and loss account and/or deferred revenue expenditure,
appear on the liabilities side in the balance sheet of the firm.
Statement-II: Accumulated profits are usually in the form of general reserve, reserve and/or Profit and Loss Account.
Statement-I: The gain or loss on revaluation of each asset and liability is transferred to Revaluation account.
Statement-II: The revaluation account is credited with increase in the value of each asset and decrease in its liabilities because
it is a gain.
Statement-I: Unrecorded assets are debited and unrecorded liabilities are credited to the revaluation account.
Statement-II: If the revaluation account finally shows a credit balance then it indicates net gain and if there is a debit balance
then it indicates net loss, which will be transferred to the capital accounts of the old partners in their sacrificing ratio.
ANSWER KEY
1. (b) 2. (b) 3. (a) 4. (b) 5. (b) 6. (b) 7. (b) 8. (b)
9. (b) 10. (b) 11. (a) 12. (c) 13. (a) 14. (a) 15. (a) 16. (a)
17. (a) 18. (a) 19. (d) 20. (c) 21. (d) 22. (a) 23. (a) 24. (d)
25. (a) 26. (b)
Case Study Based MCQs
(Chapter-wise)
Case-based Multiple Choice Questions (MCQs)

CASE STUDY 1: Amit and Mahesh were partners in a fast-food corner sharing profits and losses in ratio 3:2. They sold fast food
items across the counter and did home delivery too. Their initial fixed capital contribution was `1,20,000 and `80,000 respectively. At
the end of first year their profit was ` 1,20,000 before allowing the remuneration of `3,000 per quarter to Amit and `2,000 per half
year to Mahesh. Such a promising performance for first year was encouraging, therefore, they decided to expand the area of operations.
For this purpose, they needed a delivery van, a few Scotties and an additional person to support. Six months into the accounting year
they decided to admit Sundaram as a new partner and offered him 20% as a share of profits along with monthly remuneration of
` 2,500. Sundaram was asked to introduce `1,30,000 for capital and `.70,000 for premium for goodwill. Besides this Sundaram was
required to provide `1,00,000 as loan for two years. Sundaram readily accepted the offer. The terms of the offer were duly executed
and he was admitted as a partner.
Answer the question no.1-4 on the basis of the above case:
Q.1 Remuneration will be transferred to _______________ of Amit and Mahesh at the end of the accounting period.
(a) Capital account (b) Loan account
(c) Current account (d) None of these
Q.2 Upon the admission of Sundaram the sacrifice for providing his share of profits would be done:
(a) by Amit only (b) by Mahesh only
(c) by Amit and Mahesh equally (d) by Amit and Mahesh in the ratio of 3:2
Q.3 Sundaram will be entitled to a remuneration of _____________at the end of the year.
(a) `15,000 (b) `30,000
(c) `2,500 (d) `12,000
Q.4 While taking up the accounting procedure for this reconstitution,the accountant of the firm Mr. Suraj Marwaha faced a
difficulty. For the amount of loan that Sundaram has agreed to provide, he is entitled to interest thereon at the rate of _______.
(a) 6% p.a. (b) 12%p.a.
(c) 20% p.a. (d) Nil
CASE STUDY 2: Sterling enterprises is a partnership business with Ryan, Williams and Sania as partners engaged in production and
sales of electrical items and equipment. Their capital contributions were `50,00,000, `50,00,000 and `80,00,000 respectively with the
profit the sharing ratio of 5:5:8. As they are now looking forward to expanding their business, it was decided that they would bring in
sufficient cash to double their respective capitals. This was duly followed by Ryan and Williams but due to unavoidable reasons Sania
could not do so and ultimately it was agreed that to bridge the shortfall in the required capital a new partner should be admitted who
would bring in the amount that Sania could not bring and that the new partner would get share of profits equal to half of Sania’s share
which would be sacrificed by Sania only. Consequent to this agreement Ejaz was admitted and he brought in the required capital and
`30,00,000 as premium for goodwill.
Q.5 What will be the new profit-sharing ratio of Ryan, Williams, Sania and Ejaz?
(a) 1:1:1:1 (b) 5:5:8:8
(c) 5:5:4:4 (d) None of these
Q.6 What is the amount of capital brought in by the new partner Ejaz?
(a) `50,00,000 (b) `80,00,000
(c) `40,00,000 (d) `30,00,000
Q.7 What is the value of the goodwill of the firm?
(a) `1,35,00,000 (b) `30,00,000
(c) `1,50,00,000 (d) Cannot be determined from the given data.
Q.8 What will be correct journal entry for distribution of Premium for Goodwill brought in by Ejaz?
(a) Ejaz Capital A/c Dr. 30,00,000
To Sania’s Capital A/c 30,00,000
(b) Premium for Goodwill A/c Dr. 30,00,000
To Sania’s Capital A/c 30,00,000
(c) Premium for Goodwill A/c Dr 30,00,000
To Reyan’s Capital A/c 8,33,333
To William’s Capital A/c 8,33,333
To Ejaz’s Capital A/c 13,33,333
(d) Premium for Goodwill A/c Dr 30,00,000
To Reyan’s Capital A/c 10,00,000
To William’s Capital A/c 10,00,000
To Ejaz’s Capital A/c 10,00,000
CASE STUDY 3: A and B are partners in a firm sharing profits in the ratio of 3 : 2. On 1.4.2022 they decided to admit C into
partnership for 1/6th share in the profits. For this purpose, goodwill of the firm on the basis of 3 years’ purchase of the average profits
of the last five years. The profits (or loss) of the last five years were:
2017-18: `4,00,000 2018-19: `5,00,000 2019-20: `(60,000)
2020-21: `1,50,000 2021-22: `2,50,000
(i) On 1st January, 2020, a fire broke out which resulted into a loss of goods of `3,00,000. A claim of `70,000 was received from
the insurance company.
(ii) During the year ended 31st March, 2022 the firm received an unexpected tax refund of `80,000.
Answer the question no.9 & 10 on the basis of the above case:
Q.9 What is the value of goodwill of the firm on C’s admission?
(a) `8,34,000 (b) `1,39,000
(c) `7,44,000 (d) `13,90,000
Q.10 What will be the accounting treatment of goodwill assuming that C is unable ?
(a) Premium for Goodwill A/c Dr. 1,39,000
To A’s Capital A/c 83,400
To B’s Capital A/c 55,600
(b) C’s Capital A/c Dr. 1,39,000
(c) C’s Current A/c Dr. 1,39,000
(d) C’s Current A/c Dr. 1,39,000
To A’s Current A/c 83,400
To B’s Current A/c 55,600
CASE STUDY 4: Calculate goodwill of a firm on the basis of three years’ purchase of the average profits of the last four years. The
profit of the last four years were:
2019: `20,200 2020: `24,800
2021: `20,000 2022: `30,000
(i) On September 1, 2021 a major plant repair was undertaken for `6,000, which was charged to revenue. The said sum is to be
capitalised for goodwill calculation subject to adjustment of depreciation of 10% p.a. on reducing balance method.
(ii) The Closing Stock for the year 2020 was overvalued by `2,400.
(iii) To cover management cost an annual charge of `4,800 should be made for purpose of goodwill valuation.
Q.11 The adjusted profit for the purpose of valuation of goodwill of the last four years are:
(a) 2019 `20,200; 2020 `24,800; 2021 `20,000; 2022 `30,000
(b) 2019 `15,400; 2020 `17,600; 2021 `21,000; 2022 `24,620
(c) 2019 `15,400; 2020 `17,600; 2021 `23,400; 2022 `24,620
(d) 2019 `20,200; 2020 `17,600; 2021 `21,000; 2022 `30,000
Q.12 The value of goodwill of the firm is:
(a) `60,765 (b) `20,255
(c) `71,250 (d) None of these
CASE STUDY 5: A partnership firm earned net profits during the last three years as follows:
2019-20: `1,90,000 2020-21: `2,20,000 2021-22: `2,50,000
The capital employed in the firm throughout the above mentioned period has been `4,00,000. Having regard to the risk
involved, 15% is considered to be a fair return on the capital. The remuneration of all the partners during this period is
estimated to be `1,00,000 per annum.
Answer the question no.13 & 14 on the basis of the given case:
Q.13 What will be the value of goodwill of the firm on the basis of two years’ purchase of super profits earned on average basis
during the above mentioned three years?
(a) `3,20,000 (b) `1,20,000
(c) `2,40,000 (d) Nil
Q.14 What will be the value of goodwill of the firm on the capitalisation of average profit method?
(a) `3,20,000 (b) `1,20,000
(c) `2,40,000 (d) `4,00,000
CASE STUDY 6: The fixed capitals of the partners A and B are `5,00,000 and `3,00,000 respectively. Their current account balances on
31.3.2022 are: A `1,50,000 (Cr.) and B `50,000 (Dr.). General reserve stood at `1,00,000. The market rate of interest (or normal rate of
return) is 15%. Annual salary to the partners is `60,000 each. The profit for the last three years were `3,00,000, `3,60,000 and `4,20,000.
Answer the question no.15 - 17 on the basis of the above case:
Q.15 What will be the value of goodwill of the firm for the purpose of admission of a new partner C on the basis of two years
purchase of last three years average super profits?
(a) `10,00,000 (b) `1,50,000
(c) `1,80,000 (d) `6,00,000
Q.16 What will be the value of goodwill of the firm on the basis of Capitalisation of super profits ?
(a) `10,00,000 (b) `1,50,000
(c) `1,80,000 (d) `6,00,000
Q.17 What will be the value of goodwill of the firm on the basis of Capitalisation of average profit ?
(a) `10,00,000 (b) `1,50,000
(c) `1,80,000 (d) `6,00,000
CASE STUDY 7: Ramesh, Mahesh and Suresh were partners in a firm sharing profits in the ratio of 3 : 3 : 2. Their respective fixed
capitals were ; Ramesh ` 5,00,000; Mahesh `4,00,000 and Suresh `3,00,000. They admitted Govind as a new partner for 1/5th share
in the profits. Govind brought ` 4,00,000 as his capital and the necessary amount for goodwill premium. Their new profit sharing
ratio will be 2 : 1 : 1 : 1.
Q.18 What will be the value of goodwill of the firm?
(a) `4,00,000 (b) `8,00,000
(c) `12,00,000 (d) `16,00,000
Q.19 What will be the sacrificing ratio of the old partners on the admission of new partner Govind?
(a) 3 : 3 : 2 (b) Equal
(c) 2 : 1 : 1 (d) Cannot be determined for all the existing partners
Q.20 What will be the accounting treatment of goodwill on the admission of new partner Govind?
(a) Bank A/c Dr. 80,000
To Premium for Goodwill A/c 80,000
Premium for Goodwill A/c Dr. 80,000
To Ramesh’s Current A/c 10,000
To Mahesh’s Current A/c 70,000
To Suresh’s Current A/c 20,000
(b) Bank A/c Dr. 80,000

