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Accounts-1996-Set I

Q 1) Define Partnership. State the main provisions of the Partnership Act relating to partnership accounts in the absence of partnership deed. (Marks 3)
Ans. 1) Partnership :
The relationship between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all. In the absence of the partnership deed, the following provisions are applicable :
(i) No interest is payable on the capital to the partners.
(ii) No interest is charged on partners drawings.
(iii) 6% p.a. interest is charged on loan advanced by a partner to the firm.
(iv) Profits are to be shared equally by all partners.
(v) No salary is payable to any partner for any extra time devoted by him for the business.


Q2) A and B are partners sharing profits in the ratio of 3 : 2 with capitals of Rs. 50,000 and Rs. 30,000 respectively. Interest on capital is agreed @ 6% p.a. B is to be allowed an annual salary of Rs. 2,500. During 1995, the profits of the year prior to calculation of interest on capital but after charging B’s salary amounted to Rs. 12,500. A provision of 5% of the profits is to be made in respect of manager’s commission.
Prepare an account showing the allocation of profits and partner’s capital account. (Marks 5)

Ans. 2)

Q 3) A and B are partners sharing profits in the ratio of 3 : 2. C is admitted as a partner. The new profit – sharing ratio among A, B and C is 4 : 3 : 2. Find out the sacrificing ratio.
Ans. 3) A’s sacrifice = A’s old share – A’s new share
= 3/5 – 4/9
= 7/45
B’s sacrifice = B’s old share – B’s new share
= 2/5 – 3/9
= 3/45
Thus, the sacrificing ratio of A and B :
A : B
7 : 3

Accounts-1996-Set II

Q1) A and B are partners sharing profits in the ration of 4 : 3. C is admitted as a partner. The new profit-sharing ration is 3 : 2 : 1. Find out the sacrificing ratio. (Marks 2)
Ans1) A : B : C
3 : 2 : 1 New Ratio
Old ratio = A : B
4 : 3
A’s sacrifice = A’s old share – A’s new share
= 4/7 – 3/6 = 3/42
B’s sacrifice = 3/7 – 2/6 = 4/42
Thus, the sacrificing ratio = A : B
= 3 : 4

Q3) Define partnership. In the absence of Partnership Deed, what are the rules regarding :
(i) Profit-sharing ratio. (ii) Interest on drawings, (iii) Interest on Capital, (iv) Interest on loan given by a partner. (Marks 3)

Ans3) Partnership is defined as -
The relationship between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.
In the absence of the information, the following rules will apply,
1. Profit sharing ratio : this will be equal for all the partners.
2. Interest on drawings : No interest is charged on drawings.
3. Interest on capital : No interest is paid on capital.
4. Interest on loan given by partners : Interest @ 6% p.a. will be given to the partners on their loans.

Q4) Mention the items that may appear on the credit side of the capital account of a partner when the capitals are fluctuating.
Ans4) The following items may appear on the credit of the capital account of a partner when the capital accounts are fluctuating :
(i) Opening balance of capital (Cr.),
(ii) Share of profit,
(iii) Interest on capital,
(iv) Salary (if allowed),
(v) Goodwill,
(vi) Share of general reserve.

Accounts -1997-Set I

Q1) Give any three points of distinction between revaluation account and realisation account. (Marks 3)
Ans1) Revaluation and Realisation account :
(i) Revaluation is prepared at the time of admission, retirement and death of a partner. Realisation is prepared at the time of dissolution of the firm.
(ii) Revaluation is prepared record the effect of revaluation of assets and liabilities. Realisation records the realisation of various assets and liabilities.
(iii) As a result of revaluation, assets and liabilities are revalued and not closed down. Whereas as a result of realisation, the assets and liabilities accounts are closed.

Q2) Can forfeited shares be issued at a discount? If so, to what extent? (Marks 3)
Ans2) The forfeited shares can be reissued at a discount. However, the discount on the reissue of such shares cannot exceed the amount earlier forfeited on such shares, i.e. amount received on re-issue plus the amount already received on forfeited shares should not be less than the paid up value of shares.

