4 In the absence of partnership deed/if deed is silent Profit sharing ratio –EqualNo interest on capitalNo interest on drawingson loan given by partnerNo salary /no commission/ no remunerationCapital accounts under fluctuating capital method
5 Methods of capital accounts FixedCapital account-transactions relating to capitalCurrent accountOther transactions such as Interest, profit, goodwill, past profits/losses & adjustmentsFluctuatingOne account- all transactions
6 GOODWILL It’s reputation, super profit earning capacity of a firm Necessitychange in profit sharing ratioAdmission, retirement, deathSale of businessMethods:Average profitSuper profitcapitalization of profit
7 Methods of goodwill Average profit (AP) Super profit (SP) Capitalization of profitAP x MultiplierSP x multiplierSP = AP less NPNP=normal profit(Capitalised value) lessActual CapitalMultiplier is given
8 GOODWILL IMPORTANT ENTRIES ADMISSIONWhen goodwill is raised and written offDebit goodwill and credit old partners capital a/c (old ratio)Debit All partners capital a/c &credit goodwill (new ratio)
9 GOODWILL IMPORTANT ENTRIES RETIREMENTWhen goodwill is raised and written offDebit 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 RETIREMENTAs per Act of 1932, retirement by consent, partnership deed provision, at will by giving proper noticeRevaluation of assets/ liabilities, goodwill, capital adjustments, balance of reserves, past losses
12 examplesLet 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)/GainA 1/2 1/3 –1/6B 1/2 1/3 –1/6C Nil 1/3 +1/3Sacrificing 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 If goodwill is brought in by way of cash and is withdrawn by old partners, then in addition to the two entries as above, the following third entry is passed:(b) Old partners’ capital a/c Dr.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 examples4. 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 examplesLet 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/LossA 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 1/2B /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 examplesA, 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 30,000The chart below depicts gain of the continuing partners.Partners Old Ratio New Ratio GainA 1/3 1/2 +1/6B 1/3 1/2 +1/6C 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 15,000B’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 examplesA 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 4,000Stock 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 Ctowards 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 ofassets recorded)Revaluation a/c Dr. 1,500 To Others Assets a/c To Provision for Doubtful Debts a/c(Being decrease in other assetsand 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 revaluationdistributed 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 inold 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 examples11) Prepare the Profit and Loss account of Modern Bank Ltd. for the year ended 31st March, 2003, from the following: RsInterest on Fixed Deposits 1,62,410Rebate on Bills discounted 29,000Interest on Loans 45,000Commission Charged to Customers 62,500Establishment 15,000Discount on Bills Discounted 89,000Interest on Cash Credit 24,000Amount Charged against Current Accounts 71,500Directors’ Fees 10,000Audit Fees 20,000Postage and Telegram 2,000Printing and Stationery 4,000Rent and Taxes 22,500Interest on Overdrafts 71,000Sundry Charges 1,500Interest on Savings Bank Deposits 57,780
24 examples Profit & Loss Account for the year ended 31st March 2003 Schedule No. RsI. IncomeInterest Earned 13 2,71,500Other Income ,500Total 3,34,000II. ExpenditureInterest Expended ,20,190Operating Expenses ,000Provision for Contingencies —Total 2,95,190III. ProfitNet Profit for the year ,810
25 examples Schedules to be annexed with Profit and Loss Account Schedule13: Interest EarnedInterest on:Loan 45,000Cash Credit 24,000Overdrafts 71,000 1,40,000Discount on Bills discounted 89,000Less: Rebate on Bill Discounted 29, ,000Amount charged against current accounts ,5002,71,500Schedule 14: Other IncomeCommission charged to customer ,500Schedule 15: Interest ExpendedInterest paid on Fixed Deposits 1,62,410 Savings Bank Deposits ,7802,20,190
26 examples Schedule 14: Other Income Commission charged to customer ,500Schedule 15: Interest ExpendedInterest paid on Fixed Deposits 1,62,410 Savings Bank Deposits ,7802,20,190
27 examples Schedule 16: Operating Expenses Establishment Expenses 15,000 Director’s Fees ,000Audit Fees ,000Rent and Taxes ,500Postage and Telegrams ,000Printing and Stationery ,000Sundry Expenses ,50075,000
28 Joint life policy Premium treated as expenses Premium treated as asset Premium treated as reservesAt the end of each year, premium w/o to P & L A/cEach year difference between surrender value and Book value is w/o to P & L A/cdifference between SV and BV is w/o to Jt. Policy Reserve A/creceipt of policy amt.Amount received is credited to partnersIf amount is > SV, the excess is credited to partnersPolicy amount credited to partners
30 FINAL ACCOUNTS OF BANKING COMPANIES DefinitionRequirements –Accounts & auditThird Schedule annexed to BRAForm A- Balance sheetForm B- Profit & Loss AccountAuditSubmission of accounts- RBI- within 3 monthsPublication of accounts- within 6 monthsAuditor-prior approval of RBI for appt/removal
31 Balance sheet-Form A Capital & Liabilities Assets 1.Capital 6.Cash & Bank Bal. RBI2. Reserves & surplus7.Balances with Banks & Money at call and SN3.Deposits8.Investments4.Borrowings9Advances5 Other Liabilities & Provisions10.Fixed Assets11.Other Assets
32 Demand deposits Credit balances in OD and CC Deposits payable at call Overdue depositsIn-operative current accountsMatured time depositsMatured cash certificatesMatured certificate of deposits
33 Contingent liabilities Schedule-12Claims against bank not acknowledged as debtsLiability for partly paid sharesLiability on account of outstanding forward exchange contractsAcceptances ,endorsement & other obligationsOther items for which bank is contingently liable.
