1. .
Accounting & Finance for Bankers Final A/cs. Of Banks & Cos. JAIIB-MODULE-D
PRESENTATION BY
Ravi Ullal
24-o4-2008

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

3. PARTNERSHIP ACCOUNTS
Introduction
Definition
Partnership deed

4. In the absence of partnership deed/if deed is silent
Profit sharing ratio –Equal
No interest on capital
No interest on drawings
on loan given by partner
No salary /no commission/ no remuneration
Capital accounts under fluctuating capital method

5. 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

6. GOODWILL It’s 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

7. Methods of goodwill Average profit (AP) Super profit (SP)
Capitalization of profit
AP x Multiplier
SP x multiplier
SP = AP less NP
NP=normal profit
(Capitalised value) less
Actual Capital
Multiplier is given

8. 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)

9. 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)

10. ADMISSION revaluation of assets/ liabilities, goodwill,
capital adjustments,
balance of reserves,
past losses (if any)

11. 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

12. examples
Let us say A and B are partners sharing profits equally. They take C as partner with equal share. The position will be as under:
Partners Old Ratio New Ratio Loss(Sacrifice)/
Gain
A 1/2 1/3 –1/6
B 1/2 1/3 –1/6
C Nil 1/3 +1/3
Sacrificing Ratio = Old ratio  (–)  New ratio.

13. examples Entries to be passed for Goodwill:
1. When the new partner pays the goodwill privately:
In this case, no entry is passed in the books of account.
2. When the new partner brings in his share of goodwill and cash brought in as goodwill is retained in the business:
(a) Cash/Bank a/c Dr.
  To Goodwill a/c
(b) Goodwill a/c Dr.
  To Old partners’ capital a/c
(In old profit sharing or sacrificing ratio)
3. If goodwill is brought in by way of cash and is withdrawn by old partners, then in addition to the two entries as above, the following third entry is passed:
(b) Old partners’ capital a/c Dr.
  To Cash/bank a/c

14. examples
4. When the new partner does not bring cash for goodwill and goodwill is raised by the old partners and shown as an asset in the balance sheet:
Goodwill a/c Dr.
  To Old partners’ capital a/c
(In old profit sharing ratio)
5. When new partner does not bring cash for goodwill but goodwill is raised and written off immediately:
(a) Goodwill a/c Dr.
  To Old partners’ Capital a/c
(b) All partners’ capital a/c Dr. (including new one)
     To Goodwill a/c
(In new profit sharing ratio)

15. examples
Let us suppose A, B, and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. A retires and B and C agree to continue at the ratio of 3: 2. In this case, the position will be as follows:
Old Ratio New Ratio Net Gain/Loss
A 5/10 Nil —
B 3/10 3/5 + 3/10 (3/5 – 3/10)
C 2/10 2/5 + 2/10 (2/5 – 2/10)
Gain ratio will be 3 : 2.
(b) Let us now suppose B and C change their ratio to 5 : 3; then the position will be as follows:
A /10 — (–) 5/10 i.e 1/2
B /10 5/8 + 13/40 (5/8 – 3/10)
C /10 3/8 +  7/40 (3/8 – 2/10)
Gain ratio will be 13/40 : 7/40 i.e. 13 : 7.

16. examples
A, B and C are equal partners. C dies. Goodwill on the date of his death is Rs 90,000. Then, C’ s Share 1/3 × Rs 90,000 = Rs 30,000
The chart below depicts gain of the continuing partners.
Partners Old Ratio New Ratio Gain
A 1/3 1/2 +1/6
B 1/3 1/2 +1/6
C 1/3 Nil (1/3)
Entries if only C’s share of goodwill is raised for above will be:
(a) Goodwill a/c Dr. Rs 30,000
  To C’s Capital a/c Rs 30,000
(b) A’s Capital a/c Dr. Rs 15,000
B’s Capital a/c Dr. Rs 15,000
  To Goodwill a/c Rs 30,000
. The ratio in which the continuing partners gain or benefit from the share of the retiring or dead partner is called the Gaining Ratio. Gaining ratio is equal to new ratio minus old ratio.
law makes no difference between a sleeping partner and a working partner and the sleeping partner will be equally responsible to the third parties for all acts or omissions of a working partner.

