.

Accounting & Finance for Bankers

JAIIB-MODULE-D
PRESENTATION BY
S.D.BARGIR
Joint Director, IIBF

22-10-2007
1

Topics
Partnership

accounts
Final accounts of banking companies
Company accounts
Balance sheet equation
Accounting in a Computerized
environment
2

PARTNERSHIP ACCOUNTS
Introduction
Definition
Partnership

deed

In the absence of partnership deed/if

deed is silent

Profit sharing ratio Equal

No interest on capital
No interest on drawings
interest@6% on loan given by partner
No salary /no commission/ no remuneration
Capital accounts under fluctuating capital
method
4

Methods of capital accounts

Fixed

Capital account-transactions relating to

capital
Current account

Other transactions such as Interest, profit,

goodwill, past profits/losses & adjustments

Fluctuating

One account- all transactions

5

GOODWILL

Its reputation, super profit earning capacity of a

firm
Necessity
change in profit sharing ratio
Admission, retirement, death
Sale of business
Methods:

Average profit
Super profit
capitalization of profit
6

Methods of goodwill
Average profit
(AP)

Super profit
(SP)

Capitalization of
profit

AP x Multiplier

SP x multiplier
SP = AP less NP

(Capitalised
value) less
Actual Capital

NP=normal profit

Multiplier is given Multiplier is given

GOODWILL IMPORTANT ENTRIES

ADMISSION
When

goodwill is raised and written off

Debit goodwill and credit old

partners capital a/c (old ratio)
Debit All partners capital a/c &
credit goodwill (new ratio)

GOODWILL IMPORTANT ENTRIES

RETIREMENT

When goodwill is raised and written off

Debit goodwill and credit old

partners capital a/c (old ratio)
Debit Continuing partners capital a/c
& credit goodwill (new ratio)

ADMISSION
revaluation

of assets/

liabilities,
goodwill,
capital adjustments,
balance of reserves,
past losses (if any)

10

RETIREMENT
As

per Act of 1932, retirement by

consent, partnership deed provision,
at will by giving proper notice
Revaluation of assets/ liabilities,
goodwill, capital adjustments,
balance of reserves, past losses

11

Joint life policy

Premium treated
as expenses

Premium treated
as asset

Premium
treated as
reserves

At the end of each

year, premium w/o
to P & L A/c

Each year difference

between surrender
value and Book
value is w/o to P & L
A/c

difference between
SV and BV is w/o
to Jt. Policy
Reserve A/c

receipt of policy amt.

Amount received is
credited to partners

receipt of policy amt.

receipt of policy
amt.

If amount is > SV,

the excess is
credited to partners

Policy amount
credited to partners
12

Types of partners
Active
Sleeping
Quasi
nominal

13

FINAL ACCOUNTS OF BANKING

COMPANIES

Definition
Requirements Accounts & audit
Third Schedule annexed to BRA
Form A- Balance sheet
Form B- Profit & Loss Account
Audit
Submission of accounts- RBI- within 3 months
Publication of accounts- within 6 months
Auditor-prior approval of RBI for appt/removal
14

Balance sheet-Form A
Capital & Liabilities

Assets

1.Capital

6.Cash & Bank Bal. RBI

2. Reserves & surplus

7.Balances with Banks &

Money at call and SN

3.Deposits

8.Investments

4.Borrowings

9Advances

5 Other Liabilities & Provisions

10.Fixed Assets
11.Other Assets
15

Demand deposits
Credit balances in OD and CC
Deposits payable at call
Overdue deposits
In-operative current accounts
Matured time deposits
Matured cash certificates
Matured certificate of deposits

16

Contingent liabilities
Schedule-12

Claims against bank not acknowledged as

debts
Liability for partly paid shares
Liability on account of outstanding forward
exchange contracts
Acceptances
,endorsement
&
other
obligations
Other items for which bank is contingently
liable.
17

PROFIT & LOSS ACCOUNT-FORM B

Income
Interest Earned
Other Income
Expenditure
Interest Expended
Operating Expenses
Provision for contingencies

Schedule.13
Schedule.14
Schedule.15
Schedule.16

Profit /Loss

Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to Balance sheet
18

NOTES TO ACCOUNTS
Significant
Accounting
Policies

Schedule.17

Notes forming
part of
Accounts

Schedule.18

19

Other Income

Profit on exchange transactions

Profit on sale of investments
Profit on revaluation of investments
Profit on sale of fixed assets
Letting of locker (income from locker
charges )
Misc. income -Godown rent
20