Ramesh’s Current A/c Dr. 10,000
(c) Bank A/c Dr. 80,000

To Ramesh’s Current A/c 30,000
(d) Bank A/c Dr. 80,000

To Ramesh’s Capital A/c 10,000
To Mahesh’s Capital A/c 70,000
To Suresh’s Capital A/c 20,000
CASE STUDY 8: Anil and Beena were partners in a firm sharing profits in the ratio of 4 : 3. Their capitals on 31 March, 2022 were
`50,000 each. On 1st April, 2022 they admitted Chahat as a new partner for 1/4th share in the profits of the firm. On the date of
Chahat’s admission the Balance Sheet of Anil and Beena showed a General Reserve of `70,000, a debit balance of `7,000 in the profit
and Loss Account and an Investment Fluctuation fund of `10,000. The following was agreed upon, on Chahat’s admission:
(a) Chahat will bring `80,000 as her capital but could not bring his share of goodwill.
(b) The market value of investments was 17,000 less than the book value.
(c) New profit sharing ratio was agreed at 2 : 1 : 1
Q.21 What will be the value of goodwill of the firm?
(a) `1,40,000 (b) `84,000
(c) `2,36,000 (d) `3,20,000
Q.22 What will be the sacrificing ratio of the existing partners on the admission of new partner Chahat?
(a) 4:3 (b) 2:1
(c) Equal (d) 2 : 5
Q.23 What will be the accounting treatment of goodwill on the admission of new partner Chahat?
(a) Cash/Bank A/c Dr. 21,000
To Anil’s Capital A/c 6,000
To Beena’s Capital A/c 15,000
(b) Chahat’s Capital A/c Dr. 21,000

(c) Cash/Bank A/c Dr. 19,250

(d) Chahat’s Current A/c Dr. 21,000

Q.24 What will be the journal entry for treatment of Investment Fluctuation Fund on the admission of new partner Chahat?
(a) Investment Fluctuation Fund A/c Dr. 10,000
(b) Investment Fluctuation Fund A/c Dr. 10,000

To Investment A/c 17,000
(c) Revaluation A/c Dr. 7,000

(d) Investment Fluctuation Fund A/c Dr. 10,000

CASE STUDY 9: Sunaina and Tamanna are partners in a firm sharing profits and losses in the ratio of 3:2. Their Balance Sheet as at
31st March, 2022 stood as follows:
Capital Accounts: Plant & Machinery 1,20,000
Sunaina 60,000 Land and Building 1,40,000
Tamanna 80,000 1,40,000 Debtors 1,90,000
Current Accounts: Less: Provision for doubtful debts (40,000) 1,50,000
Sunaina 10,000 Stock 40,000
Tamanna 30,000 40,000 Cash 30,000
General Reserve 1,20,000 Goodwill 20,000
Workmen’s Compensation Reserve 50,000
Creditors 1,50,000
5,00,000 5,00,000
They agreed to admit Pranav into partnership for 1/5th share of profits on 1st April, 2022, on the following terms: (a) All Debtors
are good. (b) Value of land and building to be increased to `1,80,000. (c) Value of plant and machinery to be reduced by `20,000. (d)
The liability against Workmen’s Compensation Fund is determined at `20,000 which is to be paid later in the year. (e) Pranav to bring in
capital of `1,00,000 and `10,000 as premium for goodwill in cash.
Q.25 What is the amount of profit/loss on revaluation of assets and liabilities on Pranav’s admission?
(a) `60,000 profit (b) `40,000 profit
(c) `20,000 profit (d) `40,000 loss
Q.26 What will be the accounting treatment of goodwill on the admission of new partner Pranav?
(a) Cash A/c Dr. 10,000
To Sunaina’s Capital A/c 6,000
To Tamanna’s Capital A/c 4,000
(b) Cash A/c Dr. 10,000
To Sunaina’s Current A/c 6,000
To Tamanna’s Current A/c 4,000
(c) Pranav’s Current A/c Dr. 10,000
To Sunaina’s current A/c 6,000
To Tamanna’s current A/c 4,000
(d) Pranav’s Capital A/c Dr. 10,000

Q.27 What will be the accounting treatment of Workmen Compensation Reserve on the admission of new partner Pranav?
(a) Workmen Compensation Reserve A/c Dr. 30,000
(b) Workmen Compensation Reserve A/c Dr. 50,000

(c) Workmen Compensation Reserve A/c Dr. 50,000

To Claim for workmen compensation 20,000
(d) Workmen Compensation Reserve A/c Dr. 50,000

CASE STUDY 10: Following in Balance Sheet of A and B who share profits in the ratio of 3 : 2.
Sundry creditors 20,000 Cash in hand 3,000
Captials Debtors 12,000
A 30,000 Stock 15,000
B 20,000 50,000 Furniture 10,000
Plant and Machinery 30,000
70,000 70,000
C is admitted into the partnership on the following terms:
1. C is to bring in `15,000 as capital. C brings `5,000 as premium for goodwill for 1/6th share, which is paid to the old partners
privately.
2. The value of stock is reduced by 10% while plant and machinery is appreciated by 10%.
3. Furniture is revalued at `9,000.
4. A provision for doubtful debts is to be created on sundry debtors at 5% and `200 is to be provided for an electricity bill.
5. Investment worth `1,000 (not mentioned in the balance sheet) is to be taken into account.
6. A creditor of `100 is not likely to claim his money and is to be written off.
Answer the question no.28 &29 on the basis of the above case:
Q.28 What is the amount of profit/loss on revaluation of assets and liabilities on C’s admission?
(a) `900 profit (b) `800 profit
(c) `1,000 loss (d) `4,000 loss
Q.29 What will be the amount of balance of Capital accounts of old partners after all adjustments on C’s admission ?
(a) A`30,000 and B`20,000 (b) A`29,520 and B`19,680
(c) A`30,480 and B`20,320 (d) A`30,680 and B`20,230
CASE STUDY 11: On 31-3-2022 the Balance Sheet of W and R who shared profits in 3 : 2 ratio was as follows:
Creditors 20,000 Cash 5,000
Profit and Loss Account 15,000 Sundry Debtors 20,000
Capital Accounts: Less: Provision 700 19,300
W 40,000 Stock 25,000
R 30,000 70,000 Plant and Machinery 35,000
Patents 20,700
1,05,000 1,05,000
On this date B was admitted as a partner on the following conditions:

(a) ‘B’ will get 4/15th share of profits. ‘B’ had to bring `30,000 as his capital. He would pay cash for his share of goodwill which
would be based on 2½ years purchase of average profits of past 4 years.
(b) The assets would be revalued as follows: Sundry debtors at book value less 5% provision for bad debts, Stock at `20,000, Plant
and Machinery at `40,000.
(c) The profits of the firm for the years 2019, 2020 and 2021 were `20,000; `14,000 and `17,000 respectively.
Q.30 What amount of premium for goodwill will be brought in by B?
(a) `11,333 (b) `16,500
(c) `41,250 (d) `11,000
Q.31 What is the amount of profit/loss on revaluation of assets and liabilities on B’s admission?
(a) `300 profit (b) `300 loss
(c) `5,300 loss (d) Nil
Q.32 What will be the amount of balance of Capital accounts of old partners after all adjustments on B’s admission ?
(a) W `49,000 and R `36,000 (b) W `40,000 and R `30,000
(c) W `55,420 and R `40,280 (d) W `55,600 and R `40,400
CASE STUDY 12: Mountain Entreprises is a partnership firm with Manu, Mamta and Moti as partners. The firm is engaged in pro-
duction and sales of electrical items and equipment. Their capital contributions were `50,00,000; `50,00,000 and 80,00,000 respec-
tively. They decided to share the profit in the ratio of 5 : 5 : 8. They are not looking forward to expand their business. It was decided
that they would bring in sufficient cash to double their respective capitals.
This was duly followed by Manu and Mamta but due to unavoidable reasons Moti could not do so and ultimately it was agreed that
to bridge the shortfall in the required capital a new partner should be admitted who would bring in the amount that Moti could not
bring and that the new partner would get share of profits equal to half to Moti’s share which would be sacrified by Moti only.
Consequent to this agreement Malini was admitted and she brought in the required capital and `30,00,000 as premium for goodwill.
Q.33 What will be the new profit sharing ratio of Manu, Mamta, Moti and Malini?
(a) 1 : 1 : 1 : 1 (b) 5 : 5 : 8 : 8
(c) 5 : 5 : 4 : 4 (d) 6 : 4 : 4 : 4
Q.34 What is the value of the goodwill of the firm?
(a) `1,35,00,00 (b) `1,50,00,000
(c) `30,00,000 (d) `1,60,00,000
CASE STUDY 13: Question number 35 and 36 are based on the hypothetical situation given below:
On 1.4.2019 A and B started business with capitals of `8,00,000 and `16,00,000 respectively. They decided to share the future profits
in the ratio of their capitals. On 1.4.2020 they admitted C as a new partner. A surrendered 1/4th of his share in favour of C and B
surrendered 1/9th from his share in favour of C. On 1.4.2021 D was admitted as a new partner for 1/6th share. On 1.4.2022, E was
admitted for 1/5th share in the profits and it was decided that all the partners will share the future profits equally.
Q.35 The profit sharing ratio of A,B and C was:
(a) 9 : 20 : 7 (b) 8 : 21 : 7
(c) 10 : 19 : 7 (d) 7 : 22 : 7
Q.36 The profit sharing ratio of A, B, C and D was:
(a) 45 : 105 : 30 : 36 (b) 45 : 100 : 35 : 36
(c) 45 : 105 : 30 : 36 (d) 40 : 100 : 40 : 36
Answer Key
1. (c) 2. (d) 3. (a) 4. (a) 5. (c) 6. (b) 7. (a) 8. (b)
9. (a) 10. (c) 11. (c) 12. (a) 13. (b) 14. (d) 15. (c) 16. (d)
17. (d) 18. (a) 19. (d) 20. (b) 21. (b) 22. (d) 23. (d) 24. (b)
25. (a) 26. (b) 27. (c) 28. (b) 29. (c) 30. (d) 31. (b) 32. (c)
33. (c) 34. (a) 35. (a) 36. (b)
Explanation
Explanation 9:
Year Adjusted Profit/Normal profit (`)
2017-18 4,00,000
2018-19 5,00,000
2019-20 1,70,000 (–60,000 + 2,30,000)
2020-21 1,50,000
2021-22 1,70,000 (2,50,000 –80,000)
Total 13,90,000
Average Profit = `13,90,000/5 = `2,78,000. Goodwill = Average Profit × Number of years’ purchase = `2,78,000 × 3 = `8,34,000
Explanation 10: C’s share of goodwill = 1/6 × `8,34,000 = `1,39,000 to be debited to his Current A/c, which is to be credited in A’s
and B’s Capital accounts in their sacrificing ratio 3:2
Explanation 11:
Calculation of Adjusted Profit 2019 (`) 2020 (`) 2021(`) 2022 (`)
Given Profits 20,200 24,800 20,000 30,000
Add: Capital Expenditure Charged to Revenue — — 6,000 —
Less: Unprovided Depreciation — — (200)* (580)**
Less: Over Valuation of Closing Stock — (2,400) — —
Add: Over Valuation of Opening Stock — — 2,400 —
Less: Management Cost (4,800) (4,800) (4,800) (4,800)
Adjusted Profits 15,400 17,600 23,400 24,620
*6,000 × 10% × 4/12 = `200 **(6,000 – 200) × 10% = `580
Explanation 12: Average Profits = (15,400 + 17,600 + 23,400 + 24,620)/4 = `20,255
Goodwill = Average Profit × Number of years’ purchase = `20,255 × 3 = `60,765
Explanation 13: Normal Profit = Capital Employed × Normal Rate of Return/100 = 4,00,000 × 15/100 = `60,000
Adjusted Average Profit = Average profit – Annual remuneration of all the partners
= (1,90,000 + 2,20,000 + 2,50,000)/3 – 1,00,000 = 2,20,000 – 1,00,000 = `1,20,000
Super Profit = Adjusted Average Profit – Normal Profit = 1,20,000 – 60,000 = `60,000
Goodwill = Super Profit × Number of years’ purchase = 60,000 × 2 = `1,20,000
Explanation 14: Capitalised value of the firm = Average Profit × 100/Normal rate of return = 1,20,000 × 100/15 = `8,00,000
Goodwill = Capitalised value of the firm – Actual Capital Employed = 8,00,000 – 4,00,000 = `4,00,000
Explanation 15: Average profits = (3,00,000 + 3,60,000 + 4,20,000)/3 – `1,20,000 (salary) = `2,40,000
Actual Firm’s capital = Sum of capital and current account balances + General reserve
= `5,00,000 + `3,00,000 + `1,50,000 – `50,000 + `1,00,000 = `10,00,000
Normal profits = `10,00,000 × 15/100 = `1,50,000
Super profits = Average profits – Normal profits = `2,40,000 – `1,50,000 = `90,000
Goodwill = Super profits × Number of years purchase = `90,000 × 2 = `1,80,000
Explanation 16: Goodwill = Super profit × 100/NRR = `90,000 × 100/15 = `6,00,000
Explanation 17: Goodwill = Capitalised value of the firm (Average profit ×100/NRR) – Actual firm’s capital
= `2,40,000 × 100/15 – `10,00,000 = `16,00,000 – `10,00,000 = `6,00,000
Explanation 18: Total capital of the firm based on Govind’s capital and his share = 4,00,000 × 5/1= `20,00,000
Actual total capital of all partners = 5,00,000 + 4,00,000 + 3,00,000 + 4,00,000 = `16,00,000
Goodwill = 20,00,000 –16,00,000= `4,00,000
Explanation 19: Calculation of Sacrificing Ratio: Old Ratio – New Ratio
Ramesh= 3/8 –2/5 = (1/40) Gain; Mukesh = 3/8 – 1 /5 = 7/40 Sacrifice; Suresh = 2/8 –1/9 = 2/40 Sacrifice
Explanation 20: Govind’s share of goodwill = 1/5 × 4,00,000 = `80,000
Since Ramesh is gaining 1/40th share of profit, his current account will also be debited by `10,000 (1/40 × `4,00,000)
Explanation 21: Total Capital of the firm based on Chahat’s share = 80,000 × 4/1 = `3,20,000
Actual total capital of all partners = Firm’s capital before Chahat’s admission + Chahat’s capital
= [`50,000 + `50,000 + `70,000 (General Reserve) – `7,000 (Debit Balance of P/L A/c)
– `7,000 (Loss of Revaluation)] + `80,000 = `1,56,000 + `80,000 = `2,36,000
Value of goodwill of the firm = `3,20,000 – `2,36,000 = `84,000
Explanation 22: Anil’s sacrifice = 4/7 – 2/4 = 2/28; Beena’s sacrifice = 3/7 – 1/4 = 5/28. Therefore, sacrificing ratio is 2 : 5
Explanation 23: Chahat’s share of goodwill = `84,000 × 1/4 = `21,000, which he could not bring in. So, Chahat’s Current A/c will
be debited and Anil’s & Beena’s Capital accounts will be credited in their sacrificing ratio 2:5
Explanation 25:
Dr. Revaluation Account Cr.
To Plant and Machinery 20,000 By Land and Building 40,000
To Profit on Revaluation transferred to: By Provision for Doubtful debts 40,000
Sunaina’s Current A/c 36,000
Tamanna’s Current A/c 24,000 60,000
80,000 80,000
Explanation 28:
Dr. Revaluation Account Cr.
To Stock A/c 1,500 By Plant and Machinery A/c 3,000
To Furniture A/c 1,000 By Investments A/c 1,000
To Provision for Doubtful Debt 600 By Sundry Creditors A/c 100
To Outstanding Electricity A/c 200
To Profit on Revaluation transferred to:
A’s Capital A/c 480
B’s Capital A/c 320 800
4,100 4,100
Explanation 29:
Dr. Partner’s Capital Accounts Cr.
Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To Balance c/d 30,480 20,320 15,000 By Balance b/d 30,000 20,000 –
By Cash A/c – – 15,000
By Revaluation A/c 480 320 –
30,480 20,320 15,000 30,480 20,320 15,000
Explanation 30: Average Profit of last 4 years = (20,000 + 14,000 + 17,000 + 15,000)/4 = `66,000/4 = `16,500
Goodwill = 16,500 × 2.5 = `41,250. B’s Share of Goodwill = 41250 × 4/15 = `11,000
Explanation 31:
Dr. Revaluation A/c Cr.
To Provision for Bad Debts 300 By Plant & Machinery A/c 5,000
To Stock A/c 5,000 By Loss transferred to:
W’s Capital A/c 180
R’s Capital A/c 120 300
5,300 5,300
Explanation 32:
Dr. Partners’ Capital A/c Cr.
Particulars W (`) R (`) B (`) Particulars W (`) R (`) B (`)
To Revaluation A/c 180 120 – By Balance b/d 40,000 30,000 –
To Balance c/d 55,420 40,280 30,000 By Profit & Loss A/c 9,000 6,000 –
By Cash A/c – – 30,000
By Premium for goodwill 6,600 4,400 –
55,600 40,400 30,000 55,600 40,400 30,000
Important Questions for
CBSE 2024 Exam
(Chapter-wise)
Important Questions
(for CBSE 2024 Examination)
Q.1 Yash and Karan were partners in an interior designer firm. Their fixed capitals were `6,00,000 and `4,00,000 respectively. There
were credit balance in their current accounts of ` 4,00,000 and `5,00,000 respectively. The firm had a balance of `1,00,000 in general
Reserve. The firm did not have any liability. They admitted Radhika into partnership for 1/4th share in the profits of the firm. The
average profits of the firm for the last five years were `5,00,000. Calculate the value of goodwill of the firm by capitalization of average
profits method. The normal rate of return in the business is 10%.
Q.2 Kabir and Farid are partners in a firm sharing profits in the ratio of 3:1 on 1-4-2022 they admitted Manik into partnership for
1/4th share in the profits of the firm. Manik brought his share of goodwill premium in cash. Goodwill of the firm was valued on
the basis of 2 years purchase of last three years average profits. The profit of last three years were:
2019-20 `90,000 2020-21 `1,30,000 2021-22 `86,000
During the year 2021-22 there was a loss of `20,000 due to fire which was not accounted for while calculating the profit.
Calculate the value of goodwill and pass the necessary journal entries for the treatment of goodwill.
Q.3 Rehan and Aditya are partners sharing profits and losses equally. They decided to admit Kushagrr for an equal share in the
profits. For this purpose the goodwill of the firm was to be valued at four years’ purchase of super profits. The Balance Sheet of
the firm on Kushagrr’s admission was as follows:
Capitals : Machinery 75,000
Rehan 90,000 Furniture 15,000
Aditya 50,000 1,40,000 Stock 30,000
Reserve Fund 20,000 Sundry Debtors 20,000
Bank Loan 35,000 Cash 50,000
Sundry Creditors 5,000 Goodwill 10,000
2,00,000 2,00,000
The normal rate of return is 12% per annum. Average profit of the firm for the last four years was `30,000. Calculate
Kushagrr’s share of goodwill.
Q.4 The fixed capitals of the partners A and B are `5,00,000 and `3,00,000 respectively. Their current account balances on
31.3.2022 are: A `1,50,000 (Cr.) and B `50,000 (Dr.). General reserve stood at `1,00,000. The market rate of interest (or
normal rate of return) is 15%. Annual salary to the partners is `60,000 each. The profit for the last three years were `3,00,000,
`3,60,000 and `4,20,000. Calculate the goodwill of the firm for the purpose of admission of a new partner C on the basis of:
(a) two years purchase of last three years average super profits.
(b) Capitalisation of super profits
(c) Capitalisation of average profit.
Q.5 Ahuja and Barua are partners in a firm sharing profits and losses in the ratio of 3:2. They decide to admit Chaudhary into
partnership for 1/5 share of profits, which he acquires equally from Ahuja and Barua. Goodwill is valued at `30,000. Chaudhary
brings in `16,000 as his capital but is not in a position to bring any amount for goodwill. Goodwill account exists in books of
the firm at `15,000. Record the necessary journal entries.
Q.6 Ram and Rahim are partners in a firm sharing profits and losses in the ratio of 3:2. Rahul is admitted into partnership for 1/3
share in profits. He brings in `40,000 as capital and `5,000 out of his share of goodwill in cash. Goodwill of the firm is valued at
`30,000. Give necessary journal entries, assuming that the goodwill appears at `15,000 in the books of the firm.
Q.7 Hem and Nem are partners in a firm sharing profits in the ratio of 3:2. Their capitals were `80,000 and `50,000 respectively.
They admitted Sam on Jan. 1, 2022 as a new partner for 1/5 share in the future profits. Sam brought `60,000 as his capital.
Calculate the value of goodwill of the firm and record necessary journal entries on Sam’s admission, if: (a) Sam brings his share
of goodwill (b) Sam does not bring his share of goodwill.
Q.8 Veena and Somesh were partners in a firm with capital of ` 1,00,000 and ` 80,000 respectively. They admitted Nisha on 1st
April, 2022 as a new partner for 1/4thshare in the future profits of the firm. Nisha brought ` 90,000 as her capital. Nisha
acquired her share as 1/12th from Veena and the remaining from Somesh. Calculate the value of goodwill of the firm and pass
the necessary journal entries on Nisha’s admission, assuming that Nisha did not bring her share of goodwill.
Q.9 Sunaina and Tamanna are partners in a firm sharing profits and losses in the ratio of 3:2. Their Balance Sheet as at 31st March,
2022 stood as follows:
Tamanna 80,000 1,40,000 Debtors 1,90,000
Current Accounts: Less: Provision for 1,50,000
Sunaina 10,000 doubtful debts (40,000) 40,000
Tamanna 30,000 40,000 Stock 30,000
General Reserve 1,20,000 Cash 20,000
Workmen’s Compensation Reserve 50,000 Goodwill
Creditors 1,50,000
5,00,000 5,00,000
They agreed to admit Pranav into partnership for 1/5th share of profits on 1st April, 2022, on the following terms: (a)
All Debtors are good. (b) Value of land and building to be increased to `1,80,000. (c) Value of plant and machinery to be
reduced by `20,000. (d) The liability against Workmen’s Compensation Fund is determined at `20,000 which is to be paid later
in the year. (e) Mr. Anil, to whom `40,000 were payable (already included in above creditors), drew a bill of exchange for 3
months which was duly accepted. (f ) Pranav to bring in capital of `1,00,000 and `10,000 as premium for goodwill in cash.
Journalize. (CBSE SQP 2020-21)
Q.10 Samiksha, Ash and Divya were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. With effect from 1st April,
2022, they agreed to share future profits and losses in the ratio of 2 : 5 : 3. Their Balance Sheet showed a debit balance of `
50,000 in the Profit and Loss Account and a balance of ` 40,000 in the Investment Fluctuation Fund.
(i) Goodwill of the firm be valued at ` 3,00,000.
(ii) Investments of book value of ` 5,00,000 be valued at ` 4,80,000.
Pass the necessary journal entries to record the above transactions in the books of the firm.
Q.11 Raka, Seema and Mahesh were partners sharing profit and losses in the ratio of 5:3:2. With effect from 1stApril, 2022, they
mutually agreed to share profits and losses in the ratio of 2:2:1. On that date, there was a workmen’s compensation fund of
`90,000 in the books of the firm. It was agreed that:
(i) Goodwill of the firm be valued at `70,000.
(ii) Claim for workmen’s compensation amounted `40,000.
(iii) Profit on revaluation of assets and re-assessment of liabilities amounted to `40,000.
Pass necessary journal entries for the above transaction in the book of the firm.
Q.12 Badal and Bijli were partners in a firm sharing profits in the ratio of 3:2. Their Balance Sheet as at 31st March, 2022 was as follows :
Capitals : Building 1,50,000
Badal 1,50,000 Investments 73,000
Bijli 90,000 2,40,000 Stock 43,000
Badal’s Current A/c 12,000 Debtors 20,000
Investment Fluctuation Reserve 24,000 Cash 22,000
Bills Payable 8,000 Bijli’s Current A/c 2,000
Creditors 26,000
3,10,000 3,10,000
Raina was admitted on the above date as a new partners for 1/6th share in the profits. The terms of agreement were as follows:

(i) Raina will bring ` 40,000 as her capital and capitals of Badal and Bijli will be adjusted on the basis of Raina’s capital by
opening current accounts.
(ii) Raina will bring her share of goodwill premium for ` 12,000 in cash.
(iii) The building was overvalued by ` 15,000 and stock by ` 3,000.
(iv) A provision of 10% was to be created on debtors for bad debts.
Prepare the Revaluation Account and Current and Capital Account of Badal, Bijli and Raina.
Q.13 Madhuri and Arsh were partners in a firm sharing profits and losses in the ratio of 3 : 1. Their Balance Sheet as at 31st March,
2022, was as follows:
Capitals: Madhuri 3,00,000 Machinery 4,70,000
Arsh 2,00,000 5,00,000 Investments 1,10,000
Workmen’s Compensation Fund 60,000 Debtors 1,20,000
Creditors 1,90,000 Less: Provision for doubtful debts 10,000 1,10,000
Employees’ Provident Fund 1,10,000 Stock 1,40,000
Cash 30,000
8,60,000 8,60,000
On 1st April, 2022, they admitted Jyoti into partnership for 1/4th share in the profits of the firm. Jyoti brought proportionate
capital and ` 40,000 as her share of goodwill premium. The following terms were agreed upon:
(i) Provision for doubtful debts was to be maintained at 10% on debtors.
(ii) Stock was undervalued by ` 10,000.
(iii) An old customer whose account was written off as bad, paid ` 15,000.
(iv) 20% of the investments were taken over by Arsh at book value.
(v) Claim on account of workmen’s compensation amounted to ` 70, 000, which was to be paid later.
(vi) Creditors included a sum of ` 27,000 which was not likely to be claimed.
Prepare Revaluation Account, Partners, Capital Account, and the Balance Sheet of the reconstituted firm.
Q.14 Ashish and Nimish were partners in a firm sharing profit and losses in the ratio of 3:2 .On 31st March, 2022 their Balance
Sheet was as following :
Capitals: Plant and Machinery 2,90,000
Ashish 3,10,000 Furniture 2,20,000
Nimish 2,90,000 6,00,000 Debtors 90,000
General Reserve 50,000 Less: Provision for doubtful debts 1,000 89,000
Workmen’s Compensation Fund 20,000 Stock 1,40,000
Creditors 1,00,000 Cash 41,000
7,80,000 7,80,000
On 1st April, 2022, Geeta was admitted into the partnership for 1/4th share in the profits on the following terms: (i) Goodwill of
the firm was valued at ` 2,00,000. (ii) Geeta brought ` 3,00,000 as her capital and her share of goodwill premium in cash. (iii)
Bad debts amounted to ` 2,000. Created a provision for doubtful debts @ 5% on debtors. (iv) Furniture was found undervalued
by ` 65 ,400. (v) Stock was taken over by Nimish for ` 1,30,000. (vi) The liability against workmen’s compensation fund was
determined at ` 30,000, to be paid later. (vii) After the above adjustments, the capitals of Ashish and Nimish were to be adjusted
taking Geeta’s capital as the base. Excess or shortage was to be adjusted by opening current accounts.
Prepare Revaluation Account, Partners’ Capital Account and the Balance Sheet of the after Geeta’s admission.
Q.15 Achla and Boddy were partners in a firm sharing profits and losses in the ratio of 3:1. On 31st March, 2022, their balance
sheet was as follows:
Creditors 1,10,000 Cash at bank 60,000
General Reserve 40,000 Debtors 40,000
Workmen’s compensation reserve 50,000 Stock 45,000
Capitals: Achla 4,00,000 Furniture 1,55,000
Boddy 2,00,000 6,00,000 Land & Building 5,00,000
8,00,000 8,00,000
On 1st April,2022, they admitted Vihaan as a new partner for 1/5th share in the profits of the firm on the following terms: (a)

Vihaan brought ` 1,00,000 as his capital and the capitals of Achla and Bobby were to be adjusted on the basis of Vihaan’s
capital; any surplus or deficiency was to be adjusted by opening current accounts. (b) Goodwill of the firm was valued at
` 4,00,000. Vihaan brought the necessary amount in cash for his share of goodwill premium, half of which was withdrawn
by the old partners. (c) Liability on account of workmen’s compensation amounted to `80,000. (d) Achla took over stock at
`35,000. (e) Land and building was to be appreciated by 20%.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the reconstituted firm on Vihaan’s admission.
Q.16 On 31st March, 2022 the Balance Sheet of A and B, who were sharing profits in the ratio of 3 : 2 was as follows:
Creditors 30,000 Cash at Bank 20,000
Investment Fluctuation Fund 12,000 Debtors 85,000
General Reserve 25,000 Less: Provision for bad debts 5,000 80,000
Capitals: Stock 1,30,000
A 1,60,000 Investments 60,000
B 1,40,000 3,00,000 Furniture 77,000
3,67,000 3,67,000
On 1st April, 2022, they decided to admit C as a new partner for 1/5th share in the profits on the following terms:

(i) C brought `1,00,000 as his capital and `50,000 as his share of premium for goodwill. (ii) Outstanding salaries of `2,000 be
provided for. (iii) The market value of investments was `50,000. (iv) A debtor whose dues of `18,000 were written off as bad
debts paid `12,000 in full settlement.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of the new firm.
Q.17 Asha, Rina and Chahat were partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Their Balance Sheet as at 31st
March, 2022 was as follows :
Creditors 12,00,000 Plant and Machinery 14,80,000
General Reserve 2,00,000 Stock 2,20,000
Capitals: Asha 3,00,000 Sundry Debtors 2,60,000
Rina 2,00,000 Less: Provision for doubtful debts 20,000 2,40,000
Chahat 1,00,000 6,00,000 Bank 60,000
20,00,000 20,00,000
Asha, Rina and Chahat decided to share future profit equally with effect from 1st April, 2022. For this, it was agreed that :
(i) Goodwill of the firm be valued at ` 1,50,000.
(ii) Bad debts amounted to ` 40,000. A provision for doubtful debts was to be made @ 5% on debtors.
Pass the necessary journal entries to records the above transactions in the books of the firm.
Q.18 Raman and Aman were partners in a firm and were sharing profits in 3 : 1 ratio. On 31-3-2022 their balance sheet was as follows:
Balance Sheet of Raman and Aman as on 31-3-2022
Provision for bad debts 7,000 Bank 24,000
Outstanding Expense 18,000 Bills Receivable 80,000
Bills Payable 47,000 Sundry Debtors 95,000
Sundry Creditors 1,02,000 Stock 14,000
Workmen Compensation Reserve 55,000 Furniture 70,000
Capitals : Raman 3,00,000 Machinery 2,00,000
Aman 1,50,000 4,50,000 Land & Building 1,96,000
6,79,000 6,79,000
On the above date Suman was admitted as a new partner for 1/5th share in the profits on the following conditions:
(i) Suman will bring `2,00,000 as her capital and necessary amount for her share of goodwill premium. The goodwill of the
firm on Suman’s admission was valued at ` 1,00,000.
(ii) Outstanding expenses will be paid off. ` 5,000 will be written off as bad debts and a provision of 5% for bad debts on
debtors was to maintained.
(iii) The liability towards workmen Compensation was estimated at ` 60,000.
(iv) Machinery was to be depreciated by ` 18,000 and Land and Building was to be depreciated by ` 54,000.
Pass necessary journal entries for the above transaction in the books of the firm.
Q.19 Sunaina and Tamanna are partners in a firm sharing profits and losses in the ratio of 3:2. Their Balance Sheet as at 31st March,
2022 stood as follows: (CBSE SQP 2020-21)
Tamanna 80,000 1,40,000 Debtors 1,90,000
Current Accounts: Less: Provision for Doubtful debts (40,000) 1,50,000
Sunaina 10,000 Stock 40,000
Tamanna 30,000 40,000 Cash 30,000
General Reserve 1,20,000 Goodwill 20,000
Workmen’s Compensation Reserve 50,000
Creditors 1,50,000
5,00,000 5,00,000
They agreed to admit Pranav into partnership for 1/5th share of profits on 1st April, 2022, on the following terms:

(a) All Debtors are good.
(b) Value of land and building to be increased to `1,80,000.
(c) Value of plant and machinery to be reduced by `20,000.
(d) The liability against Workmen’s Compensation Fund is determined at `20,000 which is to be paid later in the year.
(e) Mr. Anil, to whom `40,000 were payable (already included in above creditors), drew a bill of exchange for 3 months
which was duly accepted.
(f ) Pranav to bring in capital of `1,00,000 and `10,000 as premium for goodwill in cash.
Solutions
1. Goodwill = Capitalised value of the firm – Firm’s capital
Capitalised value of the firm = Average Profits × 100/NRR = `5,00,000 × 100/10 = `50,00,000
Firm’s Capital = Yash’s Capital + Karan’s capital + Yash’s Current Account + Karan’s Current Account + General reserve
= `6,00,000 + `4,00,000 + `4,00,000 + `5,00,000 + `1,00,000 = `20,00,000
Goodwill = `50,00,000 – `20,00,000 = `30,00,000
2. Average Profits = (`90,000 + `1,30,000 + `86,000)/3 = `1,02,000. Goodwill = `1,02,000 × 2 = `2,04,000
Journal
Cash A/c Dr. 51,000
To Premium for goodwill A/c 51,000
(Goodwill brought in cash by Manik)
Premium for goodwill A/c Dr. 51,000
To Kabir’s Capital A/c. 38,250
To Farid’s Capital A/c 12,750
(Goodwill credited to the capital accounts of old partners in the
sacrificing ratio)
3. Actual firm’s capital = Sum of Partners’ capital balances + Reserve fund – Purchased goodwill
= `1,40,000 + `20,000 – `10,000 = `1,50,000
Alternately, Actual firm’s capital = Total assets (excluding goodwill) – Outside liabilities
= `1,90,000 – (`35,000 + `5,000) = `1,50,000
Normal profit = Actual firm’s capital × NRR/100 = `1,50,000 × 12/100 = `18,000
Super profit = Average profit – Normal profit = `30,000 – ` 18,000 = `12,000
Goodwill of the firm = Super profit × Number of years’ purchase = `12,000 × 4 = `48,000
Therefore, Kushagrr’s Share of Goodwill = `48,000 × 1/3 = `16,000
4. Average profits = (3,00,000 + 3,60,000 + 4,20,000)/3 – `1,20,000 (salary) = `2,40,000
Actual Firm’s capital = Sum of capital and current account balances + General reserve
= `5,00,000 + `3,00,000 + `1,50,000 – `50,000 + `1,00,000 = `10,00,000
(a) Normal profits = `10,00,000 × 15/100 = `1,50,000

