11

..

Accounting & Finance for BankersAccounting & Finance for BankersFinal A/cs. Of Banks & Cos.Final A/cs. Of Banks & Cos.

JAIIB-MODULE-DJAIIB-MODULE-D

PRESENTATION BY PRESENTATION BY Ravi UllalRavi Ullal

24-o4-200824-o4-2008

22

TopicsTopics Partnership accountsPartnership accountsFinal accounts of banking Final accounts of banking

companiescompaniesCompany accountsCompany accountsBalance sheet equationBalance sheet equationAccounting in a Computerized Accounting in a Computerized

environmentenvironment

33

PARTNERSHIP ACCOUNTSPARTNERSHIP ACCOUNTSIntroductionIntroductionDefinitionDefinitionPartnership deedPartnership deed

44

In the absence of partnership In the absence of partnership deed/if deed is silentdeed/if deed is silent

Profit sharing ratio –EqualProfit sharing ratio –EqualNo interest on capitalNo interest on capitalNo interest on drawingsNo interest on drawings interest@6% on loan given by partnerinterest@6% on loan given by partnerNo salary /no commission/ no No salary /no commission/ no

remunerationremunerationCapital accounts under fluctuating Capital accounts under fluctuating

capital methodcapital method

55

Methods of capital accountsMethods of capital accountsFixedFixed

Capital account-transactions relating Capital account-transactions relating to capitalto capital

Current accountCurrent accountOther transactions such as Interest, Other transactions such as Interest,

profit, goodwill, past profits/losses & profit, goodwill, past profits/losses & adjustments adjustments

FluctuatingFluctuatingOne account- all transactionsOne account- all transactions

66

GOODWILLGOODWILL It’s reputation, super profit earning It’s reputation, super profit earning

capacity of a firmcapacity of a firm NecessityNecessity

change in profit sharing ratiochange in profit sharing ratioAdmission, retirement, deathAdmission, retirement, deathSale of businessSale of business

Methods:Methods:Average profitAverage profitSuper profitSuper profitcapitalization of profitcapitalization of profit

77

Methods of goodwillMethods of goodwill

Average profitAverage profit(AP)(AP)

Super profitSuper profit(SP)(SP)

Capitalization Capitalization of profitof profit

AP x MultiplierAP x Multiplier SP x multiplierSP x multiplierSP = AP less SP = AP less NPNP

NP=normal profitNP=normal profit

(Capitalised (Capitalised value) less value) less Actual CapitalActual Capital

Multiplier is Multiplier is givengiven

Multiplier is Multiplier is givengiven

88

GOODWILL GOODWILL IMPORTANT ENTRIESIMPORTANT ENTRIES

ADMISSIONADMISSIONWhen goodwill is raised and When goodwill is raised and

written offwritten offDebit goodwill and credit old Debit goodwill and credit old partners capital a/c (old ratio)partners capital a/c (old ratio)

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

99

GOODWILL GOODWILL IMPORTANT ENTRIESIMPORTANT ENTRIES

RETIREMENTRETIREMENT When goodwill is raised and written When goodwill is raised and written

offoffDebit goodwill and credit old Debit goodwill and credit old partners capital a/c (old ratio)partners capital a/c (old ratio)

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

1010

ADMISSIONADMISSIONrevaluation of assets/ revaluation of assets/

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

1111

RETIREMENTRETIREMENTAs per Act of 1932, retirement As per Act of 1932, retirement

by consent, partnership deed by consent, partnership deed provision, at will by giving provision, at will by giving proper noticeproper notice

Revaluation of assets/ liabilities, Revaluation of assets/ liabilities, goodwill, capital adjustments, goodwill, capital adjustments, balance of reserves, past lossesbalance of reserves, past losses

1212

examplesexamples Let us say A and B are partners sharing Let us say A and B are partners sharing

profits equally. They take C as partner with profits equally. They take C as partner with equal share. The position will be as under: equal share. The position will be as under:

PartnersPartners Old RatioOld Ratio New RatioNew RatioLoss(Sacrifice)/ Loss(Sacrifice)/

GainGain AA 1/21/2 1/31/3 –1/6–1/6 BB 1/21/2 1/31/3 –1/6–1/6 CC NilNil 1/31/3 +1/3+1/3 Sacrificing Ratio = Old ratio  (–)  New ratio.Sacrificing Ratio = Old ratio  (–)  New ratio.

1313

examplesexamples Entries to be passed for Goodwill:Entries to be passed for Goodwill: 1.1. When the new partner pays the goodwill privately: When the new partner pays the goodwill privately: In this case, no entry is passed in the books of account.In this case, no entry is passed in the books of account. 2.2. When the new partner brings in his share of goodwill and When the new partner brings in his share of goodwill and

cash brought in as goodwill is retained in the business:cash brought in as goodwill is retained in the business: (a) (a) Cash/Bank a/cCash/Bank a/c Dr.Dr.     To Goodwill a/cTo Goodwill a/c (b)(b) Goodwill a/cGoodwill a/c Dr.Dr.     To Old partners’ capital a/cTo Old partners’ capital a/c (In old profit sharing or sacrificing ratio)(In old profit sharing or sacrificing ratio) 3.3. If goodwill is brought in by way of cash and is withdrawn 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 by old partners, then in addition to the two entries as above, the following third entry is passed:third entry is passed:

(a) (a) Cash/Bank a/cCash/Bank a/c Dr.Dr.     To Goodwill a/cTo Goodwill a/c (b)(b) Old partners’ capital a/cOld partners’ capital a/c Dr.Dr.     To Cash/bank a/cTo Cash/bank a/c

1414

examplesexamples 4.4. When the new partner does not bring cash for When the new partner does not bring cash for

goodwill and goodwill is raised by the old partners and goodwill and goodwill is raised by the old partners and shown as an asset in the balance sheet:shown as an asset in the balance sheet:

Goodwill a/cGoodwill a/c Dr.Dr.     To Old partners’ capital a/cTo Old partners’ capital a/c (In old profit sharing ratio)(In old profit sharing ratio) 5.5. When new partner does not bring cash for When new partner does not bring cash for

goodwill but goodwill is raised and written off immediately:goodwill but goodwill is raised and written off immediately: (a)(a) Goodwill a/cGoodwill a/c Dr.Dr.     To Old partners’ Capital a/cTo Old partners’ Capital a/c (In old profit sharing ratio)(In old profit sharing ratio) (b)(b) All partners’ capital a/cAll partners’ capital a/c Dr.Dr. (including (including

new one)new one)          To Goodwill a/cTo Goodwill a/c (In new profit sharing ratio)(In new profit sharing ratio)

1515

examplesexamples Let us suppose A, B, and C are partners sharing profits 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 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 continue at the ratio of 3: 2. In this case, the position will be as follows:follows:

Old RatioOld Ratio New RatioNew Ratio Net Gain/Loss Net Gain/Loss AA 5/105/10 NilNil —— BB 3/103/10 3/53/5 + 3/10 (3/5 – 3/10)+ 3/10 (3/5 – 3/10) CC 2/102/10 2/52/5 + 2/10 (2/5 – 2/10)+ 2/10 (2/5 – 2/10) Gain ratio will be 3 : 2.Gain ratio will be 3 : 2. (b) (b) Let us now suppose B and C change their ratio Let us now suppose B and C change their ratio

to 5 : 3; then the position will be as follows:to 5 : 3; then the position will be as follows: Old RatioOld Ratio New RatioNew Ratio Net Gain/Loss Net Gain/Loss AA 5/10 5/10 —— (–) 5/10 i.e 1/2(–) 5/10 i.e 1/2 BB 3/10 3/10 5/85/8 + 13/40 (5/8 – 3/10)+ 13/40 (5/8 – 3/10) CC 2/10 2/10 3/83/8 +  7/40 (3/8 – 2/10)+  7/40 (3/8 – 2/10) Gain ratio will be 13/40 : 7/40 i.e. 13 : 7.Gain ratio will be 13/40 : 7/40 i.e. 13 : 7.