17. examples
A and B share profits in the ratio of 70% and 30% respectively as on 31st December C was admitted as a partner with effect from January 1, 2004 and he brought into business Sundry Debtors Rs 5,000 (subject to 10% provision for bad debts), Creditors Rs 1,600 and Goodwill Rs 4,000. He agreed to maintain his capital at Rs 20,000 for 1/5th share in the profits of the firm.
Creditors Rs 1,600 and Goodwill Rs 4,000
Stock increased by Rs 5200, Building(Rs.26000/-) and Truck(Rs ) were increased by 10%, and other assets(Rs.7000) were decreased by Rs 800. A Reserve for doubtful debt was created at 5% on Debtors(Rs.14000/-). It was agreed to adjust the Partners’ Capital in Profit sharing ratio(45:19).

18. examples Jan. 2004 Sundry debtors a/c Dr. 5,000 Goodwill a/c Dr. 4,000
Cash a/c Dr. 13,100
(balancing figure)
  To Creditors a/c 1,600
  To Provision for bad debt
  To C’s capital a/c 20,000
(Being various assets brought by C
towards his capital recorded in books)

19. examples Jan 2004 Stock a/c Dr. 5,200 Truck a/c Dr. 1,700
Building a/c Dr. 2,600
  To Revaluation a/c 9,500
(Being increase in value of
assets recorded)
Revaluation a/c Dr. 1,500
  To Others Assets a/c
  To Provision for Doubtful Debts a/c
(Being decrease in other assets
and provision for doubtful debts recorded)
Revaluation a/c Dr. 8,000
(9,500 – 1,500)
  To A’s Capital a/c 5,600
  To B’s Capital a/c 2,400
(Being profit on revaluation
distributed in old profit sharing ratio)

20. examples General Reserve a/c Dr. 5,400 To A’s capital a/c 3,780
  To B’s capital a/c 1,620
(Being general reserve distributed in
old profit sharing ratio)
Cash a/c Dr 2,600
  To A’s Capital a/c 1,620
  To B’s Capital a/c
(Being cash brought in by old partners)

21. examples Fill in the blanks:
(a) _________ is the value of an established business over and above the value represented by its tangible assets. It is also the value attached to the super profit earning capacity of business arising from its wide connections, reputation and long standing in the business.
(b) _________ of a partner means joining of a new person into an existing partnership as a partner.
(c) _________ of a partner means that a partner breaks off his relations with all other partners and withdraws himself from the firm.
(d) Under the _________ capital method, all the transactions are recorded in the capital account only.
(e) Under the _________ capital method, two accounts are maintained for each partner, viz., Current Account and Capital Account.

22. examples State whether the following statements are True or False:
(a) If the Partnership Deed does not mention any method of maintaining capital accounts then the fixed capital Account Method has to be followed.
(b) if the partnership firm is following the Fixed Capital Account Method salary payable to a partner is credited to the partners’ current account.
(c) drawings made by partners are never entered in the Profit and Loss Appropriation Account.
(d) Old firms must have goodwill account in their books of account.
(e) While calculating average profit of previous years , loss incurred in one of those years is to be ignored.
(f) The share which the new partner is entitled to is called the Sacrifice ratio.
(g) adjustment for goodwill can be made privately by the partners without passing any entries in books of account.
(h) the additional share in the profits by the continuing partners is called Gain Ratio.
(i) The deceased partner cannot be given share in the profits till his death.