Ponder over these points

Govt. securities shown at book value and

diff. between MV and BV is given in the
notes
If some fixed assets are w/o on revaluation
of assets/reduction of capital every B/S after
wards should. show the revised figure for
next 5 yrs. With the date & amt. revised
Other fixed assets includes vehicles,
furniture and fixtures. Lockers and safe
deposit vaults are included in furniture
21

Ponder over these points

20% to reserve fund before declaring dividend

Gold is treated as investment
Silver is treated as other assets
Income from performing assets is recognized
on accrual basis while in r/o non-performing
assets it is on cash basis
In r/o NPA, if income is already recognized,
then make provision

22

ASSET CLASSIFICATION ETC

Asset Classification
Performing and
non performing ( remain out of order)

Income Recognition
Performing-accrual basis
Non performing-cash basis

Asset Classification
Std-0.40% (revised from 0.25%)
Sub-Std.<18 months-10%
Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<3-

30%-upto 1year-20%
Loss assets-100%

23

SLR & NON SLR DEPOSITS

Held to maturity

Available for sale Held for trading

Investment should Freedom available

not exceed 25% of
total investment

Freedom available

-no marked to market. -Marked to market

Profit on sale treated -profit on sale of
as cap. Reserve
investment. taken to
P&L a/c

Marked to market

To be sold within
90 days

24

COMPANY ACCOUNTS
Features of a Joint stock Company

Incorporated association
Artificial person
Perpetual succession
Common seal
Limited liability
Separation of management from ownership
Transferability of shares
Separate legal status
Large membership

25

Types of companies
On the basis of
incorporation

On the basis of
ownership

On the basis of
liability

Chartered
company

Private company Co.limited

shares

Statutory
company

Public company

Co. Ltd. by
guarantee

Registered
company

Government
company

Co. with
unlimited liability

by

Foreign company Holding company

26

SHARE CAPITAL

EQUITY
PREFERENCE
CUMULATIVE
REDEEMABLE
PARTICIPATING

27

SHARE CAPITAL

AUTHORISED CAPITAL
ISSUED CAPITAL
SUBSCRIBED CAPITAL
CALLED CAPITAL
PAID UP CAPITAL

28

ISSUE OF SHARE AT PAR

-BANK
- SHARE APPLICATION
-SHARE

APPLICATION

-SHARE

CAPITAL

Over subscription
-share application
-share capital
-bank (refund)
-share allotment

Debited
-

credited

Debited
-

Debited
-

Credited
Credited
Credited

Credited

29

SHARE ALLOTMENT/SHARE CALL

Share allotment a/c
Share capital a/c

Debited
-

Credited

Bank a/c

Debited
-

Credited

Share call a/c

Share capital a/c

Debited
-

Credited

Bank a/c
Share call a/c

Debited
-

Credited

Calls in arrears a/c

Share allotment a/c
Share call a/c

Debited
-

Credited

Credited

Share allotment a/c

30

Issue of shares at premium

Share application/
allotment a/c
Share capital A/c
Share premium A/c

Debited

Credited
Credited

31

Issue of shares at discount

Share allotment A/c
Discount on issue of
shares A/c
Share capital A/c

Debited
Debited

Credited

32

Forfeiture of shares
Share capital A/c
Call in arrears A/c
Forfeited shares A/c

Debited
-

Credited
Credited

33

Re-issue of shares
Bank A/c
Forfeited shares A/c
Share capital A/c
Capital reserve A/c

Debited
Debited
-

Credited
Credited

34

Issue of Bonus shares

Cap. Red. Reserve A/c
Share premium A/c
Capital reserve A/c
Gen Reserve A/c
Profit & Loss A/c
Bonus to shareholders A/c

Debited
Debited
Debited
Debited
Debited
-

credited

Bonus to shareholders A/c

Equity share capital A/c

Debited

credited

35

Balance sheet equation

LIABILITIES

ASSETS

Capital

300.00

Fixed
assets

700.00

Reserves

200.00

Current
assets

300.00

Total

1000.00

Term Loans 300.00

Current
Liabilities

300.00

Total

1000.00

36

Balance Sheet Equation

Assets

Liabilities

Assets

Liabilities (+)