1616

examplesexamples A, B and C are equal partners. C dies. Goodwill on the date of his death is 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 30,000Rs 90,000. Then, C’ s Share 1/3 × Rs 90,000 = Rs 30,000 The chart below depicts gain of the continuing partners.The chart below depicts gain of the continuing partners. Partners Partners Old RatioOld Ratio New Ratio New Ratio GainGain AA 1/31/3 1/21/2 +1/6+1/6 BB 1/31/3 1/21/2 +1/6+1/6 CC 1/31/3 NilNil (1/3)(1/3) Entries if only C’s share of goodwill is raised for above will be:Entries if only C’s share of goodwill is raised for above will be: (a) (a) Goodwill a/c Goodwill a/c Dr.Dr. Rs 30,000Rs 30,000     To C’s Capital a/cTo C’s Capital a/c Rs 30,000Rs 30,000 (b)(b) A’s Capital a/c A’s Capital a/c Dr.Dr. Rs 15,000Rs 15,000 B’s Capital a/cB’s Capital a/c Dr.Dr. Rs 15,000Rs 15,000     To Goodwill a/cTo Goodwill a/c Rs 30,000Rs 30,000 . The ratio in which the continuing partners gain or benefit from the share . 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 of the retiring or dead partner is called the Gaining Ratio. Gaining ratio is equal to new ratio minus old ratio.equal to new ratio minus old ratio.

law makes no difference between a sleeping partner and a working partner 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 and the sleeping partner will be equally responsible to the third parties for all acts or omissions of a working partner.all acts or omissions of a working partner.

1717

examplesexamples A and B share profits in the ratio of 70% and 30% A and B share profits in the ratio of 70% and 30%

respectively as on 31st December 2003. C was respectively as on 31st December 2003. C was admitted as a partner with effect from January 1, admitted as a partner with effect from January 1, 2004 and he brought into business Sundry Debtors 2004 and he brought into business Sundry Debtors Rs 5,000 (subject to 10% provision for bad debts), Rs 5,000 (subject to 10% provision for bad debts), Creditors Rs 1,600 and Goodwill Rs 4,000. He Creditors Rs 1,600 and Goodwill Rs 4,000. He agreed to maintain his capital at Rs 20,000 for 1/5th agreed to maintain his capital at Rs 20,000 for 1/5th share in the profits of the firm. share in the profits of the firm.

Creditors Rs 1,600 and Goodwill Rs 4,000 Creditors Rs 1,600 and Goodwill Rs 4,000 Stock increased by Rs 5200, Building(Rs.26000/-) Stock increased by Rs 5200, Building(Rs.26000/-)

and Truck(Rs. 17000) were increased by 10%, and and Truck(Rs. 17000) were increased by 10%, and other assets(Rs.7000) were decreased by Rs 800. A other assets(Rs.7000) were decreased by Rs 800. A Reserve for doubtful debt was created at 5% on Reserve for doubtful debt was created at 5% on Debtors(Rs.14000/-). It was agreed to adjust the Debtors(Rs.14000/-). It was agreed to adjust the Partners’ Capital in Profit sharing ratio(45:19).Partners’ Capital in Profit sharing ratio(45:19).

1818

examplesexamples Jan. 2004Jan. 2004 Sundry debtors a/cSundry debtors a/c   Dr.  Dr. 5,0005,000 Goodwill a/cGoodwill a/c Dr.Dr. 4,0004,000 Cash a/cCash a/c Dr.Dr. 13,10013,100 (balancing figure)(balancing figure)     To Creditors a/cTo Creditors a/c 1,6001,600     To Provision for bad debt 500To Provision for bad debt 500     To C’s capital a/cTo C’s capital a/c 20,00020,000 (Being various assets brought by C(Being various assets brought by C towards his capital recorded in books)towards his capital recorded in books)

1919

examplesexamples Jan 2004Jan 2004Stock a/cStock a/c Dr.Dr. 5,2005,200 Truck a/cTruck a/c Dr.Dr. 1,7001,700 Building a/cBuilding a/c Dr. Dr. 2,6002,600     To Revaluation a/cTo Revaluation a/c 9,5009,500 (Being increase in value of (Being increase in value of assets recorded)assets recorded) Revaluation a/cRevaluation a/c Dr.Dr. 1,5001,500     To Others Assets a/cTo Others Assets a/c 800800     To Provision for Doubtful Debts a/cTo Provision for Doubtful Debts a/c 700700 (Being decrease in other assets (Being decrease in other assets and provision for doubtful debts recorded)and provision for doubtful debts recorded)

Revaluation a/cRevaluation a/c Dr.Dr. 8,0008,000 (9,500 – 1,500)(9,500 – 1,500)     To A’s Capital a/cTo A’s Capital a/c 5,6005,600     To B’s Capital a/cTo B’s Capital a/c 2,4002,400 (Being profit on revaluation (Being profit on revaluation distributed in old profit sharing ratio)distributed in old profit sharing ratio)

2020

examplesexamples General Reserve a/cGeneral Reserve a/c Dr. 5,400Dr. 5,400     To A’s capital a/cTo A’s capital a/c 3,7803,780     To B’s capital a/cTo B’s capital a/c 1,6201,620 (Being general reserve distributed in(Being general reserve distributed in old profit sharing ratio)old profit sharing ratio) Cash a/cCash a/c DrDr 2,6002,600     To A’s Capital a/cTo A’s Capital a/c 1,6201,620     To B’s Capital a/cTo B’s Capital a/c 980980 (Being cash brought in by old partners)(Being cash brought in by old partners)

2121

examplesexamples Fill in the blanks:Fill in the blanks: (a)(a) _________ is the value of an established _________ is the value of an established

business over and above the value represented by its business over and above the value represented by its tangible assets. It is also the value attached to the super tangible assets. It is also the value attached to the super profit earning capacity of business arising from its wide profit earning capacity of business arising from its wide connections, reputation and long standing in the business.connections, reputation and long standing in the business.