Q3) Ashoka Ltd. purchased machinery costing Rs. 1,35,000. It was agreed that the purchase consideration be paid by issuing 12% debentures of Rs. 100 each. Assume debentures have been issued (i) at par and (ii) at a discount of 10%. Give necessary journal entries. (Marks 3)
Ans3) Working Notes :
No. of debentures = 135000/90
= 1500

Accounts -1997-Set II

Q2) Give any three characteristics of partnership. (Marks 3)
Ans2) Three characteristics of partnership :
1) There must be an agreement entered into by one or more persons.
2) There must be lawful business.
3) Business must be carried on by all or any of them acting for all.

Q4) A, B and C were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. Their fixed capitals were Rs. 10,00,000, Rs. 2,00,000 and Rs. 3,00,0000 respectively. For the year 1996 interest on capital was credited to them @ 10% instead of 9% p.a.. Showing your wokring notes clearly pass the necessary adjusting journal entry.
Ans4) Working Notes :
Statement showing adjustment
Capitals…………………………….1000000 200000 300000
Interest credited @10%………….100000 20000 30000
Interest to be credited @ 9% 9000 18000 27000
Partners over -
Credited with 1000 2000 3000
Thus, the profit will increase
by 6000 divisible as 4 : 3 : 3 2400 1800 1800
Adjustment 1400(Cr) 200(Dr) 1200(Dr.)

Q5) X, Y and Z were partners in a firm sharing profits in 4 : 3 : 2 ratio. They had a joint life policy of Rs. 1,80,000 on which the annual premium paid was considered as an expense. On 1st January, 1996 X died. On that date there was a debit balance of Rs. 45,000 in their profit and loss account. Pass the necessary journal entries on X’s death. (Marks 4)

Accounts-1998-Set I

Q 1 What is meant by goodwill? Name any two methods of valuation of goodwill. (Marks 2)
Ans 1 Goodwill : Goodwill is the advantage of good name, relations of a business. It is the attractive force that brings in customers. It distinguishes an established business from a new one as it helps the business to earn more profits.
Methods of valuation of goodwill :
(i) Average Profits Method
(ii) Super Profit Method.

Q 2 R and S are partners sharing profits in the ratio of 5 : 3. T joins the firm as a new Partner. R gives 1/4 of his share and S gives 2/5 of his share to the new partner. Find out the new ratio. (Marks 3)
Ans 2 R’s share = 5/8
S’s share = 3/8
R’s sacrifice = 1/4 x 5/8 = 5/32
S’s sacrifice = 2/5 x 3/8 = 6/40
Thus, R’s new share = 5/8 – 5/32 = 15/32
S’s new share = 3/8 – 6/40 = 9/40
T’s share = R’s sacrifice + S’s sacrifice
= 5/32 + 6/40
= 49/160
Thus, new ratio R : S : T
15/32 : 9/40 : 49/160
= 75 : 36 : 49

Accounts-1998-Set II

Q 1 Mention any two factors which give rise to goodwill of a firm. (Marks 2)
Ans 1 Factors that give rise to goodwill :
(i) Location of the business :
The business which is centrally located in a prominent locality will attract more customers and hence have heavy sale resulting in higher value of goodwill.
(ii) Skill of the management :
If the management of a firm is efficient, the firm will enjoy high productivity and have an effective cost management. Thus will lead to earning huge profits and thus the value of goodwill will be high.