Super profits = Average profits – Normal profits = `2,40,000 – `1,50,000 = `90,000
Goodwill = Super profits × Number of years purchase = `90,000 × 2 = `1,80,000
(b) Goodwill = Super profit × 100/NRR = `90,000 × 100/15 = `6,00,000
(c) Goodwill = Capitalised value of the firm (Average profit ×100/NRR) – Actual firm’s capital
= `2,40,000 × 100/15 – `10,00,000 = `16,00,000 – `10,00,000 = `6,00,000
5. Journal
Date Particulars L.F. Dr. Amount (`) Cr. Amount (`)
Bank A/c Dr. 16,000
To Chaudhary’s Capital A/c 16,000
(Amount brought for capital)
Chaudhary’s Current A/c Dr. 6,000
To Ahuja’s Capital A/c 3,000
To Barua’s Capital A/c 3,000
(Goodwill credited to sacrificing partner’s accounts)
Ahuja’s Capital A/c Dr. 9,000
Barua’s Capital A/c Dr. 6,000
To Goodwill A/c 15,000
(Goodwill already appearing in books written-off in the old ratio)
6. Journal
Bank A/c Dr. 45,000
To Rahul’s Capital A/c 40,000
(Amount brought by Rahul as capital and premium for goodwill in
part)
Rahul’s Current A/c Dr. 5,000
To Ram’s Capital A/c 6,000
To Rahim’s Capital A/c 4,000
(Adjustment of goodwill in old partners in their sacrificing ratio 3 : 2)
Ram’s Capital A/c Dr. 9,000
Rahim’s Capital A/c Dr. 6,000
(Goodwill appearing in the books written-off in old profit sharing ratio)
7. Value of goodwill of the firm = Total capital of the firm (based on Sam’s capital and his share) – Actual total capital of all
partners = (`60,000 × 5) – (`80,000 + `50,000 + `60,000) = `3,00,000 – `1,90,000 = `1,10,000
(a) Sam brings his share of goodwill: Journal
Bank A/c Dr. 82,000
To Sam’s Capital A/c 60,000
(Amoun brought by Sam as Capital and Premium for goodwill)
To Hem’s Capital A/c 13,200
To Nem’s Capital A/c 8,800
(Premium for goodwill credited to sacrificing partners’ capital account
in their sacrificing ratio)
(b) Sam does not bring his share of goodwill: Journal
Bank A/c Dr. 60,000
To Sam’s Capital A/c 60,000
(Cash brought by Sam for his capital)
Sam’s Current A/c Dr. 22,000
To Hem’s Capital A/c 13,200
To Nem’s Capital A/c 8,800
(Adjustment of goodwill not brought by Sam)
8. Calculation of Goodwill:
Particulars Amount (`)
Total Capital of the firm on the basis of Nisha’s share of capital (`90,000 × 4) 3,60,000
Less: Actual capital of the firm (`1,00,000 + `80,000 + `90,000) (2,70,000)
Goodwill of the firm 90,000
Journal
Date Particulars L.F. Dr. Amount Cr. Amount (`)
(`)
Cash / Bank A/c Dr. 90,000
To Nisha’s Capital A/c 90,000
(Capital brought in by Nisha)
Nisha’s Current A/c Dr. 22,500
To Veena’s capital A/c 7,500
To Somesh’s capital A/c 15,000
(Nisha’s share in goodwill credited to old partners in the sacrificing ratio)
9. Journal
(`)
1 Apr. Revaluation A/c Dr. 20,000
2022 To Plant and Machinery A/c 20,000
(Being plant and machinery revalued)
Land and Building A/c Dr. 40,000
Provision for Doubtful debts A/c Dr. 40,000
(Being land and building revalued and provision for doubtful debts written
back)
Creditors A/c Dr. 40,000
To Bills Payable A/c 40,000
(Being Bills accepted from Mr. Anil)
(Being profit on revaluation credited to partners current account)
Sunaina’s current A/c Dr. 12,000
Tamanna’s current A/c Dr. 8,000
(Being Goodwill written off )
Cash A/c Dr. 1,10,000
To Pranav’s Capital A/c 1,00,000
(Being capital and premium brought in by new partner)

(Being Premium distributed among sacrificing partners)
General Reserve A/c Dr. 1,20,000
(Being reserve distributed among old partners)
Workmen Compensation Reserve A/c Dr. 50,000
(Being provision for workmen compensation provided and balance
reserve distributed among old partners)
10. Journal
(`)
2022 Samiksha’s Capital A/c Dr. 25,000
Apr. 1 Ash’s Capital A/c Dr. 15,000
Divya’s Capital A/c Dr. 10,000
To Profit and Loss A/c 50,000
(Undistributed loss transferred to Partners’ Capital Accounts)
Investment Fluctuation Fund A/c Dr. 40,000
To Investments A/c 20,000
To Samiksha’s Capital A/c 10,000
To Ash’s Capital A/c 6,000
To Divya’s Capital A/c 4,000
(Investments Fluctuation Fund distributed to Partners’ Capital Accounts
after meeting the decrease in the value of investments)
Ash’s Capital A/c Dr. 60,000
Divya’s Capital A/c Dr. 30,000
To Samiksha’s Capital A/c 90,000
(Adjustment entry made for goodwill)
Samiksha = 5/10 – 2/10 = 3/10 (sacrifice); Ash = 3/10 – 5/10 = 2/10 (gain); Divya = 2/10 – 3/10 = 1/10 (gain)
11. Journal
(`)
2022 Seema’s Capital A/c Dr. 7,000
Apr. 1 To Raka’s Capital A/c 7,000
(Adjustment entry made for goodwill)
Workmen’s Compensation Fund Dr. 90,000
To Workmen’s Compensation Claim A/c 40,000
To Raka’s Capital A/c 25,000
(Workmen’s Compensation Fund distributed in old ratio to Partners’
capital accounts after meeting the claim)
To Raka’s Capital A/c 20,000
(Revaluation profit transferred to Partners’ Capital Accounts)

Calculation of sacrifice/ gain: Raka: 5/10 – 2/5 = 1/10 (sacrifice); Seema: 3/10 – 2/5 = –1/10 (gain); Mahesh: 2/10 – 1/5 = Nil
12. Dr. Revaluation A/c Cr.
To Building 15,000 By Loss on Realisation to: 90,000
To Stock 3,000 Badal’s Current A/c 12,000 39,000
To Provision for Bad Debts 2,000 Bijli’s Current A/c 8,000 19,700
20,000 20,000

Dr. Partners Capital Accounts Cr.
Particulars Badal (`) Bijli (`) Raina (`) Particulars Badal (`) Bijli (`) Raina (`)
To Badal’s Current A/c 30,000 – – By Balance b/d 1,50,000 90,000 –
To Bijli’s Current A/c – 10,000 – By Cash A/c – – 40,000
To Balance c/d 1,20,000 80,000 40,000
1,50,000 90,000 40,000 1,50,000 90,000 40,000
Dr. Partners Current Accounts Cr.
Particulars Badal (`) Bijli (`) Particulars Badal (`) Bijli (`)
To Balance b/d – 2,000 By Balance b/d 12,000 –
To Revaluation A/c 12,000 8,000 By Premium for Goodwill A/c 7,200 4,800
To Balance c/d 51,600 14,400 By Investment Fluctuation Reserve 14,400 9,600
By Badal’s Capital A/c 30,000 –
By Bijli’s Capital A/c – 10,000
63,600 24,400 63,600 24,400
To Provision for doubtful debts 2,000 By Stock 10,000
To Workmen’s compensation claim 10,000 By Cash/ Bad Debts Recovered 15,000
To Profit transferred to: By Creditors 27,000
Madhuri’s Capital A/c 30,000
Arsh’s Capital A/c 10,000 40,000
52,000 52,000

Particulars Madhuri (`) Arsh (`) Jyoti (`) Particulars Madhuri (`) Arsh (`) Jyoti (`)
To Investments A/c – 22,000 – By Balance b/d 3,00,000 2,00,000 –
To Balance c/d 1,98,000 By Cash A/c – – 1,86,000
3,60,000 1,86,000 By Premium for 30,000 10,000 –
goodwill A/c
By Revaluation A/c 30,000 10,000 –
3,60,000 2,20,000 1,86,000 3,60,000 2,20,000 1,86,000
Balance Sheet of Madhuri, Arsh and Jyoti as on 31st March 2022
Capitals: Machinery 4,70,000
Madhuri 3,60,000 Investments 88,000
Arsh 1,98,000 Debtors 1,20,000
Jyoti 1,86,000 7,44,000 Less: Provision for doubtful debts 12,000 1,08,000
Workmen’s compensation claim 70,000 Stock 1,50,000
Creditors 1,63,000 Cash 2,71,000
Employees Provident Fund 1,10,000
10,87,000 10,87,000

To Bad debts 1,000 By Furniture 65,400
To Provision for doubtful debts 4,400
To Stock 10,000
To Workmen’s compensation claim 10,000
To Gain on Revaluation transferred to:
Ashish’s Capital A/c 24,000
Nimish’s Capital A/c 16,000 40,000
65,400 65,400

Particulars Ashish (`) Nimish (`) Geeta (`) Particulars Ashish (`) Nimish (`) Geeta (`)
To Stock A/c – 1,30,000 – By Balance b/d 3,10,000 2,90,000 –
To Balance c/d 5,40,000 3,60,000 3,00,000 By Cash A/c – – 3,00,000
By Premium for goodwill A/c 30,000 20,000 –
By General reserve 30,000 20,000 –
By Ashish Current A/c 1,46,000 – –
By Nimish Current A/c – 1,44,000 –
5,40,000 4,90,000 3,00,000 5,40,000 4,90,000 3,00,000
Balance Sheet of the reconstituted firm as on 1st April 2022
Capitals: Plant and Machinery 2,90,000
Ashish 5,40,000 Furniture 2,85,400
Nimish 3,60,000 Debtors 88,000
Geeta 3,00,000 12,00,000 Less: Provision for doubtful debts 4,400 83,600
Workmen’s compensation claim 30,000 Cash 3,91,000
Creditors 1,10,000 Current accounts: Ashish 1,46,000
Nimish 1,44,000 2,90,000
13,40,000 13,40,000
To Stock 10,000 By Land and Building 1,00,000
To Workmen’s compensation claim 30,000
Achla’s Capital A/c 45,000
Bobby’s Capital A/c 15,000 60,000
1,00,000 1,00,000
Particulars Achla (`) Bobby (`) Vihaan (`) Particulars Achla (`) Bobby (`) Vihaan (`)
To Bank A/c 30,000 10,000 - By Balance b/d 4,00,000 2,00,000 -
To Stock A/c 35,000 - - By Bank A/c - - 1,00,000
To Balance c/d 4,70,000 2,35,000 1,00,000 By General Reserve 30,000 10,000 -
By Premium for goodwill 60,000 20,000 -
By Revaluation A/c 45,000 15,000 -
5,35,000 2,45,000 1,00,000 5,35,000 2,45,000 1,00,000
To Achla’s Current A/c 1,70,000 - - By Balance b/d 4,70,000 2,35,000 1,00,000
To Bobby’s Current A/c - 1,35,000 -
To Balance c/d 3,00,000 1,00,000 1,00,000
4,70,000 2,35,000 1,00,000 4,70,000 2,35,000 1,00,000
Balance Sheet of Achla, Bobby and Vihaan as on 1st April 2022
Workmen’s compensation claim 80,000 Cash at bank 2,00,000
Creditors 1,10,000 Debtors 40,000
Current Accounts: Furniture 1,55,000
Achla 1,70,000 Land and Building 6,00,000
Bobby 1,35,000 3,05,000
Capitals:
Achla 3,00,000
Bobby 1,00,000
Vihaan 1,00,000 5,00,000
9,95,000 9,95,000
To Outstanding salaries 2,000 By Bad debts recovered/ Bank A/c 12,000
A’s Capital A/c 6,000
B’s Capital A/c 4,000 10,000
12,000 12,000
Particulars A (`) B (`) C (`) Particulars A (`) B (`) C (`)
To Balance c/d 2,12,200 1,74,800 1,00,000 By Balance b/d 1,60,000 1,40,000 –
By Bank A/c – – 1,00,000
By General Reserve 15,000 10,000 –
By Investment Fluctuation Fund 1,200 800 –
By Premium for goodwill A/c 30,000 20,000 –
2,12,200 1,74,800 1,00,000 2,12,200 1,74,800 1,00,000
Balance Sheet of A, B and C as on 1st April 2020
Creditors 30,000 Cash at bank 1,82,000
Outstanding salaries 2,000 Debtors 85,000
Capitals: Less: Provision for bad debts (5,000) 80,000
A 2,12,200 Stock 1,30,000
B 1,74,800 Investments 50,000
C 1,00,000 4,87,000 Furniture 77,000
5,19,000 5,19,000
17. Journal
1st General Reserve A/c Dr. 2,00,000
April, To Asha’s Capital A/c 80,000
2022 To Rina’s Capital A/c 80,000
To Chahat’s Capital A/c 40,000
(General Reserve distributed among the partners in the old ratio)
Chahat’s Capital A/c Dr. 20,000
To Asha’s Capital A/c Dr. 10,000
To Rina’s Capital A/c 10,000
(Compensation paid by gaining partner to sacrificing partner)
Bad debts A/c Dr. 40,000
To Debtors A/c 40,000
(Bad debts written off)
Provision for doubtful debts A/c Dr. 20,000