(b) (b) _________ of a partner means joining of a new _________ of a partner means joining of a new person into an existing partnership as a partner.person into an existing partnership as a partner.

(c)(c) _________ of a partner means that a partner _________ of a partner means that a partner breaks off his relations with all other partners and breaks off his relations with all other partners and withdraws himself from the firm.withdraws himself from the firm.

(d) (d) Under the _________ capital method, all the Under the _________ capital method, all the transactions are recorded in the capital account only. transactions are recorded in the capital account only.

(e)(e) Under the _________ capital method, two Under the _________ capital method, two accounts are maintained for each partner, viz., Current accounts are maintained for each partner, viz., Current Account and Capital Account.Account and Capital Account.

2222

examplesexamples State whether the following statements are True or False:State whether the following statements are True or False: (a)(a) If the Partnership Deed does not mention any method of If the Partnership Deed does not mention any method of

maintaining capital accounts then the fixed capital Account Method has to be maintaining capital accounts then the fixed capital Account Method has to be followed.followed.

(b)(b) if the partnership firm is following the Fixed Capital Account if the partnership firm is following the Fixed Capital Account Method salary payable to a partner is credited to the partners’ current Method salary payable to a partner is credited to the partners’ current account.account.

(c)(c) drawings made by partners are never entered in the Profit drawings made by partners are never entered in the Profit and Loss Appropriation Account.and Loss Appropriation Account.

(d)(d) Old firms must have goodwill account in their books of Old firms must have goodwill account in their books of account.account.

(e)(e) While calculating average profit of previous years , loss While calculating average profit of previous years , loss incurred in one of those years is to be ignored.incurred in one of those years is to be ignored.

(f)(f) The share which the new partner is entitled to is called the The share which the new partner is entitled to is called the Sacrifice ratio.Sacrifice ratio.

(g)(g) adjustment for goodwill can be made privately by the adjustment for goodwill can be made privately by the partners without passing any entries in books of account.partners without passing any entries in books of account.

(h)(h) the additional share in the profits by the continuing the additional share in the profits by the continuing partners is called Gain Ratio.partners is called Gain Ratio.

(i)(i) The deceased partner cannot be given share in the profits The deceased partner cannot be given share in the profits till his death.till his death.

2323

examplesexamples 11) Prepare the Profit and Loss account of Modern Bank Ltd. for the year ended 31st 11) Prepare the Profit and Loss account of Modern Bank Ltd. for the year ended 31st

March, 2003, from the following:March, 2003, from the following:    RsRs Interest on Fixed DepositsInterest on Fixed Deposits 1,62,4101,62,410 Rebate on Bills discountedRebate on Bills discounted 29,00029,000 Interest on LoansInterest on Loans 45,00045,000 Commission Charged to CustomersCommission Charged to Customers 62,50062,500 EstablishmentEstablishment 15,00015,000 Discount on Bills DiscountedDiscount on Bills Discounted 89,00089,000 Interest on Cash CreditInterest on Cash Credit 24,00024,000 Amount Charged against Current AccountsAmount Charged against Current Accounts 71,50071,500 Directors’ FeesDirectors’ Fees 10,00010,000 Audit FeesAudit Fees 20,00020,000 Postage and TelegramPostage and Telegram 2,0002,000 Printing and StationeryPrinting and Stationery 4,0004,000 Rent and TaxesRent and Taxes 22,50022,500 Interest on OverdraftsInterest on Overdrafts 71,00071,000 Sundry ChargesSundry Charges 1,5001,500 Interest on Savings Bank DepositsInterest on Savings Bank Deposits 57,78057,780

2424

examplesexamples Profit & Loss Account for the year ended 31st March 2003Profit & Loss Account for the year ended 31st March 2003 Schedule No.Schedule No. RsRs I.I. IncomeIncome Interest EarnedInterest Earned 1313 2,71,5002,71,500 Other IncomeOther Income 1414 62,500 62,500 TotalTotal 3,34,0003,34,000 II.II. ExpenditureExpenditure Interest Expended Interest Expended 1515 2,20,1902,20,190 Operating ExpensesOperating Expenses 1616 75,000 75,000 Provision for ContingenciesProvision for Contingencies —— TotalTotal 2,95,1902,95,190 III.III. ProfitProfit Net Profit for the yearNet Profit for the year

38,81038,810

2525

examplesexamples Schedules to be annexed with Profit and Loss AccountSchedules to be annexed with Profit and Loss Account Schedule13: Interest EarnedSchedule13: Interest Earned Interest on:Interest on: Loan Loan 45,00045,000 Cash Credit Cash Credit 24,00024,000 OverdraftsOverdrafts 71,00071,000 1,40,0001,40,000 Discount on Bills discountedDiscount on Bills discounted 89,00089,000 Less:Less: Rebate on Bill Discounted Rebate on Bill Discounted 29,00029,000 60,000 60,000 Amount charged against current accountsAmount charged against current accounts 71,500 71,500 2,71,5002,71,500 Schedule 14: Other IncomeSchedule 14: Other Income Commission charged to customerCommission charged to customer 62,500 62,500 Schedule 15: Interest Expended Schedule 15: Interest Expended Interest paid on Interest paid on             Fixed DepositsFixed Deposits 1,62,4101,62,410             Savings Bank DepositsSavings Bank Deposits 57,78057,780 2,20,1902,20,190

2626

examplesexamples Schedule 14: Other IncomeSchedule 14: Other Income Commission charged to customerCommission charged to customer

62,50062,500 Schedule 15: Interest Expended Schedule 15: Interest Expended Interest paid on Interest paid on             Fixed DepositsFixed Deposits 1,62,4101,62,410             Savings Bank DepositsSavings Bank Deposits 57,78057,780 2,20,1902,20,190

2727

examplesexamples Schedule 16: Operating ExpensesSchedule 16: Operating Expenses Establishment ExpensesEstablishment Expenses 15,000 15,000 Director’s FeesDirector’s Fees 10,00010,000 Audit FeesAudit Fees 20,00020,000 Rent and TaxesRent and Taxes 22,500 22,500 Postage and TelegramsPostage and Telegrams 2,0002,000 Printing and StationeryPrinting and Stationery 4,0004,000 Sundry Expenses Sundry Expenses 1,500 1,500 75,00075,000

2828

Joint life policyJoint life policyPremium Premium treated as treated as expensesexpenses

Premium Premium treated as treated as assetasset

Premium Premium treated as treated as reservesreserves

At the end of At the end of each year, each year, premium w/o to premium w/o to P & L A/cP & L A/c

Each year Each year difference difference between between surrender value surrender value and Book value and Book value is w/o to P & L is w/o to P & L A/cA/c

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

receipt of policy receipt of policy amt.amt.Amount received Amount received is credited to is credited to partnerspartners

receipt of policy receipt of policy amt.amt.If amount is > If amount is > SV, the excess SV, the excess is is credited to credited to partners partners

receipt of policy receipt of policy amt.amt.Policy Policy amountamount credited to credited to partners partners

2929

Types of partnersTypes of partnersActiveActiveSleepingSleepingQuasiQuasinominalnominal

3030

FINAL ACCOUNTS OF BANKING FINAL ACCOUNTS OF BANKING COMPANIESCOMPANIES

DefinitionDefinitionRequirements –Accounts & auditRequirements –Accounts & audit

Third Schedule annexed to BRAThird Schedule annexed to BRAForm A- Balance sheet Form A- Balance sheet Form B- Profit & Loss AccountForm B- Profit & Loss AccountAuditAuditSubmission of accounts- RBI- within 3 Submission of accounts- RBI- within 3

monthsmonthsPublication of accounts- within 6 monthsPublication of accounts- within 6 monthsAuditor-prior approval of RBI for Auditor-prior approval of RBI for

appt/removalappt/removal

3131

Balance sheet-Form ABalance sheet-Form ACapital & LiabilitiesCapital & Liabilities AssetsAssets1.Capital1.Capital 6.Cash & Bank Bal. 6.Cash & Bank Bal.