Q 2 R and S are partners sharing profits in the ratio of 5 : 3. T joins the firm, R gives 1/4 of his share and S gives 1/5 of his share to the new partner. Find the new ratio. (Marks 3)
Ans 2 R’s share = 5/8
S’s share = 3/8
R’s sacrifice = 1/4 x 5/8 = 5/32
S’s sacrifice = 1/5 x 3/8 = 3/40
Thus, R’s new share = 5/8 – 5/32 = 15/32
S’s new share = 3/8 – 3/40 = 12/40
T’s share = 5/32 + 3/40 = 37/160
Thus, new ratio = R : S : T
= 15/32 : 12/40 : 37/160
= 75 : 48 : 37

Q 3 Write any three points of difference between equity share and a debenture. (Marks 3)
Ans 3
Basis of Distinction Equity Share Debenture
(i) Part of Capital Structure Equity is a part of share capital of a company. It is a part of borrowed funds of a company.
(ii) Return The equity shares get dividend as a returns. The interest is paid on the debentures.
(iii) Fluctuations in returns The rate of dividend varies from year to year depending on the profit. The interest is fixed irrespective of the profits earned.

Accounts -1999 -Set I

Q1) List any two items appearing on the credit side of a partner’s capital account, when capitals are fluctuating. (Marks 2)
Ans1) (i) Interest on capital of the partner.
(ii) Partner’s salary.

Q2) (a) A and B are partners in a firm sharing profits in the ratio of 3 : 2. They had advanced to the firm a sum of Rs. 30,000/- as a loan in their profit sharing ratio on July 1st, 1998. The partnership deed is silent on the question of interest on loan from partners. Compute the interest payable by the firm to the partners, assuming the firm closes its books on December 31st.
(Marks 3)

Ans. 2) (a) According to the provisions of the Indian Partnership Act, 1932, interest @ 6% p.a. is payable to the partners on the amount of loan advanced by them to the firm.
A’s loan = 30000 x 3/5 = 18000
B’s loan = 30000 x 2/5 = 12000
Interest on A’s loan = 18000 x 6/100 x 6/12 = 540
Interest on B’s loan = 12000 x 6/100 x 6/12 = 360
Total Interest payable by firm to partners = 540 + 360 = Rs. 900

Q2) (b) A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his share of profits in any given year would be Rs. 5000/-. Deficiency, if any, would be borne by A and B equally. The profits for the year 1998 amounted to Rs. 40000/-. Pass necessary entries in the books of the firm. (Marks 3)

Ans. 2) (b) Working Notes :
C’s share in profit = 1/10 x 40000 = 40000
C’s guarantee = 5000
C’s deficiency = 5000 – 4000 = 1000
The deficiency is to be borne equally by A and B.
A’s share of profit = 5/10 x 40000 = 20000
Less : C’s guarantee 500
A’ profit = 19500
B’s share of profit = 4/10 x 40000 = 16000
Less: C’s guarantee 500
B’s profit = 15500

Accounts -1999 -Set II

Q1) List any two items appearing on the credit side of a partner’s current account. (Marks 2)
Ans1) (i) Interest on partner’s capital.
(ii) Partner’s share of profit.

Q2) On April 1st, 1998 an existing firm had assets of Rs. 75,000/- including cash of Rs. 5,000/-. The partner’s capital account showed a balance of Rs. 60,000/- and reserve constituted the rest. If the normal rate of return is 20% and the goodwill of the firm is valued at Rs. 24,000/- at 4 year purchase of super profits, find the average profits of the firm. (Marks 3)
Ans2) Goodwill = super profits x 4 year purchase
24000 = super profits x 4
super profits = 6000
Normal profits = Capital employed x Normal rate of return
= 75000 x 20/100
= 15000
(…Capital employed = Assets of the firm = 75000)
…Average profit = Normal profit + Super profit
= 15000 + 6000
Average profit = Rs. 21000

Q4) (a) A and B are partners in a firm sharing profits equally. They had advanced to the firm a sum of Rs. 30,000/- as a loan in their profit sharing ratio on July 1st, 1998. The partnership deed is silent on the question of interest on loan from partners. Compute the interest payable by the firm to the partners, assuming the firm closes its books on December 31st. (Marks 3)