Capital

Liabilities

Assets (-)

Capital

Capital

Assets (-)

Liabilities
37

BALANCE SHEET EQUATION

Assets = Liabilities
Assets = Capital + Liabilities
Assets =Net worth + Liabilities
Net worth = Capital + Reserves& Surplus
Net worth = Assets Less Liabilities

38

1. The Assets of a business are

Rs.500000 and its capital is

Rs.115000. Its liabilities on that date
would be-----a)
b)
c)
d)

Rs.615000
Rs.385000
Rs.500000
Rs. 115000
39

2. A had a capital of Rs.750000. He has also

purchased goods of Rs.150000 on credit
from Mr. Saha. The value of total assets of
the entity is----a)
b)
c)
d)

Rs.750000
Rs.900000
Rs.600000
Rs.1050000
40

B/s Equation Examples

(1) If the net worth of the business is Rs.1100,fixed assets are Rs. 600,
current assets Rs.400, investments Rs.300, current liabilities Rs.
Nil, what is the amount of claim to outsiders?

Rs. 1300l

Rs. 500

Rs.200*

Rs. Nil
(2) Identify the wrong pair

Outstanding expenses - Personal Account account*

Profit and Loss Account (Dr. balance) Application of funds

Net worth less reserves & surplus - Balance in P & L

Account*

Balance sheet - Financial position

41

Computerized accounting

Computer language: cobol, foxpro,unix

etc
Analog computers : scientific and mech.
Field
Digital computers: computerized
accounting
Data : fact
Record : group of data
Data file: data records
42

EXAMPLES
1.

Select from the following , a statement

which speaks about liabilities of an entity.

The liabilities consist of claims of the

owners
The liabilities consist of claims of the
owners and outsiders
The liabilities consist of claims of the
outsiders
None of the above
43

EXAMPLES

If the net worth of the business is Rs.500,

fixed assets are Rs. 500, current assets
Rs.300, investments Rs.300, current
liabilities Rs. Nil, what is the amount of
claim to outsiders?

2.

Rs. Nil
Rs. 1100
Rs.500
Rs.600

44

EXAMPLES

Select from the following a sentence

which is wrong

3.
a.

b.

c.

d.

If assets increase and liabilities do not , the

capital will increase
If assets increase and liabilities also increase
by same sum , the capital will remain same
A reduction in the amount of assets will amount
to equivalent reduction in the net worth
An increase in the amount of liabilities with no
corresponding increase in liabilities will
increase the amount of capital

45

EXAMPLES

4.

The firm sells goods on credit for

Rs.50000, the cost of the goods sold is
Rs.30000.The effect of the transaction is
that, the capital of the firm----a. increases by Rs.50000
b. reduces by Rs.40000
c. increases by Rs. 20000
d. reduces by Rs. 20000

46

EXAMPLES

5.

Mr.Ghatge commenced his business on 1st

April, 2006 with Capital of Rs.1,00,000. He
did good business during the year and
earned handsome profit. At the end of 31st
March, 2007, his financial position was:
Fixed Assets Rs.1, 20,000 and bank balance
of Rs.33000 and Creditors Rs. 17000. What
was his net profit for the year 05-06?
a.
b.
c.
d.

Rs. 36000
Rs.70000
Rs.53000
None of the above

47

EXAMPLES

6.

One of the pairs given below is wrong.

Select the wrong pair.
a. Outstanding expenses - Nominal
account
b. Profit and Loss Account (Dr. balance)
Application of funds
c. Net worth less reserves & surplus Capital
d.

Balance sheet - Financial position

48

EXAMPLES

7.

From the following ,find a sentence which

is false in respect of partnership
a.

b.

c.

d.

If the partnership is following the Fixed Capital

Account Method salary payable to a partner is
credited to the partners current account
Drawings made by partners are never entered in the
Profit and Loss Appropriation Account.
In the Fluctuating Capital Account Method the
balance in the capital account always remains the
same
The capital account of a partner is required to be
opened in both the Fixed Capital Account Method
and Fluctuating Capital Account Method

49

EXAMPLES

8.

From the account given below, select

the account which is
wrongly
included in Profit & Loss Appropriation
Account at the debit side
a.
b.
c.
d.

Drawings Account
Partners Salary Account
Interest on Loan Account
Commission to Partners Account

50

EXAMPLES

9.