RBIRBI2. Reserves & surplus2. Reserves & surplus 7.Balances with Banks 7.Balances with Banks

& Money at call and & Money at call and SNSN

3.Deposits3.Deposits 8.Investments8.Investments4.Borrowings4.Borrowings 9Advances9Advances5 Other Liabilities & 5 Other Liabilities & ProvisionsProvisions

10.Fixed Assets10.Fixed Assets11.Other Assets11.Other Assets

3232

Demand depositsDemand depositsCredit balances in OD and CCCredit balances in OD and CCDeposits payable at callDeposits payable at callOverdue depositsOverdue depositsIn-operative current accountsIn-operative current accountsMatured time depositsMatured time depositsMatured cash certificatesMatured cash certificatesMatured certificate of depositsMatured certificate of deposits

3333

Contingent liabilitiesContingent liabilitiesSchedule-12Schedule-12 Claims against bank not acknowledged Claims against bank not acknowledged

as debtsas debts Liability for partly paid sharesLiability for partly paid shares Liability on account of outstanding Liability on account of outstanding

forward exchange contractsforward exchange contracts Acceptances ,endorsement & other Acceptances ,endorsement & other

obligationsobligations Other items for which bank is Other items for which bank is

contingently liable.contingently liable.

3434

PROFIT & LOSS ACCOUNT-FORMPROFIT & LOSS ACCOUNT-FORM B BIncomeIncomeInterest EarnedInterest EarnedOther IncomeOther Income

Schedule.13Schedule.13Schedule.14Schedule.14

ExpenditureExpenditureInterest ExpendedInterest ExpendedOperating ExpensesOperating ExpensesProvision for contingenciesProvision for contingencies

Schedule.15Schedule.15Schedule.16Schedule.16

Profit /LossProfit /LossAppropriationsAppropriationsTransfer to ReservesTransfer to ReservesProposed dividendProposed dividendBalance carried to Balance Balance carried to Balance sheetsheet

3535

NOTES TO ACCOUNTSNOTES TO ACCOUNTS

Significant Significant Accounting Accounting PoliciesPolicies

Schedule.17Schedule.17

Notes forming Notes forming part of part of AccountsAccounts

Schedule.18Schedule.18

3636

Other IncomeOther IncomeProfit on exchange transactionsProfit on exchange transactionsProfit on sale of investmentsProfit on sale of investmentsProfit on revaluation of investmentsProfit on revaluation of investmentsProfit on sale of fixed assetsProfit on sale of fixed assetsLetting of locker (income from locker Letting of locker (income from locker

charges )charges )Misc. income -Godown rent Misc. income -Godown rent

3737

Ponder over these pointsPonder over these pointsGovt. securities shown at book value and Govt. securities shown at book value and

diff. between MV and BV is given in the diff. between MV and BV is given in the notesnotes

If some fixed assets are w/o on If some fixed assets are w/o on revaluation of assets/reduction of capital revaluation of assets/reduction of capital every B/S after wards should. show the every B/S after wards should. show the revised figure for next 5 yrs. With the revised figure for next 5 yrs. With the date & amt. reviseddate & amt. revised

Other fixed assets includes vehicles, Other fixed assets includes vehicles, furniture and fixtures. Lockers and safe furniture and fixtures. Lockers and safe deposit vaults are included in furnituredeposit vaults are included in furniture

3838

Ponder over these pointsPonder over these points20% to reserve fund before declaring 20% to reserve fund before declaring

dividenddividendGold is treated as investment Gold is treated as investment Silver is treated as other assetsSilver is treated as other assets Income from performing assets is Income from performing assets is

recognized on accrual basis while in recognized on accrual basis while in r/o non-performing assets it is on cash r/o non-performing assets it is on cash basisbasis

In r/o NPA, if income is already In r/o NPA, if income is already recognized, then make provisionrecognized, then make provision

3939

ASSET CLASSIFICATION ETCASSET CLASSIFICATION ETC Asset ClassificationAsset Classification

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

Income RecognitionIncome Recognition Performing-accrual basisPerforming-accrual basis Non performing-cash basisNon performing-cash basis

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

50%,>1&<3-30%-upto 1year-20%50%,>1&<3-30%-upto 1year-20% Loss assets-100% Loss assets-100%

4040

SLR & NON SLR DEPOSITSSLR & NON SLR DEPOSITSHeld to Held to maturitymaturity

Available for Available for salesale

Held for Held for tradingtrading

Investment Investment should not should not exceed 25% of exceed 25% of total total investmentinvestment

Freedom Freedom availableavailable

Freedom Freedom availableavailable

-no marked to -no marked to market. Profit on market. Profit on sale treated as sale treated as cap. Reservecap. Reserve

-Marked to -Marked to marketmarket-profit on sale of -profit on sale of investment. investment. taken to P&L a/ctaken to P&L a/c

Marked to Marked to marketmarket

To be sold To be sold within 90 dayswithin 90 days

4141

COMPANY ACCOUNTSCOMPANY ACCOUNTS Features of a Joint Stock Company Features of a Joint Stock Company 1.1. Incorporated association:Incorporated association: A company is a registered body of individuals. According to the Companies Act, 1956, A company is a registered body of individuals. According to the Companies Act, 1956,

it is compulsory to register a joint stock company.it is compulsory to register a joint stock company. 2. 2. Artificial person:Artificial person: It is an artificial person created by law. It is different from its members It can enter 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 into contracts, purchase and sell the properties, can sue and be sued upon. Even a member can enter into contract with the company.member can enter into contract with the company.

3.3. Perpetual succession:Perpetual succession: A company has a perpetual succession. Death, or insolvency of any shareholder does A company has a perpetual succession. Death, or insolvency of any shareholder does

not affect existence of the company.not affect existence of the company. 4. 4. Common seal:Common seal: As the company is an artificial person created by law, it cannot sign its name. So it 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 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 treated as company’s signature and is affixed in all important documents and contracts as per the resolutions passed by the Board.contracts as per the resolutions passed by the Board.