23. examples
11) Prepare the Profit and Loss account of Modern Bank Ltd. for the year ended 31st March, 2003, from the following:
  Rs
Interest on Fixed Deposits 1,62,410
Rebate on Bills discounted 29,000
Interest on Loans 45,000
Commission Charged to Customers 62,500
Establishment 15,000
Discount on Bills Discounted 89,000
Interest on Cash Credit 24,000
Amount Charged against Current Accounts 71,500
Directors’ Fees 10,000
Audit Fees 20,000
Postage and Telegram 2,000
Printing and Stationery 4,000
Rent and Taxes 22,500
Interest on Overdrafts 71,000
Sundry Charges 1,500
Interest on Savings Bank Deposits 57,780

24. examples Profit & Loss Account for the year ended 31st March 2003
Schedule No. Rs
I. Income
Interest Earned 13 2,71,500
Other Income ,500
Total 3,34,000
II. Expenditure
Interest Expended ,20,190
Operating Expenses ,000
Provision for Contingencies —
Total 2,95,190
III. Profit
Net Profit for the year ,810

25. examples Schedules to be annexed with Profit and Loss Account
Schedule13: Interest Earned
Interest on:
Loan 45,000
Cash Credit 24,000
Overdrafts 71,000 1,40,000
Discount on Bills discounted 89,000
Less: Rebate on Bill Discounted 29, ,000
Amount charged against current accounts ,500
2,71,500
Schedule 14: Other Income
Commission charged to customer ,500
Schedule 15: Interest Expended
Interest paid on
      Fixed Deposits 1,62,410
      Savings Bank Deposits ,780
2,20,190

26. examples Schedule 14: Other Income
Commission charged to customer ,500
Schedule 15: Interest Expended
Interest paid on
      Fixed Deposits 1,62,410
      Savings Bank Deposits ,780
2,20,190

27. examples Schedule 16: Operating Expenses Establishment Expenses 15,000
Director’s Fees ,000
Audit Fees ,000
Rent and Taxes ,500
Postage and Telegrams ,000
Printing and Stationery ,000
Sundry Expenses ,500
75,000

28. 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
If amount is > SV, the excess is credited to partners
Policy amount credited to partners

29. Types of partners
Active
Sleeping
Quasi
nominal

30. 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

31. 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

32. 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

33. 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.

34. PROFIT & LOSS ACCOUNT-FORM B
Income
Interest Earned
Other Income
Schedule.13
Schedule.14
Expenditure
Interest Expended
Operating Expenses
Provision for contingencies
Schedule.15
Schedule.16
Profit /Loss
Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to Balance sheet

35. NOTES TO ACCOUNTS Significant Accounting Policies Schedule.17
Notes forming part of Accounts
Schedule.18

36. 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

37. 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

38. 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

39. ASSET CLASSIFICATION ETC
Performing and
non performing ( remain out of order)
Income Recognition
Performing-accrual basis
Non performing-cash basis
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%

40. SLR & NON SLR DEPOSITS Held to maturity Available for sale
Held for trading
Investment should not exceed 25% of total investment
Freedom available
-no marked to market. Profit on sale treated as cap. Reserve
-Marked to market
-profit on sale of investment. taken to P&L a/c
Marked to market
To be sold within 90 days

41. COMPANY ACCOUNTS Features of a Joint Stock Company
1. Incorporated association:
A company is a registered body of individuals. According to the Companies Act, 1956, it is compulsory to register a joint stock company.
2. Artificial person:
It is an artificial person created by law. It is different from its members It can enter into contracts, purchase and sell the properties, can sue and be sued upon. Even a member can enter into contract with the company.
3. Perpetual succession:
A company has a perpetual succession. Death, or insolvency of any shareholder does not affect existence of the company.
4. Common seal:
As the company is an artificial person created by law, it cannot sign its name. So it has a common seal on which the company’s name is engraved. The common seal is treated as company’s signature and is affixed in all important documents and contracts as per the resolutions passed by the Board.
5. Limited liability:
The liability of the members of the joint stock company is limited to the face value of shares held by them. Companies (Amendment) Bill 2003 states that if a company, private or public, fails to enhance its minimum paid up capital ( i.e. One Lakh rupees or Five Lakh rupees, as the case may be) each director or manager or shareholder will have unlimited liability.