(Bad debts charged to provision and revaluation)
To Provision for doubtful debts A/c 11,000
(Provision for doubtful debts created @5% on debtors)
Asha’s Capital A/c Dr. 12,400
Rina’s Capital A/c Dr. 12,400
Chahat’s Capital A/c Dr. 6,200
(Loss on Revaluation debited to Partners’ Capital Accounts)
18. Journal
31-3- Bank A/c Dr. 2,20,000
2022 To Suman’s Capital A/c 2,00,000
To Premium for goodwill A/c 20,000
(Capital and premium for goodwill brought in by Suman)
To Raman’s Capital A/c Dr. 15,000
To Aman’s Capital A/c 5,000
(Premium for goodwill credited to the capital accounts of old partners
in the sacrificing ratio)
Outstanding Expenses A/c Dr. 18,000
To Bank A/c 18,000
(Outstanding expenses paid off)
Bad debts A/c Dr. 5,000
To Debtors A/c 5,000
(Bad debts written off)
Provision for bad debts A/c Dr 5,000
(Bad debts adjusted from the provision)
To Provision for bad debts A/c 2,500
(Provision for bad debts created)
Workmen’s Compensation Reserve A/c Dr. 55,000
To Workmen’s Compensation claim A/c 60,000
(Workmen’s compensation claim recorded)
To Machinery A/c 18,000
To Land and Building A/c 54,000
(Machinery and Land and building depreciated)
Raman’s Capital A/c Dr. 59,625
Aman’s Capital A/c Dr. 19,875
(Loss on Revaluation debited to old partners in the old ratio)
19. Journal
1 Apr. Revaluation A/c Dr. 20,000
2022 To Plant and Machinery A/c 20,000
(Being plant and machinery revalued)
Land and Building A/c Dr. 40,000
Provision for Doubtful debts A/c Dr. 40,000
(Being land and building revalued and provision for doubtful debts
written back)
Creditors A/c Dr. 40,000
To Bills Payable A/c 40,000
(Being Bills accepted from Mr. Anil)
(Being profit on revaluation credited to partners current account)
Sunaina’s current A/c Dr. 12,000
Tamanna’s current A/c Dr. 8,000
(Being Goodwill written off )
Cash A/c Dr. 1,10,000
To Pranav’s Capital A/c 1,00,000
(Being capital and premium brought in by new partner)
(Being Premium distributed among sacrificing partners)
General Reserve A/c Dr. 1,20,000
(Being reserve distributed among old partners)
Workmen Compensation Reserve A/c Dr. 50,000
(Being provision for workmen compensation provided and balance
reserve distributed among old partners)
25 Sample Papers
for
Practice (with Answers)
CBSE Sample Question Paper and ACCOUNTANCY XII EXAM HANDBOOK
289
25 Practice Papers
Sample Paper 25 (for Practice)

Part-A
Q.1 By virtue of Section 464 of the Companies Act, 2013 the Central Government is empowered to prescribe maximum number of
partners in a firm but the number of partners cannot be more than __________ . (1 mark)
(a) 50 (b) 100
(c) 20 (d) 10
OR
“The business of a partnership concern may be carried on by all the partners or any of them acting for all.” The above statement
has two implications. First, that there exists a relationship of mutual agency between all the partners. Which of the following
statement highlights the second implication of the given statement? (1 mark)
(a) The agreement between partners should be to carry on some business.
(b) A partner can bind other partners by his acts and also is bound by the acts of other partners with regard to business of the
firm.
(c) Every partner is entitled to participate in the conduct of the affairs of its business.
(d) Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done
while he is a partner
Q.2 A and B are partners having fixed capitals of `2,00,000 and `1,00,000 respectively. At the end of the year 2022-23, their
current accounts showed balances: A `1,00,000 (Cr.) B `5,000 (Dr.). Where will B’s current account balance be shown in the
books of A and B? (1 mark)
(a) On the liabilities side of the Balance Sheet.
(b) On the assets side of the Balance Sheet.
(c) On the debit side of Profit and Loss Appropriation A/c.
(d) On the credit side of Profit and Loss Appropriation A/c.
Q.3 Amitabh and Babul are partners sharing profits in the ratio of 3:2, with capitals of `50,000 and `30,000 respectively. Interest on
capital is agreed @ 6% p.a. Babul is to be allowed an annual salary of `2,500 and manager’s commission is `750. During the year
2022-23, the profits prior to the calculation of interest on capital but after charging Babul’s salary amounted to `12,500.
Amitabh’s share of distributable profit will be: (1 mark)
(a) `4,170 (b) `2,780
(c) `2,670 (d) `7,050
Q.4 Bhavani Ltd. issued 10,000, 8% Debentures of `100 each at certain rate of discount and were to be redeemed at 10% premium.
Existing balance of Securities Premium before issuing of these debentures was `2,00,000 and after writing off Loss on Issue of
Debentures, the balance in Securities Premium was `40,000. At what rate of discount, these debentures were issued? (1 mark)
(a) 16% (b) 6%
(c) 4% (d) 20%
OR
Kanha Ltd. issued 1,00,000, 9% Debentures of ` 10 each at certain rate of premium and to be redeemed at 10% premium. At
the time of writing off Loss on Issue of Debentures, Statement of Profit and Loss was debited with ` 60,000. At what rate of
premium these debentures were issued, assuming that there was no balance in Securities Premium Account before issuing these
debentures ? (1 mark)
(a) 10% (b) 16%
(c) 6% (d) 4%
Q.5 Following is the extract of the Balance Sheet of, Neelkanth and Mahadev as on March 31, 2023, who share profits and losses in
the ratio of 3 : 2:
Neelkanth’s Capital 10,00,000 Sundry Assets 30,00,000
Mahadev’s Capital 10,00,000
Neelkanth’s Current Account 1,00,000
Mahadev’s Current Account 1,00,000
Profit and Loss Appropriation (March 2023) 8,00,000
30,00,000 30,00,000
ACCOUNTANCY XII EXAM HANDBOOK Shree Radhey Publications (Subhash Dey)
290
During the year Mahadev’s drawings were `30,000. Profits during 2022-23 is `10,00,000. Profits were distributed without
providing interest on partners’ capitals. The interest on capitals @ 5% p.a for the year ending March 31, 2023 will be: (1 mark)
(a) `20,000 and `31,500 respectively (b) `50,000 each
(c) `25,000 each (d) `27,000 and `18,000 respectively
Q.6 Lalita Ltd, issued a prospectus inviting applications for 2,00,000 shares of `10 each at 20% premium payable `5 on application
(including premium), `4 on allotment (including premium) and balance on first and final call. Public applied for certain
number of shares and the entire application money had to be refunded.
Which of the following amount the company must have received as application money due to which it could not proceed with
the allotment of shares? (Keep in view SEBI (Disclosure and Investor Protection) Guidelines, 2000.) (1 mark)
(a) `18,00,000 (b) `16,00,000
(c) `9,00,000 (d) `8,50,000
Answer the question no. 7 & 8 on the basis of the following hypothetical case study:
On 1st September 2022, twenty students of Modern College started their Partnership Firm in the name of “Be Safe” for selling
sanitizers on digital mode. Since they were good friends of each other, they were not having any explicit agreement in place. All
of them have agreed to invest `15,000/- each as capital. The books were closed on 31st March 2023, on which date the following
information was provided by the firm:
Sale of Sanitizers 1,20,000
Cost of goods sold 50,000
Total Remuneration to partners 2,000 per month
Rent to a partner 1,000 per month
Manager’s Commission 5,000
Closing Stock as on March 31,2023 9,000
6% Fixed Deposit (made on 31.3.2023) 20,000
Q.7 Calculate the amount of profits to be transferred to Profit and Loss Appropriation Account. (1 mark)
(a) Profit `58,000 (b) Profit `44,000
(c) Profit `59,200 (d) Profit `58,700
Q.8 On 1st December 2022 one of the partners of the firm introduced additional capital of `30,000 and also advanced a loan of
`40,000 to the firm. Calculate the amount of interest that Partner will receive for the current accounting period: (1 mark)
(a) `4,200 (b) `1,400
(c) ` 1575 (d) ` 800
Q.9 Anurag and Bhawana entered into partnership on 1.4.2022. On 1.1.2023 they admitted Monika as a new partner for 3/10th
share in the profits which she acquired equally from Anurag and Bhawana. The new profit sharing ratio of Anurag, Bhawana and
Monika was 4 : 3 : 3. What was the profit sharing ratio of Anurag and Bhawana at the time of forming the partnership? (1 mark)
(a) 1 : 1 (b) 4 : 3
(c) 11 : 9 (d) 3 : 4
Q.10 The average profit earned by a firm is ` 95,000 which includes undervaluation of stock of `10,000 on an average basis. The
capital invested in the business is ` 9,00,000 and the normal rate of return is 9%. The value of goodwill of the firm on the basis
of 8 times the super profit will be: (1 mark)
(a) `1,12,000 (b) `1,92,000
Q.11 A and B are partners sharing profits in the ratio of 5 : 3. C is admitted as a new partner for 1/5th share in the profits. C brought
necessary amount for his capital and share of goodwill. The following journal entires are recorded on C’s admission:
Date Particulars L.F. Debit (`) Credit (`)
Cash A/c Dr. 1,20,000
To C’s Capital A/c 1,20,000
(Being amount brought in by C)
C’s Capital Account Dr. 40,000
(Goodwill transferred to A and B)
The amount of capital brought in by C and the sacrificing ratio are: (1 mark)
291
25 Practice Papers
(a) `1,20,000 and 5 : 3 (b) `80,000 and 3 : 1
(c) `1,20,000 and 3 : 1 (d) `80,000 and 1 : 1
OR
P and Q are partners sharing profits and losses in the ratio of 3:2. They decide to admit R into partnership for 1/3 share in the
profits. The goodwill of the firm is valued at `60,000 and the goodwill already appears in books at `18,000. It is decided that
the existing goodwill should continue to appear in the books at its old value. R’s share of goodwill is: (1 mark)
(a) `20,000 (b) `6,000
(c) `26,000 (d) `14,000
Q.12 Ram Ltd. forfeited 1,500 shares of Rahim of ` 10 each issued at a premium of ` 3 per shares for non-payment of allotment
and first call money. On these shares, amount was payable as follows: On application – ` 3 per share; On allotment (including
premium) – ` 5 per share; On first call – `3 per share; On final call – Balance.
The company made pro-rata allotment in the ratio of 2 : 1. Final call has not been called up. 1,000 of the forfeited shares were
reissued as fully paid-up. What is the amount of maximum possible discount that Ram Ltd. can allow at the time of reissue of
1,000 forfeited shares? (1 mark)
(a) `7,500 (b) `5,000
(c) `10,000 (d) `15,000
Q.13 Ganga, Yamuna and Saraswati were partners in a firm sharing profits in the ratio of 5 : 3 : 2. The following journal entry was
recorded for the treatment of goodwill on Yamuna’s retirement:
Saraswati’s Capital A/c Dr. 48,000
To Yamuna’s Capital A/c 36,000
To Ganga’s Capital A/c 12,000
(Being adjustment for goodwill on Yamuna’s retirement)
What is be the new profit sharing between Ganga and Saraswati? (1 mark)
(a) 5 : 2 (b) Equal
(c) 3 : 1 (d) 2 : 3
OR
A, B, C and D were partners in a firm sharing profits in the ratio of 2 : 2 : 2 : 1. On 31st January 2023 D died. The following
journal entry was recorded for treatment of goodwill on D’s death:
A’s Capital A/c Dr. 30,000
To C’s Capital A/c 10,000
To D’s Capital A/c 10,000
(Being adjustment of goodwill on D’s death)
What is the new profit sharing ratio of A, B and C? (1 mark)