5. 5. Limited liability:Limited liability: The liability of the members of the joint stock company is limited to the face value of 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, 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 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 or Five Lakh rupees, as the case may be) each director or manager or shareholder will have unlimited liability.will have unlimited liability.

4242

COMPANY ACCOUNTSCOMPANY ACCOUNTS 6. 6. Separation of management from ownership:Separation of management from ownership: Even though the shareholders are true owners, they do not Even though the shareholders are true owners, they do not

participate in the management of the company. They elect their participate in the management of the company. They elect their representatives known as Board of Directors.representatives known as Board of Directors.

7. 7. Transferability of shares:Transferability of shares: The shares of a company are freely transferable subject to The shares of a company are freely transferable subject to

restrictions placed on transfer of private limited company’s restrictions placed on transfer of private limited company’s shares.shares.

8. 8. Separate legal status:Separate legal status: A company has an independent legal status and as such, the A company has an independent legal status and as such, the

shareholders or the owners are not liable for the acts of the shareholders or the owners are not liable for the acts of the company.company.

9. 9. Large membership:Large membership: A company is owned by a large number of members. In the case A company is owned by a large number of members. In the case

of private limited company the minimum number of members is 2 of private limited company the minimum number of members is 2 and the maximum is 50. In the case of public limited company, the 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 minimum number of members is 7 and there is no maximum limit on the number of members.on the number of members.

4343

Types of companiesTypes of companiesOn the basis On the basis of of incorporationincorporation

On the basis On the basis of ownershipof ownership

On the basis On the basis of liabilityof liability

Chartered Chartered companycompany

Private Private companycompany

Co.limited by Co.limited by sharesshares

Statutory Statutory companycompany

Public Public companycompany

Co. Ltd. by Co. Ltd. by guaranteeguarantee

Registered Registered companycompany

Government Government companycompany

Co. with Co. with unlimited unlimited liabilityliability

Foreign Foreign companycompany

Holding Holding companycompany

4444

SHARE CAPITALSHARE CAPITAL

EQUITYEQUITYPREFERENCEPREFERENCE

CUMULATIVECUMULATIVEREDEEMABLEREDEEMABLEPARTICIPATINGPARTICIPATING

4545

SHARE CAPITALSHARE CAPITALAUTHORISED CAPITALAUTHORISED CAPITAL ISSUED CAPITALISSUED CAPITALSUBSCRIBED CAPITALSUBSCRIBED CAPITALCALLED CAPITALCALLED CAPITALPAID UP CAPITALPAID UP CAPITAL

4646

ISSUE OF SHARE AT PARISSUE OF SHARE AT PAR-BANK-BANK- SHARE APPLICATION- SHARE APPLICATION

DebitedDebited--

--creditedcredited

-SHARE APPLICATIONSHARE APPLICATION -SHARE CAPITALSHARE CAPITAL

DebitedDebited--

--CreditedCredited

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

DebitedDebited------

--CreditedCreditedCreditedCreditedCreditedCredited

4747

SHARE ALLOTMENT/SHARE CALLSHARE ALLOTMENT/SHARE CALL

Share allotment Share allotment a/ca/cShare capital a/cShare capital a/c

DebitedDebited--

--CreditedCredited

Bank a/cBank a/c Share allotment a/cShare allotment a/c

DebitedDebited--

--CreditedCredited

Share call a/cShare call a/cShare capital a/cShare capital a/c

DebitedDebited--

--CreditedCredited

Bank a/cBank a/cShare call a/cShare call a/c

DebitedDebited--

--CreditedCredited

Calls in arrears a/cCalls in arrears a/cShare allotment a/cShare allotment a/cShare call a/cShare call a/c

DebitedDebited--

--

--CreditedCredited

CreditedCredited

4848

Issue of shares at premiumIssue of shares at premiumShare application/Share application/allotment a/callotment a/cShare capital A/cShare capital A/cShare premium A/cShare premium A/c

DebitedDebited

----

--

CreditedCreditedCreditedCredited

4949

Issue of shares at discountIssue of shares at discountShare allotment Share allotment A/cA/cDiscount on issue Discount on issue of shares A/cof shares A/cShare capital A/cShare capital A/c

DebitedDebitedDebitedDebited

--

----

CreditedCredited

5050

Forfeiture of sharesForfeiture of sharesShare capital A/cShare capital A/cCall in arrears A/cCall in arrears A/cForfeited shares Forfeited shares A/cA/c

DebitedDebited----

--CreditedCreditedCreditedCredited

5151

Re-issue of sharesRe-issue of sharesBank A/cBank A/cForfeited shares Forfeited shares A/cA/cShare capital A/cShare capital A/cCapital reserve Capital reserve A/cA/c

DebitedDebitedDebitedDebited----

----CreditedCreditedCreditedCredited

5252

Issue of Bonus sharesIssue of Bonus sharesCap. Red. Reserve A/cCap. Red. Reserve A/cShare premium A/cShare premium A/cCapital reserve A/cCapital reserve A/cGen Reserve A/cGen Reserve A/cProfit & Loss A/cProfit & Loss A/cBonus to shareholders Bonus to shareholders A/cA/c

DebitedDebitedDebitedDebitedDebitedDebitedDebitedDebitedDebitedDebited--

----------creditedcredited

Bonus to shareholders Bonus to shareholders A/cA/cEquity share capital A/cEquity share capital A/c

DebitedDebited --creditedcredited

5353

Balance sheet equationBalance sheet equationLIABILITIESLIABILITIES ASSETSASSETSCapitalCapital 300.00300.00 Fixed Fixed

assetsassets700.00700.00

ReservesReserves 200.00200.00 Current Current assetsassets

300.00300.00

Term Term LoansLoans

300.00300.00

Current Current LiabilitiesLiabilities

300.00300.00

TotalTotal 1000.001000.00 TotalTotal 1000.001000.00

5454

Balance Sheet EquationBalance Sheet EquationAssetsAssets == LiabilitiesLiabilities

AssetsAssets == Liabilities Liabilities (+)(+)

CapitalCapital

LiabilitieLiabilitiess

== Assets (-) Assets (-) CapitalCapital

CapitalCapital == Assets (-)Assets (-) LiabilitieLiabilitiess

5555

BALANCE SHEET EQUATIONBALANCE SHEET EQUATION

Assets = LiabilitiesAssets = LiabilitiesAssets = Capital + LiabilitiesAssets = Capital + LiabilitiesAssets =Net worth + LiabilitiesAssets =Net worth + LiabilitiesNet worth = Capital + Reserves& Net worth = Capital + Reserves&

SurplusSurplusNet worth = Assets Less LiabilitiesNet worth = Assets Less Liabilities

5656

1. 1. The Assets of a business are The Assets of a business are Rs.500000 and its capital is Rs.500000 and its capital is Rs.115000. Its liabilities on that Rs.115000. Its liabilities on that date would be------date would be------

a)a) Rs.615000Rs.615000b)b) rs.385000rs.385000c)c) Rs.500000Rs.500000d)d) Rs. 115000Rs. 115000