42. COMPANY ACCOUNTS 6. Separation of management from ownership:
Even though the shareholders are true owners, they do not participate in the management of the company. They elect their representatives known as Board of Directors.
7. Transferability of shares:
The shares of a company are freely transferable subject to restrictions placed on transfer of private limited company’s shares.
8. Separate legal status:
A company has an independent legal status and as such, the shareholders or the owners are not liable for the acts of the company.
9. Large membership:
A company is owned by a large number of members. In the case of private limited company the minimum number of members is 2 and the maximum is 50. In the case of public limited company, the minimum number of members is 7 and there is no maximum limit on the number of members.

43. Types of companies On the basis of incorporation
On the basis of ownership
On the basis of liability
Chartered company
Private company
Co.limited by shares
Statutory company
Public company
Co. Ltd. by guarantee
Registered company
Government company
Co. with unlimited liability
Foreign company
Holding company

44. SHARE CAPITAL
EQUITY
PREFERENCE
CUMULATIVE
REDEEMABLE
PARTICIPATING

45. SHARE CAPITAL AUTHORISED CAPITAL ISSUED CAPITAL SUBSCRIBED CAPITAL
CALLED CAPITAL
PAID UP CAPITAL

46. ISSUE OF SHARE AT PAR Over subscription -share application
-BANK
- SHARE APPLICATION
Debited -
credited
SHARE APPLICATION
SHARE CAPITAL
Credited
Over subscription
-share application
-share capital
-bank (refund)
-share allotment

47. SHARE ALLOTMENT/SHARE CALL
Share allotment a/c
Share capital a/c
Debited -
Credited
Bank a/c
Share call a/c
Calls in arrears a/c

48. Issue of shares at premium
Share application/
allotment a/c
Share capital A/c
Share premium A/c
Debited -
Credited

49. Issue of shares at discount
Share allotment A/c
Discount on issue of shares A/c
Share capital A/c
Debited -
Credited

50. Forfeiture of shares Share capital A/c Call in arrears A/c
Forfeited shares A/c
Debited -
Credited

51. Re-issue of shares Bank A/c Forfeited shares A/c Share capital A/c
Capital reserve A/c
Debited -
Credited

52. 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 -
credited
Equity share capital A/c

53. Balance sheet equation
LIABILITIES
ASSETS
Capital
300.00
Fixed assets
700.00
Reserves
200.00
Current assets
Term Loans
Current Liabilities
Total

54. Balance Sheet Equation
Assets =
Liabilities
Liabilities (+)
Capital
Assets (-)

55. BALANCE SHEET EQUATION
Assets = Liabilities
Assets = Capital + Liabilities
Assets =Net worth + Liabilities
Net worth = Capital + Reserves& Surplus
Net worth = Assets Less Liabilities

56. 1. The Assets of a business are Rs. 500000 and its capital is Rs
1. The Assets of a business are Rs and its capital is Rs Its liabilities on that date would be------ Rs rs Rs Rs

57. 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

58. 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

59. EXAMPLES
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

60. EXAMPLES
) Sudhir had the following transactions. Use balance sheet equations to show their effect on his assets, liabilities and capital.
(a) Invested Rs 1,50,000 in cash.
(b) Purchased securities for cash Rs 10,000
(c) Purchased a building for Rs 2,00,000, giving Rs 50,000 in cash and balance by way of a loan from Canara Bank.
(d) Sold securities costing Rs 2,000 for Rs 3,000.
(e) Paid Salaries of Rs 2,000
(f) Paid interest of Rs 10,000 and paid Rs 10,000 towards Canara Bank Loan
(g) Received dividend of Rs 1,000 on securities

61. EXAMPLES Point out whether the following statements are True or False.
(a) The balance sheet represents an expansion of the equations as:
Assets = Liabilities + Capital.
(b) Assets – Original Capital = Liabilities.
(c) Rehman has assets of Rs 10,000 and
liabilities of Rs 5,000. His capital therefore
would be Rs
(d) Assets will be equal to Capital if there are no
liabilities of the business.
(e) If a firm borrows a sum of money, its capital would be
reduced.