The average net profits expected

are
Rs.108000 per annum before charging
remuneration of Rs. 18000 to partner . The
capital employed in the business is
Rs.6,00,000. The rate of return expected on
capital employed of a firm is 10%. What is
the value of goodwill on the basis of two
years purchase of super profits.
a.
b.
c.
d.

Rs.108,000
Rs.60,000
Rs.78,000
None of the above
51

EXAMPLES

10.

A and B are two partners in a firm

sharing profits and losses as 2:1. they
admitted C as a partner with 25% share
in the profits of the firm. Hence , the
new profit sharing ratio , after
admission of C would be ----a.
b.
c.
d.

15:15:10
20:10:10
3:1:1
None of the above
52

EXAMPLES
11.

Mr. Q and Mr. R were partners of a firm sharing profit and

losses in the ratio of 3:2. They take S into partnership. It was
agreed that S will pay Rs.1,00,000 as his share of goodwill
which will be retained in business and also bring Rs.3,00,000
as capital for one fourth share in the future profits. The book
value of the stock was 41,000 but was to be revalued at
Rs.50,000, Accountant has passed following entries, but Mr. Q
feels that one of the entry is wrong. Select the wrong entry from
the following.
a.
b.

c.

d.

Debit cash and credit Goodwill for Rs.1,00,000

Debit cash and credit Ss Capital for
Rs.3,00,000
Debit Goodwill for Rs.1,00,000 and credit Qs
Capital by Rs. 60000 & Rs Capital by Rs. 40,000
Debit Stock and credit Profit & Loss
Adjustment A/c by Rs.9,000

53

EXAMPLES
12.

In the books of ABC Enterprises, a partnership firm, when

Mr. C, a partner decided to resign from the firm, a
revaluation of assets and liabilities was done and
Revaluation account was prepared which showed the
following position: At the credit side of Revaluation
Account, Stock A/c Rs.25000, Premises A/c Rs.52000 and
Creditors A/c Rs. 8000 were shown while at debit side of
Revaluation Account, Reserve for Doubtful Debts A/c.
Rs.15000, As Capital A/c.Rs.20000, Bs Capital A/c.
Rs.20,000 and Cs Capital A/c. Rs.20000 were shown.
Accountant has interpreted the Revaluation Account as
follows. One of the interpretations by him is incorrect.
Select the incorrect sentence.
a.
b.
c.
d.

Stock is revalued upwardly by Rs. 25000

Creditors are revised upwardly by Rs.8000
Premises are revised upwardly by Rs.52000
A provision on debtors of Rs. 15,000 is made for doubtful
debts

54

EXAMPLES

13.

Read the following four journal entries

which are passed to consider revaluation
of assets and liabilities at the time of
admission of a partner. One of the journal
entries is wrong, choose the entry which is
wrong.
a.

b.

c.

d.

For increase in the value of assets-Debit Asset

Account and Credit Revaluation Account.
For decrease in the value of liabilities- Debit Liabilities
Account and Credit Revaluation Account.
For Profit on revaluation of assets and liabilities
Debit Old Partners Capital Account in old profit
sharing ratio and Credit Revaluation Account
For decrease in the value of assets -Debit
Revaluation Account and Credit Asset Account

55

EXAMPLES
14.

In the books of ABC Enterprises, a partnership firm, when

Mr. C, a partner decided to resign from the firm, a
revaluation of assets and liabilities was done and
Revaluation account was prepared which showed the
following position: At the credit side of Revaluation
Account, Stock A/c Rs.25000, Premises A/c Rs.52000 and
Creditors A/c Rs. 8000 were shown while at debit side of
Revaluation Account, Reserve for Doubtful Debts A/c.
Rs.15000, As Capital A/c.Rs.20000, Bs Capital A/c.
Rs.20,000 and Cs Capital A/c. Rs.20000 were shown.
Accountant has interpreted the Revaluation Account as
follows. One of the interpretations by him is incorrect.
Select the incorrect sentence.
a.
Stock is revalued upwardly by Rs. 25000
b.
Creditors are revised upwardly by Rs.8000
c.
Premises are revised upwardly by Rs.52000
d.
A provision on debtors of Rs. 15,000 is made for
doubtful debts
56

EXAMPLES

15.