5757

B/s Equation ExamplesB/s Equation Examples

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

Rs. 1300lRs. 1300l Rs. 500Rs. 500 rs.200rs.200 Rs. NilRs. Nil

(2)(2) Identify the wrong pairIdentify the wrong pair Outstanding expenses - Personal Account account*Outstanding expenses - Personal Account account* Profit and Loss Account (Dr. balance) – Application of Profit and Loss Account (Dr. balance) – Application of

fundsfunds net worth less reserves & surplus - Balance in P & L net worth less reserves & surplus - Balance in P & L

AccountAccount Balance sheet - Financial position Balance sheet - Financial position

5858

Computerized accountingComputerized accountingComputer language: cobol, Computer language: cobol,

foxpro,unix …etcfoxpro,unix …etcAnalog computers : scientific and Analog computers : scientific and

mech. Fieldmech. FieldDigital computers: computerized Digital computers: computerized

accountingaccountingData : factData : factRecord : group of dataRecord : group of dataData file: data recordsData file: data records

5959

EXAMPLESEXAMPLES1.1. Select from the following , a Select from the following , a

statement which speaks about statement which speaks about liabilities of an entity.liabilities of an entity.

The liabilities consist of claims of The liabilities consist of claims of the ownersthe owners

TheThe liabilities consist of claims of liabilities consist of claims of the owners and outsidersthe owners and outsiders

The liabilities consist of claims of The liabilities consist of claims of the outsidersthe outsiders

None of the aboveNone of the above

6060

EXAMPLESEXAMPLES ) Sudhir had the following transactions. Use balance ) Sudhir had the following transactions. Use balance

sheet equations to show their effect on his assets, sheet equations to show their effect on his assets, liabilities and capital.liabilities and capital.

(a)(a) Invested Rs 1,50,000 in cash.Invested Rs 1,50,000 in cash. (b)(b) Purchased securities for cash Rs 10,000Purchased securities for cash Rs 10,000 (c)(c) Purchased a building for Rs 2,00,000, giving Purchased a building for Rs 2,00,000, giving

Rs 50,000 in cash and balance by way of a loan from Rs 50,000 in cash and balance by way of a loan from Canara Bank.Canara Bank.

(d)(d) Sold securities costing Rs 2,000 for Rs Sold securities costing Rs 2,000 for Rs 3,000.3,000.

(e)(e) Paid Salaries of Rs 2,000Paid Salaries of Rs 2,000 (f)(f) Paid interest of Rs 10,000 and paid Rs Paid interest of Rs 10,000 and paid Rs

10,000 towards Canara Bank Loan10,000 towards Canara Bank Loan (g)(g) Received dividend of Rs 1,000 on securitiesReceived dividend of Rs 1,000 on securities

6161

EXAMPLESEXAMPLES Point out whether the following statements are True or Point out whether the following statements are True or

False.False. (a)(a) The balance sheet represents an expansion The balance sheet represents an expansion

of the equations as:of the equations as: Assets = Liabilities + Capital.Assets = Liabilities + Capital. (b)(b) Assets – Original Capital = Liabilities.Assets – Original Capital = Liabilities. (c)(c) Rehman has assets of Rs 10,000 and Rehman has assets of Rs 10,000 and liabilities of Rs 5,000. His capital thereforeliabilities of Rs 5,000. His capital therefore would be Rs 15000.would be Rs 15000. (d)(d) Assets will be equal to Capital if there are no Assets will be equal to Capital if there are no liabilities of the business.liabilities of the business. (e)(e) If a firm borrows a sum of money, its capital If a firm borrows a sum of money, its capital

would bewould be reduced.reduced.

6262

EXAMPLESEXAMPLES

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

Rs. NilRs. Nil Rs. 1100Rs. 1100 Rs.500Rs.500 RRs.600s.600

6363

EXAMPLESEXAMPLES

3.3. Select from the following a sentence Select from the following a sentence which is wrongwhich is wrong

a.a. If assets increase and liabilities do not , the If assets increase and liabilities do not , the capital will increasecapital will increase

b.b. If assets increase and liabilities also increase If assets increase and liabilities also increase by same sum , the capital will remain sameby same sum , the capital will remain same

c.c. AA reduction in the amount of assets will reduction in the amount of assets will amount to equivalent reduction in the net amount to equivalent reduction in the net worth worth

d.d. An increase in the amount of assets with no An increase in the amount of assets with no corresponding increase in liabilities will corresponding increase in liabilities will increase the amount of capitalincrease the amount of capital

6464

EXAMPLESEXAMPLES

4.4. The firm sells goods on credit for The firm sells goods on credit for Rs.50000, the cost of the goods Rs.50000, the cost of the goods sold is Rs.30000.The effect of the sold is Rs.30000.The effect of the transaction is that, the capital of transaction is that, the capital of the firm-----the firm-----

a.a. increases by Rs.50000increases by Rs.50000b.b. reduces by Rs.40000reduces by Rs.40000c.c. increases by Rs. 2000increases by Rs. 200000d.d. reduces by Rs. 20000reduces by Rs. 20000

6565

EXAMPLESEXAMPLES

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

a.a. Rs. 36000Rs. 36000b.b. Rs.70000Rs.70000c.c. Rs.53000Rs.53000d.d. None of the aboveNone of the above

6666

EXAMPLESEXAMPLES

6.6. One of the pairs given below is One of the pairs given below is wrong. Select the wrong pair.wrong. Select the wrong pair.

a.a. OOutstanding expenses - Nominal utstanding expenses - Nominal accountaccount

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

c.c. Net worth less reserves & surplus Net worth less reserves & surplus - Capital - Capital

d.d. Balance sheet - Financial Balance sheet - Financial positionposition

6767

EXAMPLESEXAMPLES

7.7. From the following ,find a sentence From the following ,find a sentence which is false in respect of partnershipwhich is false in respect of partnership

a.a. If the partnership is following the “Fixed Capital If the partnership is following the “Fixed Capital Account Method” salary payable to a partner is Account Method” salary payable to a partner is credited to the partner’s current accountcredited to the partner’s current account

b.b. Drawings made by partners are never entered in Drawings made by partners are never entered in the Profit and Loss Appropriation Account. the Profit and Loss Appropriation Account.

c.c. In the “Fluctuating Capital Account Method” the In the “Fluctuating Capital Account Method” the balance in the capital account always remains the balance in the capital account always remains the samsamee

d.d. The capital account of a partner is required to be The capital account of a partner is required to be opened in both the Fixed Capital Account Method opened in both the Fixed Capital Account Method and Fluctuating Capital Account Methodand Fluctuating Capital Account Method

6868

EXAMPLESEXAMPLES

8.8. From the account given below, From the account given below, select the account which is select the account which is wrongly included in Profit & wrongly included in Profit & Loss Appropriation Account at Loss Appropriation Account at the debit side the debit side

a.a. Drawings AccountDrawings Accountb.b. Partners Salary AccountPartners Salary Accountc.c. Interest on Interest on LLoan Accountoan Accountd.d. Commission to Partners AccountCommission to Partners Account