62. 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?
Rs. Nil
Rs. 1100
Rs.500
Rs.600

63. Select from the following a sentence which is wrong
EXAMPLES
Select from the following a sentence which is wrong
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 assets with no corresponding increase in liabilities will increase the amount of capital

64. EXAMPLES
The firm sells goods on credit for Rs.50000, the cost of the goods sold is Rs The effect of the transaction is that, the capital of the firm-----
increases by Rs.50000
reduces by Rs.40000
increases by Rs
reduces by Rs

65. EXAMPLES
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 and Creditors Rs What was his net profit for the year 05-06? Rs
Rs.70000
Rs.53000
None of the above

66. One of the pairs given below is wrong. Select the wrong pair.
EXAMPLES
One of the pairs given below is wrong. Select the wrong pair.
Outstanding expenses - Nominal account
Profit and Loss Account (Dr. balance) – Application of funds
Net worth less reserves & surplus - Capital
Balance sheet - Financial position

67. EXAMPLES
From the following ,find a sentence which is false in respect of partnership
If the partnership is following the “Fixed Capital Account Method” salary payable to a partner is credited to the partner’s 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

68. EXAMPLES
From the account given below, select the account which is wrongly included in Profit & Loss Appropriation Account at the debit side
Drawings Account
Partners Salary Account
Interest on Loan Account
Commission to Partners Account

69. EXAMPLES
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 -----
15:15:10
20:10:10
3:1:1
None of the above

70. Debit cash and credit Goodwill for Rs.1,00,000
EXAMPLES
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.
Debit cash and credit Goodwill for Rs.1,00,000
Debit cash and credit S’s Capital for Rs.3,00,000
Debit Goodwill for Rs.1,00,000 and credit Q’s Capital by Rs & R’s Capital by Rs. 40,000
Debit Stock and credit Profit & Loss Adjustment A/c by Rs.9,000

71. EXAMPLES
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 and Creditors A/c Rs were shown while at debit side of Revaluation Account, Reserve for Doubtful Debts A/c. Rs.15000, A’s Capital A/c.Rs.20000, B’s Capital A/c. Rs.20,000 and C’s Capital A/c. Rs were shown. Accountant has interpreted the Revaluation Account as follows. One of the interpretations by him is incorrect. Select the incorrect sentence.
Stock is revalued upwardly by Rs
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

72. EXAMPLES
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.
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

73. EXAMPLES
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 and Creditors A/c Rs were shown while at debit side of Revaluation Account, Reserve for Doubtful Debts A/c. Rs.15000, A’s Capital A/c.Rs.20000, B’s Capital A/c. Rs.20,000 and C’s Capital A/c. Rs were shown. Accountant has interpreted the Revaluation Account as follows. One of the interpretations by him is incorrect. Select the incorrect sentence.
Stock is revalued upwardly by Rs
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

74. Select the incorrect statement in respect of companies.
EXAMPLES
Select the incorrect statement in respect of companies.
A member of a company can enter into contract with a company
It is compulsory to register a joint stock company
If all but one member of a private company becomes insolvent ,it affects the existence of the organisation
Shareholders are not liable for the acts of the company
Select the incorrect statement
Authorized capital is the capital with which the company is registered
Issued capital is equal to its authorized capital
Authorized capital, issued capital, subscribed capital, called up capital and paid up capital cannot be same
The amount which the company has asked its shareholders to pay is called up capital of the company.