Select the incorrect statement in respect of

companies.
a. A member of a company can enter into contract with a
company
b. It is compulsory to register a joint stock company
c. If all but one member of a private company becomes
insolvent ,it affects the existence of the organisation
d. Shareholders are not liable for the acts of the company

16.

Select the incorrect statement

a. Authorized capital is the capital with which the company
is registered
b. Issued capital is equal to its authorized capital
c. Authorized capital, issued capital, subscribed capital,
called up capital and paid up capital cannot be same
d. The amount which the company has asked its
shareholders to pay is called up capital of the company.

57

EXAMPLES

17.

Following are the journal during the

process of application to allotment
stage . One of the entries is wrong.
Select the wrong entry.
a. Debit bank account and credit share application
account ( when application money is received)
b. Debit share application account and credit share
capital account (application transferred to share
capital account)
c. Debit share capital and credit share allotment
account ( for recording allotment money being
fallen due )
d. Debit bank account and credit share allotment
account ( for receipt of allotment money)

58

EXAMPLES

18.

Select the incorrect statement in

respect of calls in advance
a. The company may accept from
shareholders , the uncalled amount on
shares even before it is fallen due
b. The article of association must permit
such acceptance of advance call money
c. Interest on calls in advance can be paid
but the maximum is upto 6%
d. The amount of calls in advance is part of
the paid up share capital

59

EXAMPLES
19.

Select the incorrect statement in respect of

utilization of share premium
a. it is used for the purpose of buy back of shares
b. it used for payment of dividend in case of inadequacy of
profits
c. it is used for writing off preliminary expenses
d.

20.

it is used for issue of fully paid bonus shares

Mr. X was issued 100 shares of Rs.10 each. He failed to pay

call money of Rs. 5 per share. The shares were forfeited and
re-issued to Mr. Y at Rs.9. When the entry recording the reissue of shares was passed in all, four accounts were
affected. The debit and credit effect of these four accounts
is given below. One of the accounts is given wrong effect.
Select that account from the following.
a. Debit bank account by Rs.900
b. Debit forfeited shares by Rs.500
c. Credit share capital by Rs.1000
d. Credit forfeited shares by Rs.400
60

EXAMPLES
21.

DT Ltd. issued shares of Rs.10 each at 10 %

premium, payable on application Rs.2, on
allotment Rs.3 (including premium), on first call
Rs.2 and on final call Rs.4. One of the
shareholders, applied for 100 shares but fail to pay
allotment and first call money. At this stage, the
said shares were forfeited. Select the account
which was wrongly credited.
a.
b.
c.

22.

Credit Forfeited shares Account by Rs.200

Credit Share allotment Account by Rs.200
Credit share premium Account by Rs.100
Credit Share first call Account by Rs.200

Select the source which is not valid for issue of bonus shares
a.
b.
c.
d.

Share premium
Revaluation reserve created by revaluation of fixed assets
Capital reserve
Capital redemption reserve

61

EXAMPLES
23.

The liability side of the balance sheet of ABC International

Ltd. is showing following position: Paid up share capital
Rs.25 Lakh ( 25,000 shares of Rs.100 each fully paid
up)Share premium Rs.5 Lakh, Capital Reserve Rs. 3 Lakh,
General Reserve Rs. 15 Lakh and Profit & Loss account Rs.
15 Lakh .It was decided to use minimum free reserve for
issue of 1:1 bonus shares.. The accounts and the amount
with which the account is debited are given below in sets.
One of the set is correct. Select the same.
a.

b.

c.

d.

Share Premium Account (Rs.5 Lakh), Capital Reserve

Account ( Rs. 1 Lakh), General Reserve Account (15 Lakh)
& Profit & Loss Account by Rs. 4 Lakh
Share Premium Account (Rs. Nil Lakh), Capital Reserve
Account ( Rs. Nil Lakh), General Reserve Account (10 Lakh)
& Profit & Loss Account by Rs. 15 Lakh
Share Premium Account (Rs.5 Lakh), Capital Reserve
Account ( Rs. 3 Lakh), General Reserve Account (15 Lakh)
& Profit & Loss Account by Rs. 2 Lakh
Share Premium Account (Rs.5 Lakh), Capital Reserve Account ( Rs.
1 Lakh), General Reserve Account (4 Lakh) & Profit & Loss
Account by Rs. 15 Lakh

62

EXAMPLES
24.