6969

EXAMPLESEXAMPLES

10.10. A and B are two partners in a firm A and B are two partners in a firm sharing profits and losses as 2:1. sharing profits and losses as 2:1. they admitted C as a partner with they admitted C as a partner with 25% share in the profits of the 25% share in the profits of the firm. Hence , the new profit firm. Hence , the new profit sharing ratio , after admission of sharing ratio , after admission of C would be -----C would be -----

a.a. 15:15:1015:15:10b.b. 2020:10:10:10:10c.c. 3:1:13:1:1d.d. None of the aboveNone of the above

7070

EXAMPLESEXAMPLES

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

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

b.b. Debit cash and credit S’s Capital for Debit cash and credit S’s Capital for Rs.3,00,000Rs.3,00,000

c.c. DebitDebit Goodwill for Rs.1,00,000 and credit Q’s Goodwill for Rs.1,00,000 and credit Q’s Capital by Rs. 60000 & R’s Capital by Rs. Capital by Rs. 60000 & R’s Capital by Rs. 40,00040,000

d.d. Debit Stock and credit Profit & Loss Debit Stock and credit Profit & Loss Adjustment A/c by Rs.9,000Adjustment A/c by Rs.9,000

7171

EXAMPLESEXAMPLES

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

a.a. Stock is revalued upwardly by Rs. 25000Stock is revalued upwardly by Rs. 25000b.b. Creditors Creditors are revised upwardly by Rs.8000are revised upwardly by Rs.8000c.c. Premises are revised upwardly by Rs.52000Premises are revised upwardly by Rs.52000d.d. A provision on debtors of Rs. 15,000 is made for doubtful A provision on debtors of Rs. 15,000 is made for doubtful

debtsdebts

7272

EXAMPLESEXAMPLES

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

a.a. For increase in the value of assets-Debit Asset For increase in the value of assets-Debit Asset Account and Credit Revaluation Account.Account and Credit Revaluation Account.

b.b. For decrease in the value of liabilities- Debit For decrease in the value of liabilities- Debit Liabilities Account and Credit Revaluation Liabilities Account and Credit Revaluation Account.Account.

c.c. For For Profit on revaluation of assets and liabilities Profit on revaluation of assets and liabilities – Debit Old Partners Capital Account in old profit– Debit Old Partners Capital Account in old profit sharing ratio and Credit Revaluation Accountsharing ratio and Credit Revaluation Account

d.d. For decrease in the value of assets -Debit For decrease in the value of assets -Debit Revaluation Account and Credit Asset AccountRevaluation Account and Credit Asset Account

7373

EXAMPLESEXAMPLES

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

a.a. Stock is revalued upwardly by Rs. 25000Stock is revalued upwardly by Rs. 25000b.b. Creditors Creditors are revised upwardly by Rs.8000are revised upwardly by Rs.8000c.c. Premises are revised upwardly by Rs.52000Premises are revised upwardly by Rs.52000d.d. A provision on debtors of Rs. 15,000 is made for A provision on debtors of Rs. 15,000 is made for

doubtful debtsdoubtful debts

7474

EXAMPLESEXAMPLES

15.15. Select the incorrect statement in Select the incorrect statement in respect of companies.respect of companies.

a.a. A member of a company can enter into contract with A member of a company can enter into contract with a companya company

b.b. It is compulsory to register a joint stock companyIt is compulsory to register a joint stock companyc.c. If allIf all but one member of a private company becomes but one member of a private company becomes

insolvent ,it affects the existenceinsolvent ,it affects the existence of the organisationof the organisationd.d. Shareholders are not liable for the acts of the Shareholders are not liable for the acts of the

companycompany

16.16. Select the incorrect statementSelect the incorrect statementa.a. Authorized capital is the capital with which the Authorized capital is the capital with which the

company is registeredcompany is registeredb.b. Issued capital is equal to its authorized capitalIssued capital is equal to its authorized capitalc.c. AuthorizedAuthorized capital, issued capital, subscribed capital, capital, issued capital, subscribed capital,

called up capital and paid up capital cannot be same called up capital and paid up capital cannot be same d.d. The amount which the company has asked its The amount which the company has asked its

shareholders to pay is called up capital of the shareholders to pay is called up capital of the company.company.

7575

EXAMPLESEXAMPLES

17.17. Following are the journal during Following are the journal during the process of application to the process of application to allotment stage . One of the allotment stage . One of the entries is wrong. Select the entries is wrong. Select the wrong entry.wrong entry.

a.a. Debit bank account and credit share application Debit bank account and credit share application account ( when application money is received)account ( when application money is received)

b.b. Debit share application account and credit Debit share application account and credit share capital account (application transferred share capital account (application transferred to share capital account)to share capital account)

c.c. DebitDebit share capital and credit share allotment share capital and credit share allotment account ( for recording allotment money being account ( for recording allotment money being fallen due )fallen due )

d.d. Debit bank account and credit share allotment Debit bank account and credit share allotment account ( for receipt of allotment money)account ( for receipt of allotment money)

7676

EXAMPLESEXAMPLES

18.18.Select the incorrect Select the incorrect statement in respect of calls statement in respect of calls in advancein advance

a.a. The company may accept from The company may accept from shareholders , the uncalled amount shareholders , the uncalled amount on shares even before it is fallen dueon shares even before it is fallen due

b.b. The article of association must The article of association must permit such acceptance of advance permit such acceptance of advance call moneycall money

c.c. Interest on calls in advance can be Interest on calls in advance can be paid but the maximum is upto 6%paid but the maximum is upto 6%

d.d. TheThe amount of calls in advance is amount of calls in advance is part of the paid up share capitalpart of the paid up share capital

7777

EXAMPLESEXAMPLES

19.19. Select the incorrect statement in respect Select the incorrect statement in respect of utilization of share premiumof utilization of share premium

a.a. it is used for the purpose of buy back of sharesit is used for the purpose of buy back of sharesb.b. itit used for payment of dividend in case of used for payment of dividend in case of

inadequacy of profitsinadequacy of profitsc.c. it is used for writing off preliminary expensesit is used for writing off preliminary expensesd.d. it is used for issue of fully paid bonus sharesit is used for issue of fully paid bonus shares

20.20. Mr. X was issued 100 shares of Rs.10 each. He Mr. X was issued 100 shares of Rs.10 each. He failed to pay call money of Rs. 5 per share. The failed to pay call money of Rs. 5 per share. The shares were forfeited and re-issued to Mr. Y at shares were forfeited and re-issued to Mr. Y at Rs.9. When the entry recording the re-issue of Rs.9. When the entry recording the re-issue of shares was passed in all, four accounts were shares was passed in all, four accounts were affected. The debit and credit effect of these affected. The debit and credit effect of these four accounts is given below. One of the four accounts is given below. One of the accounts is given wrong effect. Select that accounts is given wrong effect. Select that account from the following.account from the following.