(a) Equal (b) 5 : 1 : 1
(c) 2 : 2 : 1 (d) 3 : 2 : 1
Q.14 Sameer and Sudhir were partners in a firm sharing profits in the ratio of 5 : 3. On 28.2.2023 the firm was dissolved. On the date
of dissolution, Sameer’s capital was `2,40,000 and Sudhir’s capital was `1,80,000. Creditors on that date were `80,000 and there
was a balance of `1,36,000 in General Reserve Account. Cash balance was `20,000. Sundry assets realised `7,50,000 and expenses
on dissolution were `2,000 which were paid by Sudhir. Profit/loss on realisation will be: (1 mark)
(a) `1,32,000 (b) `1,12,000
Q.15 A share of `100 each, issued at 20% premium out of which `80 (including premium) was called up and paid up. The directors
of the company decided that 25% of the uncalled capital will be called only in the event of winding up of the company for
payment to the creditors. The Uncalled Capital and Reserve Capital will be ___________. (1 mark)
(a) `80 per share, `20 per share (b) `20 per share, `5 per share
(c) `40 per share, `20 per share (d) `40 per share, `10 per share
Q.16 Identify the type of debentures which do not have a specific charge on the assets of the company. However, a floating charge
may be created on these debentures by default. Normally, these kinds of debentures are not issued. (1 mark)
(a) Perpetual Debentures (b) Redeemable Debentures
(c) Unsecured Debentures (d) Secured Debentures
292
OR
Table F provides for interest on calls in advance at a rate not exceeding _________. (1 mark)
(a) 10% per annum (b) 12% per annum.
(c) 5% per annum. (d) 6% per annum.
Q.17 Ankur and Bobby were partners sharing profits and losses in the ratio 3:2. They admitted Rohit for a 1/5 share in the firm.
Rohit is guaranteed a minimum profit of `2,00,000 for the year. Any deficiency in Rohit’s share is to be borne by Ankur and
Bobby in the ratio 4:1. Losses for the year were `10,00,000.
Pass the necessary journal entries. Show your workings clearly. (3 marks)
OR
Rameez and Zaheer are equal partners. Their capitals as on April 01, 2022 were `50,000 and `1,00,000 respectively. After the
accounts for the financial year ending March 31, 2023 have been prepared, it is discovered that interest at the rate of 6 % per
annum, as provided in the partnership deed has not been credited to the partners’ capital accounts before distribution of profit.
How will you rectify this error? Explain the two ways by which the above error can be rectified. (3 marks)
Q.18 Madhu and Neha were partners in a firm sharing profits and losses in the ratio of 3 : 5. Their fixed capitals were `4,00,000 and
`6,00,000 respectively. On 1.1.2023, Tina was admitted as a new partner for 1/4 th share in the profits. Tina acquired her share
of profit from Neha. Tina brought `4,00,000 as her capital which was to be kept fixed like the capitals of Madhu and Neha.
Pass necessary journal entry for the treatment of goodwill on Tina’s admission considering that Tina did not bring her share of
goodwill premium in cash. Show your workings clearly. (3 marks)
Q.19 D, E and F were partners in a firm sharing profits in the ratio of 5 : 2 : 3. On 31.3.2023 their balance sheet was as follows:
Bills Payable 62,000 Bank 17,000
General Reserve 2,00,000 Stock 18,000
Capitals: Debtors 1,99,000
D 7,00,000 Investments 1,15,000
E 5,00,000 Machinery 7,50,000
F 6,00,000 18,00,000 Land and Building 10,00,000
21,15,000 21,15,000
On the above date D retired from the firm. Goodwill of the firm was valued at `1,00,000. D’s share of goodwill was adjusted
through the capital accounts of remaining partners. Profit on Revaluation of assets was ` 1,20,000.
Prepare D’s Capital Account on his retirement. (3 marks)
Q.20 Akash Limited obtained a loan of `5,00,000 from ICICI Bank @ 10% interest. The company issued `7,50,000, 10% debentures
of `100 each, in favour of ICICI Bank as collateral security. Pass necessary journal entries for the above transactions:
(i) When company decided to record the issue of 10% Debentures as collateral security.
(ii) When company decided not to record the issue of 10% Debentures as collateral security. (3 marks)
OR
Disha Ltd. took over assets of ` 8,00,000 and liabilities of ` 3,00,000 from Kriti Ltd. for a purchase consideration of `6,00,000.
The payment was made by issue of 9% debentures of ` 100 each at 20% premium.
Pass the necessary journal entries for the above transactions in the books of Disha Ltd.
Q.21 T, U and V were partners in a firm sharing profits and losses in the ratio of 2 : 1 : 2. Their firm was incurring huge losses thus
it had to be closed. After transferring assets (other then cash in hand and bank) and third party liabilities to realization account
the following transactions took place:
(i) T took away 60% of the stock at book value less 10% for `90,000, and the remaining stock was sold for `40,000.
(ii) Creditors of `78,000 took over machinery of `80,000 in full settlement of their claim.
(iii) `5,000 debtors previously written off were recovered.
(iv) Mrs. V’s loan of `72,000 was paid by the firm.
Pass necessary journal entries for the above transactions in the books of T, U and V. (4 marks)
Q.22 Shiva Ltd. has an authorised capital of `15,00,000 divided into 1,00,000 equity shares of `10 each and 5,000, 9% preference
shares of `100 each. The company invited applications for 90,000 equity shares while subscriptions were received for only
85,000 equity shares. Ram holding 1,000 shares and Shyam holding 2,000 shares did not pay first call @`2 per share. Shyam’s
shares were forfeited after the first call and later on 1,500 of the forfeited shares were reissued @`6 per share. Mohan holding
3,000 shares paid in advance the second and final call money @`2 per share along with first call.
Present the share capital in the Balance Sheet of the company. Also, show the notes to account. (4 marks)
293
25 Practice Papers
Q.23 Jain & Gupta were partners sharing profits in the ratio of 3 : 2. Their balance sheet on 31 March 2023 was as follows:
Bills payable 3,000 Debtors 20,500
Bank overdraft 17,000 Less: Provision for bad debts (300) 20,200
Reserve 15,000 Stock 20,000
Jain’s Capital 70,000 Plant 40,000
Gupta’s Capital 60,000 Buildings 70,000
Motor Vehicles 20,000
1,85,000 1,85,000
They agreed to admit Mishra for 1/4th share from 1.4.2023 subject to the following terms:
(a) Mishra to bring through cheque his share of goodwill/premium `10,000 and capital equal to 1/4th of the total capital of
Jain & Gupta after all adjustments including premium for goodwill.
(b) Buildings to be appreciated by `14,000 and stock to be depreciated by ` 6,000.
(c) Provision for Bad debts on Debtors to be raised to `1,000.
(d) A provision be made for `1,800 for outstanding legal charges.
Prepare Revaluation Account, Partner’s Capital Accounts and the Balance Sheet of the new firm on Mishra’s admission. (6 marks)
Q.24 Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5 : 3 : 2. Their Balance Sheet as on March 31,
2023 was as follows:
Creditors 14,000 Investments 10,000
Reserve Fund 6,000 Goodwill 5,000
Capitals: Premises 20,000
Nithya 30,000 Patents 6,000
Sathya 30,000 Machinery 30,000
Mithya 20,000 80,000 Stock 13,000
Debtors 8,000
Bank 8,000
1,00,000 1,00,000
Mithya dies on August 1, 2023. The agreement between the executors of Mithya and the partners stated that:
(i) Goodwill of the firm be valued at 2.5 times the average profits of last four years. The profits of four years were: in 2019-20,
`13,000; in 2020-21, `12,000; in 2021-22, `16,000; and in 2022-23, `15,000. Goodwill is to be adjusted through
partners’ capital accounts.
(ii) Profit on revaluation of assets was calculated as `2,000.
(iii) The share of profit of Mithya should be calculated on the basis of the profit of 2022-23.
(iv) `4,200 should be paid immediately and the balance should be paid in 2 equal half-yearly installments carrying interest @ 10%.
Prepare Partners’ capital accounts and Pammy’s Executor’s account till the amount is fully paid. (6 marks)
OR
P, Q, R and S were partners in a firm sharing profits in the ratio of 1 : 4 : 2 : 3. On 1.4.2023 their Balance Sheet was as follows:
Capitals: Fixed Assets 12,70,000
P 2,00,000 Current Assets 5,30,000
Q 3,00,000
R 4,00,000
S 5,00,000 14,00,000
Sundry Creditors 2,30,000
Workmen Compensation Reserve 1,70,000
18,00,000 18,00,000
From the above date the partners decided to share the future profits equally. For this purpose the goodwill of the firm was
valued at ` 2,70,000.
294
The partners also agreed for the following:

(i) Claim against workmen compensation reserve was estimated at `2,00,000.
(ii) Capitals of the partners was to be adjusted according to the new profit sharing ratio by bringing or paying cash as the case
may be.
Prepare Partners Capital Accounts and the Balance Sheet of the reconstituted firm. Show your workings clearly. (6 marks)
Q.25 Shree Radhey Ltd. (pharmaceutical company) appointed marketing expert, Mr. Keshav as the CEO of the company, with a
target to penetrate their roots in the rural regions. Mr. Keshav discussed the ways and means to achieve target of the company
with financial, production and marketing departmental heads and asked the finance manager to prepare the budget. After
reviewing the suggestions given by all the departmental heads, the finance manager proposed requirement of an additional fund
of `52,50,000.
Shree Radhey Ltd. is a zero-debt company. To avail the benefits of financial leverage, the finance manager proposed to include
debt in the capital structure. After deliberations, on April 1, 2022, the board of directors had decided to issue 6% Debentures of
`100 each to the public at a premium of 5%, redeemable after 5 years at `110 per share.
You are required to answer the following questions:
(i) Calculate the number of debentures to be issued to raise additional funds.
(ii) Pass Journal entry for the allotment of debentures.
(iii) Pass Journal entry to write off loss on issue of debentures.
(iv) Calculate the amount of annual fixed obligation associated with debentures and pass journal entries related to the same.
(v) Prepare Loss on Issue of Debentures Account. (6 marks)
Q.26 Krishna Ltd. invited applications for issuing 50,000 shares of `10 each at a premium of `2 per share. The amount was payable
as follows:
On Application: `3 per share (including premium `1)
On Allotment: `3 per share (including premium `1)
On first and final call: Balance amount
Application for 70,000 shares were received. Allotment was made on the following basis.
Applications for 5,000 shares – Full
Applications for 50,000 shares – 90%
Balance of the applications were rejected.
`1,30,200 were received on account of allotment. The amount of allotment due from the shareholders to whom shares were
allotted in full was fully received. A few shareholders to whom shares were allotted on pro-rata basis, failed to pay the allotment
money. The directors decided to forfeit all those shares on which amount was due but was not received. The forfeited shares
were re-issued @ `8 per share fully paid up. First and Final call was not made.
Pass the necessary journal entries for the above transactions in the book of Krishna Ltd. assuming that the company maintains
Calls-in-Arrears Account. (6 marks)
OR
(a) Sunrise Company Limited offered for public subscription 10,000 shares of `10 each at 10% premium payable as follows:
`3 on application,
`4 on allotment (including premium), and
Balance on first and final call.
Owing to heavy subscriptions, the directors made pro-rata allotment in the ratio of 6 : 5 to all the applicants following the
principle of equality.
Mr. Ahmad, an applicant for 120 shares, could not pay the allotment and call money, and Mr. Basu, a holder of 200 shares,
failed to pay the call. All these shares were forfeited.
Out of the forfeited shares, 150 shares (the whole of Mr. Ahmad’s shares being included) were issued at `8 per share.
Record journal entries related to forfeiture and reissue of shares, assuming that the company does not maintain Calls-in-
Arrears Account. (3 marks)
(b) Moonlight Limited issued 2,00,000 equity shares of `20 each at a premium of `5 per share. The shares were allotted in the
proportion of 5 : 4 of shares applied and allotted to all the applicants.
Roshni, who had applied for 900 shares, failed to pay allotment money of `7 per share (including premium) and on her
failure to pay ‘First & Final Call’ of `2 per share, her shares were forfeited.
400 of the forfeited shares were reissued for `10,000 as fully paid up.
Pass necessary Journal entries for the Forfeited and reissue of Roshni’s shares in the books of Moonlight Limited. Open
‘Calls in Arrears’ A/c. (3 marks)
295
25 Practice Papers
Part-B
Q.27 Surender Ltd. provides the following information: (1 mark)
Particulars 1.4.2022 (`) 31.3.2023 (`)
Machinery 50,000 60,000
Accumulated depreciation 25,000 15,000
A machine of book value `10,000 with accumulated depreciation `8,000 was sold for `13,000. Cash flows from investing
activities will be:
(a) Net cash used in investing activities `28,000 (b) Net cash used in investing activities `15,000
(c) Net cash from investing activities `13,000 (d) Net cash from investing activities `15,000
Q.28 Given below are two statements – Assertion (A) and Reason (R). Choose the correct alternative: (1 mark)
Assertion (A): ‘Receipt of Dividend’ can never be classified as an operating activity.
Reason (R): Receipt of dividend can be an operating activity for a financial company as it is a principal revenue generating activity.
OR
M/s Mevo and Sons, a bamboo pens producing company, purchased a machinery for `9,00,000. It received dividend of `70,000
on investment in shares. The company also sold an old machine of the book value of `79,000 at a loss of `10,000. The Cash
flow from Investing Activities will be: (1 mark)
(a) Net Cash outflow from Investing Activities `8,31,000 (b) Net Cash outflow from Investing Activities `7,61,000
(c) Net Cash inflow from Investing Activities `8,31,000 (d) Net Cash inflow from Investing Activities `7,61,000
Q.29 Small items like pencils, pens, postage stamps, etc. are treated as expenditure in the year in which they are purchased even
though they are assets in nature. This is an example of: (1 mark)
(a) Accounting Conventions (b) Postulates
(c) Accounting Standards (d) Accounting Policies
OR
Which one of the following is correct: (1 mark)
(i) Current ratio is classified as a Balance Sheet ratio.
(ii) Trade receivables turnover ratio is a Composite Ratio.
(iii) Normally, it is safe to have current ratio within the range of 1 : 1.
(iv) Normally, it is considered to be safe if debt equity ratio is 2 : 1.
(a) All are correct (b) Only (i) and (ii) are correct
(c) Only (i) and (iv) are correct (d) Only (i), (ii) and (iv) are correct
Q.30 Inventory in the beginning of the year is `60,000 and at the end is `1,00,000. Inventory turnover ratio is 8 times. The Revenue
from Operations is 25% above cost. The Gross Profit will be: (1 mark)
(a) `12,00,000 (b) `1,60,000
(c) `2,00,000 (d) `1,80,000
Q.31 Prepare Comparative Statement of Profit and Loss from the following information: (3 marks)
Particulars 2021-22 (`) 2022-23 (`)
Interest on bank overdraft 5,000 –
10% debentures 2,00,000 2,00,000
Tax rate @50%
Q.32 Radha Ltd. follows reducing balance method of calculation of depreciation, whereas Meera Ltd. follows the straight line
method of calculating depreciation. These variations leave a big question mark on the cross-sectional analysis, and hence a valid
comparison of their financial statements is not possible.
Identify the limitation of one of the major techniques of Financial Analysis highlighted in the above situation. Also explain any
two other limitations of such technique of Financial Analysis apart from the identified above. (3 marks)
296
Q.33 (a) Calculate the current ratio from the following information: (2 marks)
Total assets 3,00,000
Non-current liabilities 80,000
Shareholders’ Funds 2,00,000
Fixed assets 1,60,000
Non-current Investments 1,00,000
(b) From the following information calculate Interest Coverage Ratio:

Net profit after interest and tax `1,20,000; Rate of income tax 40%; 15% debentures `1,00,000; 12% Mortgage loan
`1,00,000. (2 marks)
OR
State, with reasons, whether the following transactions will increase, decrease or not change the ‘Return on Investment’:
(i) Purchase of machinery worth `2,00,000 by issue of equity shares.
(ii) Charging depreciation of `5,000 on machinery.
(iii) Redemption of debentures in cash `70,000.
(iv) Converting `50,000, 9% debentures into equity shares. (4 marks)
Q.34 The following information of Banjara Ltd. is given:
Statement of Profit and Loss for the year ended 31 March, 2023
Particulars Note No. 31 March, 2023
(` in Lakhs)
I. Revenue from operations 30,650
II. Other income 1 640
III. Total Revenue ( I + II) 31,290
IV. Expenses:
Cost of material consumed 26,000
Finance cost (interest expense) 400
Depreciation 450
Other expenses 910
Total expenses 27,760

V. Profit before tax (III – IV) 3,530
VI. Less: Tax (300)
VII. Profit after tax (V – VI) 3,230
Notes to Accounts:
Note No. Particulars (` in Lakhs)
1. Other Income
(i) Interest Income 300
(ii) Dividend Income 200
(iii) Insurance proceeds from earthquake disaster settlement 140
640
Balance Sheet as on 31.3.2023
Particulars Note No. 31st March 2023 31st March 2022
(` in Lakhs) (` in Lakhs)
1. Shareholders’ Funds
(a) Share capital 1,500 1,250
(b) Reserve and surplus (Surplus i.e. Balance in Statement 3,410 1,380
of Profit and Loss)
297
25 Practice Papers
2. Non-current Liabilities 1,110 1,040

Long-term borrowings
3. Current Liabilities
(a) Trade payables 150 1,890
(b) Other current liabilities 1 230 100
(c) Short-term provisions (Provision for tax) 400 1,000
Total 6,800 6,660
II. ASSETS
1. Non-current assets
(a) Fixed assets
– Tangible 2 730 850
(b) Non-current investments 2,500 2,500
2. Current assets
(a) Current investments (Marketable securities) 670 135
(b) Inventories 900 1,950
(c) Trade Receivables 1,700 1,200
(d) Cash and cash equivalents 200 25
(e) Other current assets (Interest receivables) 100 –
Total 6,800 6,660
Notes to Accounts:
Note No. Particulars 31st March, 2023 31st March, 2022
(` in Lakhs) (` in Lakhs)
1. Other Current Liabilities
Interest payable 230 100
2. Fixed Assets
Tangible Assets 2,180 1,910
Less: Accumulated depreciation (1,450) (1,060)
730 850
(i) Further `250 lakhs was raised from long-term borrowings during the year.
(ii) Dividends paid were `1,200 lakhs. Tax paid includes TDS on dividends received amounted to `40 lakhs.
You are required to:
(a) Calculate Net Profit before tax and extraordinary items.
(b) Calculate Operating profit before working capital changes.
(c) Calculate Cash flow from Operating activities.
(d) Calculate Cash flow from Financing activities. (6 marks)

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Theoretical Concepts

NOTES for 2024 Exam

Other Current Assets Other income

I Revenue from operations 7.4 Analysis of Financial Statements

4. Total Assets to Debt Ratio Average Trade Receivables

Total assets to Debt Ratio =

7.9 Profitability Ratios — Computation and Significance 4. Net Profit Ratio

Significance: It indicates gross margin on products sold. It

Q.15 ________ are especially interested in the average payment

Comprehensively based on:

(v) Obtained a loan from ICICI Bank `1,00,000 payable after

Particulars 2021-22 (`) 2022-23 (`) Answers

CBSE Sample Question Papers

Important Tips for CBSE Accountancy XII Examination 2024

2. 4 Long Questions of 6 marks 24 marks 50 minutes 12:00 p.m.

Finally I pray to the Supreme Divine to bestow blessing on you.

(c) Grand Ltd. Dr. 70,00,000

CBSE Sample Question

Q.29 Statement I: Sale of Marketable Securities will result in no flow of cash.

Multiple Choice Questions (MCQs)

Date Particulars L.F. Dr. Amt. (`) Cr. Amt. (`)

(iii) Goodwill of the fimr was valued at `1,40,000.

Multiple Choice Questions (MCQ)

Case-based Multiple Choice Questions (MCQs)

(b) Bank A/c Dr. 80,000

(c) Bank A/c Dr. 80,000

(d) Bank A/c Dr. 80,000

(b) Chahat’s Capital A/c Dr. 21,000

(c) Cash/Bank A/c Dr. 19,250

(d) Chahat’s Current A/c Dr. 21,000

(b) Investment Fluctuation Fund A/c Dr. 10,000

(c) Revaluation A/c Dr. 7,000

(d) Investment Fluctuation Fund A/c Dr. 10,000

(d) Pranav’s Capital A/c Dr. 10,000

(b) Workmen Compensation Reserve A/c Dr. 50,000

(c) Workmen Compensation Reserve A/c Dr. 50,000

(d) Workmen Compensation Reserve A/c Dr. 50,000

On this date B was admitted as a partner on the following conditions:

(a) Normal profits = `10,00,000 × 15/100 = `1,50,000

Premium for Goodwill A/c Dr. 10,000

14. Dr. Revaluation A/c Cr.

Provision for doubtful debts A/c Dr. 20,000

Sample Paper 25 (for Practice)

What is the new profit sharing ratio of A, B and C? (1 mark)

The partners also agreed for the following:

(b) From the following information calculate Interest Coverage Ratio:

Total expenses 27,760

2. Non-current Liabilities 1,110 1,040

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