Select the incorrect statement in case of Share

Capital and Reserves and Surplus as shown in the
balance sheet.
a. Under share capital, the following order is maintained:
Authorised capital, issued capital, subscribed capital
b. The called up amount per share is indicated and in the
amount column total amount i.e. number of shares
multiplied by amount called up per share is shown
c. The amount of unpaid calls is deducted from (b) above
d. The amount of forfeited shares account is shown under
Reserves & surplus

25.

Select the incorrect statement in respect of form

of balance sheet of companies(Liabilities side).
a.
b.
c.
d.

sinking fund is shown under unsecured loans

Loans from banks are grouped under the head Secured Loans
Unclaimed Dividend is grouped under the head current liabilities
Proposed dividend is grouped under provisions.

63

EXAMPLES

26.

Select the incorrect statement in

respect of form of balance sheet of
companies ( Asset side).
a. Live Stock is grouped under the head
current Asset
b. Balance of unutilized monies raised by
issue is grouped under the head
Investments
c. Interest paid out of capital during
construction is grouped under the head
Miscellaneous Expenditure
d. Vehicles are grouped under the head
Fixed Asset

64

EXAMPLES

One of the accounts is wrongly debited to Profit

and Loss Appropriation A/c of a company. Name
the wrong account debited

27.

a.
b.
c.
d.

Interim dividend
Proposed dividend
Provision for tax
Capital redemption reserve

Select the false statement in respect of assets

28.
a.
b.
c.
d.

a banking company is allowed to acquire assets for its own

use
a banking company is allowed to grant loans against the
security of assets belonging to its customers
a banking company is allowed to take possession of such
assets in case of default committed by the borrower
a banking company is not allowed to sale the assets against
the security of which it has granted loans

65

EXAMPLES
29.

THE FINANCIAL STATEMENT OF BANK CONSISTS OF ------SCHEDULES

a.
b.
c.
d.

30.

INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER ASSETS

ARE PART OF SCHEDULE NOS.--RESPECTIVELY
a.
b.
c.
d.

31.

18 SCHEDULES
16 SCHEDULES
17 SCHEDULES
12 SCHEDULES

6,7,8,9
7,8,9,10
8,9,10,11
9,10,11,12

LIABILITY FOR PARTIALLY PAID INVESTMENTS IN RESPECT OF

BANKING COMPANIES IS GROUPED UNDER THE HEAD----a.
b.
c.
d.

INVESTMENTS
OTHER ASSETS
OTHER LIABILITIES AND PROVISIONS
CONTINGENT LIABILITIES

66

EXAMPLES
32.

One of the items is a misfit in a group namely

other income of a banking company. Select this
item from the following
a.
b.
c.
d.

33.

INCOME ON INVESTMENTS
PROFIT ON SALE OF INVESTMENTS
PROFIT ON REVALUATION OF INVESTMENTS
PROFIT ON EXCHANGE TRANSACTIONS

Depreciation on banks property is part of Operating

Expenses. Some of the items included under this
category are listed below. One of the expenses is
wrongly included. Identify that item of expense.
a.
b.
c.
d.

depreciation on motor cars

depreciation on stationary and stamps
depreciation on furniture
depreciation on non-banking assets

67

EXAMPLES

34.

The provisional requirement for standard

asset is----a.
b.
c.
d.

35.

0.40%(revised) of total outstanding

10%(revised) of total outstanding
40%(revised) of total outstanding
100%(revised) of total outstanding

The investment under held to maturity

should not exceed -----of banks total
investment.
a.
b.
c.
d.

25%
75%
5%
None of the above

68

EXAMPLES

Acceptances, endorsements and guarantees are

shown as-----

36.
a.
b.
c.
d.

other assets
contingent liabilities
advances
other liabilities and provisions

Choose the wrong pair from the following. The

information given in the pair is pertaining to
banking companies

37.

a.
b.
c.
d.

Reserves & surplus - Share premium

Time deposits - Matured time deposits
Borrowings in India - Refinance from NABARD
Other Liabilities & Provisions - Inter office/branch
adjustments(net

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EXAMPLES
The name of the accounts with the coverage of various items
in building that account is given below. One of the items
covered in on of the accounts is wrong. Select this account

38.

a.

b.

c.
d.