34 PROFIT & LOSS ACCOUNT-FORM B IncomeInterest EarnedOther IncomeSchedule.13Schedule.14ExpenditureInterest ExpendedOperating ExpensesProvision for contingenciesSchedule.15Schedule.16Profit /LossAppropriationsTransfer to ReservesProposed dividendBalance carried to Balance sheet
35 NOTES TO ACCOUNTS Significant Accounting Policies Schedule.17 Notes forming part of AccountsSchedule.18
36 Other Income Profit on exchange transactions Profit on sale of investmentsProfit on revaluation of investmentsProfit on sale of fixed assetsLetting 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 notesIf 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. revisedOther 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 dividendGold is treated as investmentSilver is treated as other assetsIncome from performing assets is recognized on accrual basis while in r/o non-performing assets it is on cash basisIn r/o NPA, if income is already recognized, then make provision
39 ASSET CLASSIFICATION ETC Performing andnon performing ( remain out of order)Income RecognitionPerforming-accrual basisNon performing-cash basisStd-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 tradingInvestment should not exceed 25% of total investmentFreedom 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/cMarked to marketTo 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 ownershipOn the basis of liabilityChartered companyPrivate companyCo.limited by sharesStatutory companyPublic companyCo. Ltd. by guaranteeRegistered companyGovernment companyCo. with unlimited liabilityForeign companyHolding company
45 SHARE CAPITAL AUTHORISED CAPITAL ISSUED CAPITAL SUBSCRIBED CAPITAL CALLED CAPITALPAID UP CAPITAL
46 ISSUE OF SHARE AT PAR Over subscription -share application -BANK- SHARE APPLICATIONDebited-creditedSHARE APPLICATIONSHARE CAPITALCreditedOver subscription-share application-share capital-bank (refund)-share allotment
47 SHARE ALLOTMENT/SHARE CALL Share allotment a/cShare capital a/cDebited-CreditedBank a/cShare call a/cCalls in arrears a/c
48 Issue of shares at premium Share application/allotment a/cShare capital A/cShare premium A/cDebited-Credited
49 Issue of shares at discount Share allotment A/cDiscount on issue of shares A/cShare capital A/cDebited-Credited
50 Forfeiture of shares Share capital A/c Call in arrears A/c Forfeited shares A/cDebited-Credited
51 Re-issue of shares Bank A/c Forfeited shares A/c Share capital A/c Capital reserve A/cDebited-Credited
52 Issue of Bonus shares Cap. Red. Reserve A/c Share premium A/c Capital reserve A/cGen Reserve A/cProfit & Loss A/cBonus to shareholders A/cDebited-creditedEquity share capital A/c
55 BALANCE SHEET EQUATION Assets = LiabilitiesAssets = Capital + LiabilitiesAssets =Net worth + LiabilitiesNet worth = Capital + Reserves& SurplusNet 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------RsrsRsRs
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. 1300lRs. 500rs.200Rs. Nil(2) Identify the wrong pairOutstanding expenses - Personal Account account*Profit and Loss Account (Dr. balance) – Application of fundsnet worth less reserves & surplus - Balance in P & L AccountBalance sheet - Financial position
58 Computerized accounting Computer language: cobol, foxpro,unix …etcAnalog computers : scientific and mech. FieldDigital computers: computerized accountingData : factRecord : group of dataData file: data records
59 EXAMPLESSelect from the following , a statement which speaks about liabilities of an entity.The liabilities consist of claims of the ownersThe liabilities consist of claims of the owners and outsidersThe liabilities consist of claims of the outsidersNone 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 andliabilities of Rs 5,000. His capital thereforewould be Rs(d) Assets will be equal to Capital if there are noliabilities of the business.(e) If a firm borrows a sum of money, its capital would bereduced.