75. EXAMPLES
Following are the journal during the process of application to allotment stage . One of the entries is wrong. Select the wrong entry.
Debit bank account and credit share application account ( when application money is received)
Debit share application account and credit share capital account (application transferred to share capital account)
Debit share capital and credit share allotment account ( for recording allotment money being fallen due )
Debit bank account and credit share allotment account ( for receipt of allotment money)

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

77. EXAMPLES
Select the incorrect statement in respect of utilization of share premium
it is used for the purpose of buy back of shares
it used for payment of dividend in case of inadequacy of profits
it is used for writing off preliminary expenses
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 re-issue 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.
Debit bank account by Rs.900
Debit forfeited shares by Rs.500
Credit share capital by Rs.1000
Credit forfeited shares by Rs.400

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

79. EXAMPLES
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.
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

80. EXAMPLES
Select the incorrect statement in case of Share Capital and Reserves and Surplus as shown in the balance sheet.
Under share capital, the following order is maintained: Authorised capital, issued capital, subscribed capital
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
The amount of unpaid calls is deducted from (b) above
The amount of forfeited shares account is shown under Reserves & surplus
Select the incorrect statement in respect of form of balance sheet of companies(Liabilities side).
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.

81. EXAMPLES
Select the incorrect statement in respect of form of balance sheet of companies ( Asset side).
Live Stock is grouped under the head ‘current Asset’
Balance of unutilized monies raised by issue is grouped under the head ‘Investments’
Interest paid out of capital during construction is grouped under the head ‘Miscellaneous Expenditure’
Vehicles are grouped under the head ‘Fixed Asset’

82. Select the false statement in respect of assets
EXAMPLES
One of the accounts is wrongly debited to “Profit and Loss Appropriation A/c” of a company. Name the wrong account debited
Interim dividend
Proposed dividend
Provision for tax
Capital redemption reserve
Select the false statement in respect of assets
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

83. EXAMPLES THE FINANCIAL STATEMENT OF BANK CONSISTS OF ------- SCHEDULES
INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER ASSETS ARE PART OF SCHEDULE NOS.--RESPECTIVELY
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-----
INVESTMENTS
OTHER ASSETS
OTHER LIABILITIES AND PROVISIONS
CONTINGENT LIABILITIES

84. EXAMPLES
One of the items is a misfit in a group namely ‘other income’ of a banking company. Select this item from the following
INCOME ON INVESTMENTS
PROFIT ON SALE OF INVESTMENTS
PROFIT ON REVALUATION OF INVESTMENTS
PROFIT ON EXCHANGE TRANSACTIONS
Depreciation on bank’s 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.
depreciation on motor cars
depreciation on stationary and stamps
depreciation on furniture
depreciation on non-banking assets

85. The provisional requirement for standard asset is-----
EXAMPLES
The provisional requirement for standard asset is-----
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 bank’s total investment.
25%
75% 5%
None of the above

86. Acceptances, endorsements and guarantees are shown as-----
EXAMPLES
Acceptances, endorsements and guarantees are shown as-----
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
Reserves & surplus Share premium
Time deposits - Matured time deposits
Borrowings in India - Refinance from NABARD
Other Liabilities & Provisions - Inter office/branch adjustments(net

87. 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
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
Miscellaneous Expenditure – Preliminary Expenses
Contingent Liabilities – footnote to balance sheet
Debentures – Unsecured Loans
Outstanding Expenses – Current Liabilities

88. EXAMPLES
Identify a pair which is mismatch from the following pairs in respect of Company Accounts
Miscellaneous Expenditure – Preliminary Expenses
Contingent Liabilities – footnote to balance sheet
Debentures – Unsecured Loans
Outstanding Expenses – Current Liabilities

89. EXAMPLES
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 is to be made for doubtful debts
Debit Dividend by Rs & 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

90. EXAMPLES
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.
Debit side of partner’s current account
Credit side of partner’s capital account
Credit side of partner’s current account

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

92. Example
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

93. Example
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-----
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

94. Example
Choose the correct treatment for premium paid on ‘Joint Life Policy’ when premium paid is treated as an expense.
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.