(b) A, B and C are partners sharing profits in the ratio of 5 : 4 : 1. C is given a guarantee that his share of profits in any given year would be Rs. 5000/-. Deficiency, if any, would be borne by A and B equally. The profits for the year 1998 amounted to Rs. 40000/-. Pass necessary entries in the books of the firm. (Marks 3)
Ans4) (a) According to the provisions of the Indian Partnership Act, 1932, interest @ 6% p.a. is payable to the partners on the loan advanced by them to the firm.
Total loan = 30000
A’s share of loan = 30000 x 1/2 = 15000
B’s share of loan = 15000
… Interest on A’s loan = 15000 x 6/100 x 6/12 = 450
Interest on B’s loan = 15000 x 6/100 x 6/12 = 450
… Total Interest payable by firm =
450 + 450 = Rs. 900

(b) Working Notes :
C’s share in profit = 1/10 x 40000 = 40000
C’s guarantee = 5000
C’s deficiency = 5000 – 4000 = 1000
The deficiency is to be borne equally by A and B.
A’s share of profit = 5/10 x 40000 = 20000
Less : C’s guarantee 500
A’ profit = 19500
B’s share of profit = 4/10 x 40000 = 16000
Less: C’s guarantee 500
B’s profit = 15500

Accounts -2000-Set I

Q1) Why is ‘Profit and Loss Appropriation Account’ prepared? (Marks 3)
Ans1) Profit and Loss Appropriation Account is prepared to show how the net profit have been distributed among the partners. The account is credited with net profit or debited with net loss to begin with and further credited with Interest on drawings and debited with interest on capital salary etc. The final profit/loss is distributed in the agreed profit sharing ratio.

Q2) What are the alternatives available to a company for the allotment of debentures when there is over- subscription of debentures? (Marks 3)
Ans2) When there is over-subscription of debentures;
(i) The company may not allot any debenture to some applicant i.e. their application money is refunded.
(ii) If the applicants have been allotted less number of debentures than they applied for, the excess application money is adjusted towards allotment and subsequent calls.

Q3) A and B were partners sharing profits in the ratio of 3 : 2. They admitted X and Y as new partners. A surrendered 1/3rd of his share in favour of X and B surrendered 1/4th of his share in favour of Y. Calculate the new profit sharing ratio of A, B, X and Y. (Marks 3)
Ans3) A’s sacrifice = 1/3 x 3/5 = 3/15
B’s sacrifice = 1/4 x 2/5 = 2/20
A’s new share = 3/5 – 3/15 = 6/15
(Old share – sacrifice)
B’s new share = 2/5 – 2/20 = 6/20
… New Profit sharing ratio :
A : B : X : Y
6/15 : 6/20 : 3/15 : 2/20
= 4 : 3 : 2 : 1
(X’s share is equal to A’s sacrifice)
(Y’s share is equal to B’s sacrifice)

Accounts -2000-Set II

Q9) X, Y and Z were partners in a firm sharing profits in the proportions of 1/2, 1/3 and 1/6 respectively. The Balance Sheet of the firm on 31st March 1998 was as follows:

Liabilities Amount Assets Amount (Rs.)
Sundry Creditors 15,0000 Cash at Bank 5,000
Provident Fund 6,000 Debtors Rs.40,000 38,000
Less Provision Rs. 2,000
Reserve Fund 12,000 Stock 30,000

Capitals:
X 65,000 Investments 15,000
Y 30,500 Patents 10,000
Z 20,000 Plant and Machinery 50,000
1,48,000 1,48,000

Z retired on the above date on the following terms :
(i) Goodwill of the firm was valued at Rs. 30,000, but it was not to remain in the books of the new firm.
(ii) Value of the patents was to be reduced by 20% and that of Plant and Machinery by 10%.
(iii) Provision for doubtful debts was to be raised to 6%.
(iv) Z took over the Investments at a value of Rs. 17,600.
(v) Liability on account of Provident Fund was only Rs. 2,400.
Show the necessary Journal Entries for the treatment of goodwill, prepare revaluation account, Capital accounts of the partners and the Balance Sheet of X and Y after Z’s retirement.

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