62 EXAMPLESIf 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. NilRs. 1100Rs.500Rs.600
63 Select from the following a sentence which is wrong EXAMPLESSelect from the following a sentence which is wrongIf assets increase and liabilities do not , the capital will increaseIf assets increase and liabilities also increase by same sum , the capital will remain sameA reduction in the amount of assets will amount to equivalent reduction in the net worthAn increase in the amount of assets with no corresponding increase in liabilities will increase the amount of capital
64 EXAMPLESThe 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.50000reduces by Rs.40000increases by Rsreduces by Rs
65 EXAMPLESMr.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?RsRs.70000Rs.53000None of the above
66 One of the pairs given below is wrong. Select the wrong pair. EXAMPLESOne of the pairs given below is wrong. Select the wrong pair.Outstanding expenses - Nominal accountProfit and Loss Account (Dr. balance) – Application of fundsNet worth less reserves & surplus - CapitalBalance sheet - Financial position
67 EXAMPLESFrom the following ,find a sentence which is false in respect of partnershipIf the partnership is following the “Fixed Capital Account Method” salary payable to a partner is credited to the partner’s current accountDrawings 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 sameThe capital account of a partner is required to be opened in both the Fixed Capital Account Method and Fluctuating Capital Account Method
68 EXAMPLESFrom the account given below, select the account which is wrongly included in Profit & Loss Appropriation Account at the debit sideDrawings AccountPartners Salary AccountInterest on Loan AccountCommission to Partners Account
69 EXAMPLESA 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 -----15:15:1020:10:103:1:1None of the above
70 Debit cash and credit Goodwill for Rs.1,00,000 EXAMPLESMr. 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.1,00,000Debit cash and credit S’s Capital for Rs.3,00,000Debit Goodwill for Rs.1,00,000 and credit Q’s Capital by Rs & R’s Capital by Rs. 40,000Debit Stock and credit Profit & Loss Adjustment A/c by Rs.9,000
71 EXAMPLESIn 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 RsCreditors are revised upwardly by Rs.8000Premises are revised upwardly by Rs.52000A provision on debtors of Rs. 15,000 is made for doubtful debts
72 EXAMPLESRead 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 AccountFor decrease in the value of assets -Debit Revaluation Account and Credit Asset Account
73 EXAMPLESIn 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 RsCreditors are revised upwardly by Rs.8000Premises are revised upwardly by Rs.52000A provision on debtors of Rs. 15,000 is made for doubtful debts
74 Select the incorrect statement in respect of companies. EXAMPLESSelect the incorrect statement in respect of companies.A member of a company can enter into contract with a companyIt is compulsory to register a joint stock companyIf all but one member of a private company becomes insolvent ,it affects the existence of the organisationShareholders are not liable for the acts of the companySelect the incorrect statementAuthorized capital is the capital with which the company is registeredIssued capital is equal to its authorized capitalAuthorized capital, issued capital, subscribed capital, called up capital and paid up capital cannot be sameThe amount which the company has asked its shareholders to pay is called up capital of the company.
75 EXAMPLESFollowing 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 EXAMPLESSelect the incorrect statement in respect of calls in advanceThe company may accept from shareholders , the uncalled amount on shares even before it is fallen dueThe article of association must permit such acceptance of advance call moneyInterest 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 EXAMPLESSelect the incorrect statement in respect of utilization of share premiumit is used for the purpose of buy back of sharesit used for payment of dividend in case of inadequacy of profitsit is used for writing off preliminary expensesit is used for issue of fully paid bonus sharesMr. 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.900Debit forfeited shares by Rs.500Credit share capital by Rs.1000Credit forfeited shares by Rs.400
78 EXAMPLESDT 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.200Credit Share allotment Account by Rs.200Credit share premium Account by Rs.100Credit Share first call Account by Rs.200Select the source which is not valid for issue of bonus sharesShare premiumRevaluation reserve created by revaluation of fixed assetsCapital reserveCapital redemption reserve
79 EXAMPLESThe 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 LakhShare Premium Account (Rs. Nil Lakh), Capital Reserve Account ( Rs. Nil Lakh), General Reserve Account (10 Lakh) & Profit & Loss Account by Rs. 15 LakhShare Premium Account (Rs.5 Lakh), Capital Reserve Account ( Rs. 3 Lakh), General Reserve Account (15 Lakh) & Profit & Loss Account by Rs. 2 LakhShare Premium Account (Rs.5 Lakh), Capital Reserve Account ( Rs. 1 Lakh), General Reserve Account (4 Lakh) & Profit & Loss Account by Rs. 15 Lakh
80 EXAMPLESSelect 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 capitalThe 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 shownThe amount of unpaid calls is deducted from (b) aboveThe amount of forfeited shares account is shown under Reserves & surplusSelect the incorrect statement in respect of form of balance sheet of companies(Liabilities side).sinking fund is shown under unsecured loansLoans from banks are grouped under the head Secured LoansUnclaimed Dividend is grouped under the head current liabilitiesProposed dividend is grouped under provisions.