Closing balance of provisions held towards NPA - Opening

Balance plus provisions made during the year less write off of bad
debts/write back of excess provisions
Interest Earned - interest on advances plus income on investments
plus interest on deposit with RBI plus income earned by way of
dividends from subsidiaries plus discount on bills less unexpired
discount
Reserves & surplus - Opening balance plus additions during the
year less deductions during the year
Term deposits - from banks and from Others

Identify a pair which is mismatch from the following pairs in

respect of Company Accounts

39.

Miscellaneous Expenditure Preliminary Expenses

Contingent Liabilities footnote to balance sheet
Debentures Unsecured Loans
Outstanding Expenses Current Liabilities

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EXAMPLES

40.

Identify a pair which is mismatch

from the following pairs in respect of
Company Accounts
a.
b.
c.
d.

Miscellaneous Expenditure
Preliminary Expenses
Contingent Liabilities footnote to
balance sheet
Debentures Unsecured Loans
Outstanding Expenses Current
Liabilities

71

EXAMPLES
41.

While preparing the final accounts of the

company, the adjustments [(i) to (iv)] are to be
made by passing necessary entries. One of the
entries passed is wrong entry. Select the wrong
entry.(i) Provide dividend 5% of paid up share
capital (Share capital of Rs. 5,00,000 consisting of
shares of Rs. 10 each fully paid) (ii) Insurance for
unexpired period is Rs.2000 (iii) A provision of Rs.
25,000 is to be made for income tax (iv) a
provision of Rs. 5000 is to be made for doubtful
debts
a.
b.
c.

d.

Debit Dividend by Rs.25000 & Credit Bank by Rs.25000

Prepaid Insurance by Rs.2000 & Insurance by Rs.2000
Debit Profit & Loss Account by Rs.25,000 & Credit Provision for Tax
by Rs.25,000
Debit Profit & Loss by Rs.5,000 & Credit Provision for doubtful
debts by Rs.5,000

72

EXAMPLES

42.

If the partners capital accounts are fixed,

where will you record (either debit side or
credit side of which account ) the following
transactions (i) Salary payable to partner
(ii) Fresh capital introduced by a partner
(iii) Drawing made by a partner (iv) Share
of profit earned by a partner. The effect to
one of the journal entries is wrongly given.
Identify that account from the following.
a.
b.
c.
d.

Debit side of partners current account

Credit side of partners capital account
Debit side of partners current account
Credit side of partners current account
73

Example
43.

L,K and P are partners. The following differences as listed at (i) to

(iv) have arisen due to misunderstanding. The answer to each
point is given at (a) to (d). One of the solutions is incorrect.
Identify the wrong solution. (i) L used Rs.25,000 belonging to the
firm and made a profit of Rs.4,000. K wants the amount to be
given to the firm (ii) P used Rs.10,000 belonging to the firm and
suffered a loss of Rs. 3000. He wants the firm to bear the loss (iii)
L & K wishes to appoint S as new partner. P does not agree (iv) L
has given loan of Rs. 50,000 to the firm, he wants interest at 6% (
there is no partnership deed)
a.
b.
c.
d.

K is right .L must pay Rs.29,000 to the firm

P is right . Firm should bear profit as well as losses.
P is right. No new partner can be admitted without the
consent of all.
L is right. He is entitled for interest at 6% in the absence of
partnership agreement.

74

Example
43.

a.
b.
c.
d.

A firm earns Rs.10,000 as its normal

profits. The rate of normal return being
10%. The assets of the firm amount to
Rs.72,000 and liabilities to Rs.24,000.
Find out the value of goodwill.
Rs.52,000
Rs.1,00,000
Rs.28,000
Nil
75

Example
44.

If the adjustment in the values of assets at

the time of the admission of a partner
shows a profit, it should be credited to the
capital accounts of----a.
b.
c.
d.

The old partners in their new profit-sharing ratio

All partners in their new profit sharing ratio
The old partners in their old profit sharing ratio
None of the above

76

Example
45.

Choose the correct treatment for premium paid

on Joint Life Policy when premium paid is
treated as an expense.
a.

b.

c.
d.

Premium amount is debited to P & L account every year

and when claim becomes due then to be shared by all
partners
Every year amount debited to Joint Life Policy Account
and balance is shown on asset side at surrender value .
The difference between surrender value and premium
paid is written off to Profit and Loss account
Joint Life Policy and Joint Life reserve Account are
adjusted to bring them down to surrender value of policy.
None of the above.

77

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