81 EXAMPLESSelect 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 EXAMPLESOne of the accounts is wrongly debited to “Profit and Loss Appropriation A/c” of a company. Name the wrong account debitedInterim dividendProposed dividendProvision for taxCapital redemption reserveSelect the false statement in respect of assetsa banking company is allowed to acquire assets for its own usea banking company is allowed to grant loans against the security of assets belonging to its customersa banking company is allowed to take possession of such assets in case of default committed by the borrowera 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.--RESPECTIVELY6,7,8,97,8,9,108,9,10,119,10,11,12LIABILITY FOR PARTIALLY PAID INVESTMENTS IN RESPECT OF BANKING COMPANIES IS GROUPED UNDER THE HEAD-----INVESTMENTSOTHER ASSETSOTHER LIABILITIES AND PROVISIONSCONTINGENT LIABILITIES
84 EXAMPLESOne of the items is a misfit in a group namely ‘other income’ of a banking company. Select this item from the followingINCOME ON INVESTMENTSPROFIT ON SALE OF INVESTMENTSPROFIT ON REVALUATION OF INVESTMENTSPROFIT ON EXCHANGE TRANSACTIONSDepreciation 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 carsdepreciation on stationary and stampsdepreciation on furnituredepreciation on non-banking assets
85 The provisional requirement for standard asset is----- EXAMPLESThe provisional requirement for standard asset is-----0.40%(revised) of total outstanding10%(revised) of total outstanding40%(revised) of total outstanding100%(revised) of total outstandingThe 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----- EXAMPLESAcceptances, endorsements and guarantees are shown as-----other assetscontingent liabilitiesadvancesother liabilities and provisionsChoose the wrong pair from the following. The information given in the pair is pertaining to banking companiesReserves & surplus Share premiumTime deposits - Matured time depositsBorrowings in India - Refinance from NABARDOther Liabilities & Provisions - Inter office/branch adjustments(net
87 EXAMPLESThe 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 accountClosing balance of provisions held towards NPA - Opening Balance plus provisions made during the year less write off of bad debts/write back of excess provisionsInterest 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 discountReserves & surplus - Opening balance plus additions during the year less deductions during the yearTerm deposits - from banks and from OthersIdentify a pair which is mismatch from the following pairs in respect of Company AccountsMiscellaneous Expenditure – Preliminary ExpensesContingent Liabilities – footnote to balance sheetDebentures – Unsecured LoansOutstanding Expenses – Current Liabilities
88 EXAMPLESIdentify a pair which is mismatch from the following pairs in respect of Company AccountsMiscellaneous Expenditure – Preliminary ExpensesContingent Liabilities – footnote to balance sheetDebentures – Unsecured LoansOutstanding Expenses – Current Liabilities
89 EXAMPLESWhile 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 debtsDebit Dividend by Rs & Credit Bank by Rs.25000Prepaid Insurance by Rs.2000 & Insurance by Rs.2000Debit Profit & Loss Account by Rs.25,000 & Credit Provision for Tax by Rs.25,000Debit Profit & Loss by Rs.5,000 & Credit Provision for doubtful debts by Rs.5,000
90 EXAMPLESIf 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 accountCredit side of partner’s capital accountCredit 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 firmP 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 ExampleA 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.52,000Rs.1,00,000Rs.28,000Nil
93 ExampleIf 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 ratioAll partners in their new profit sharing ratioThe old partners in their old profit sharing ratioNone of the above
94 ExampleChoose 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 partnersEvery 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 accountJoint Life Policy and Joint Life reserve Account are adjusted to bring them down to surrender value of policy.None of the above.