a.a. Debit bank account by Rs.900Debit bank account by Rs.900b.b. Debit forfeited shares by Rs.500Debit forfeited shares by Rs.500c.c. Credit share capital by Rs.1000Credit share capital by Rs.1000d.d. CreditCredit forfeited shares by Rs.400 forfeited shares by Rs.400

7878

EXAMPLESEXAMPLES

21.21. DT Ltd. issued shares of Rs.10 each at 10 % DT Ltd. issued shares of Rs.10 each at 10 % premium, payable on application Rs.2, on premium, payable on application Rs.2, on allotment Rs.3 (including premium), on first allotment Rs.3 (including premium), on first call Rs.2 and on final call Rs.4. One of the call Rs.2 and on final call Rs.4. One of the shareholders, applied for 100 shares but fail shareholders, applied for 100 shares but fail to pay allotment and first call money. At this to pay allotment and first call money. At this stage, the said shares were forfeited. Select stage, the said shares were forfeited. Select the account which was wrongly credited.the account which was wrongly credited.

a.a. Credit Forfeited shares Account by Rs.200Credit Forfeited shares Account by Rs.200b.b. Credit Share allotment Account by Rs.200Credit Share allotment Account by Rs.200c.c. CreditCredit share premium Account by Rs.100 share premium Account by Rs.100 Credit Share first call Account by Rs.200Credit Share first call Account by Rs.200

22.22. Select the source which is not valid for issue of Select the source which is not valid for issue of bonus sharesbonus shares

a.a. Share premium Share premium b.b. RevaluationRevaluation reserve created by revaluation of fixed assets reserve created by revaluation of fixed assetsc.c. Capital reserve Capital reserve d.d. Capital redemption reserveCapital redemption reserve

7979

EXAMPLESEXAMPLES

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

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

b.b. Share Premium Account (Rs. Nil Lakh), Capital Reserve Share Premium Account (Rs. Nil Lakh), Capital Reserve Account ( Rs. Nil Lakh), General Reserve Account (10 Account ( Rs. Nil Lakh), General Reserve Account (10 Lakh) & Profit & Loss Account by Rs. 15 LakhLakh) & Profit & Loss Account by Rs. 15 Lakh

c.c. ShareShare Premium Account (Rs.5 Lakh), Capital Reserve Premium Account (Rs.5 Lakh), Capital Reserve Account ( Rs. 3 Lakh), General Reserve Account (15 Lakh) Account ( Rs. 3 Lakh), General Reserve Account (15 Lakh) & Profit & Loss Account by Rs. 2 Lakh& Profit & Loss Account by Rs. 2 Lakh

d.d. Share Premium Account (Rs.5 Lakh), Capital Reserve Account Share Premium Account (Rs.5 Lakh), Capital Reserve Account ( Rs. 1 Lakh), General Reserve Account (4 Lakh) & Profit & Loss ( Rs. 1 Lakh), General Reserve Account (4 Lakh) & Profit & Loss Account by Rs. 15 LakhAccount by Rs. 15 Lakh

8080

EXAMPLESEXAMPLES

24.24. Select the incorrect statement in case of Select the incorrect statement in case of Share Capital and Reserves and Surplus as Share Capital and Reserves and Surplus as shown in the balance sheet.shown in the balance sheet.

a.a. Under share capital, the following order is maintained: Under share capital, the following order is maintained: Authorised capital, issued capital, subscribed capitalAuthorised capital, issued capital, subscribed capital

b.b. The called up amount per share is indicated and in the The called up amount per share is indicated and in the amount column total amount i.e. number of shares amount column total amount i.e. number of shares multiplied by amount called up per share is shownmultiplied by amount called up per share is shown

c.c. The amount of unpaid calls is deducted from (b) aboveThe amount of unpaid calls is deducted from (b) aboved.d. TheThe amount of forfeited shares account is shown under amount of forfeited shares account is shown under

Reserves & surplusReserves & surplus25.25. Select the incorrect statement in respect of Select the incorrect statement in respect of

form of balance sheet of companies(Liabilities form of balance sheet of companies(Liabilities side).side).

a.a. sinkingsinking fund is shown under unsecured loans fund is shown under unsecured loansb.b. Loans from banks are grouped under the head Secured LoansLoans from banks are grouped under the head Secured Loansc.c. Unclaimed Dividend is grouped under the head current Unclaimed Dividend is grouped under the head current

liabilitiesliabilitiesd.d. Proposed dividend is grouped under provisions.Proposed dividend is grouped under provisions.

8181

EXAMPLESEXAMPLES

26.26. Select the incorrect statement in Select the incorrect statement in respect of form of balance sheet of respect of form of balance sheet of companies ( Asset side).companies ( Asset side).

a.a. Live StockLive Stock is grouped under the head is grouped under the head ‘current Asset’‘current Asset’

b.b. Balance of unutilized monies raised by Balance of unutilized monies raised by issue is grouped under the head issue is grouped under the head ‘Investments’‘Investments’

c.c. Interest paid out of capital during Interest paid out of capital during construction is grouped under the head construction is grouped under the head ‘Miscellaneous Expenditure’‘Miscellaneous Expenditure’

d.d. Vehicles are grouped under the head Vehicles are grouped under the head ‘Fixed Asset’‘Fixed Asset’

8282

EXAMPLESEXAMPLES

27.27. One of the accounts is wrongly debited to One of the accounts is wrongly debited to “Profit and Loss Appropriation A/c” of a “Profit and Loss Appropriation A/c” of a company. Name the wrong account debitedcompany. Name the wrong account debited

a.a. Interim dividendInterim dividendb.b. Proposed dividendProposed dividendc.c. ProvisionProvision for tax for taxd.d. Capital redemption reserveCapital redemption reserve

28.28. Select the false statement in respect of Select the false statement in respect of assetsassets

a.a. a banking company is allowed to acquire assets for its a banking company is allowed to acquire assets for its own useown use

b.b. a banking company is allowed to grant loans against a banking company is allowed to grant loans against the security of assets belonging to its customersthe security of assets belonging to its customers

c.c. a banking company is allowed to take possession of a banking company is allowed to take possession of such assets in case of default committed by the such assets in case of default committed by the borrowerborrower

d.d. aa bankingbanking company is not allowed to sale the assets company is not allowed to sale the assets against the security of which it has granted loansagainst the security of which it has granted loans

8383

EXAMPLESEXAMPLES

29.29. THE FINANCIAL STATEMENT OF BANK CONSISTS OF ------- THE FINANCIAL STATEMENT OF BANK CONSISTS OF ------- SCHEDULESSCHEDULES

a.a. 1818 SCHEDULES SCHEDULESb.b. 16 SCHEDULES16 SCHEDULESc.c. 17 SCHEDULES17 SCHEDULESd.d. 12 SCHEDULES12 SCHEDULES

30.30. INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER ASSETS INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER ASSETS ARE PART OF SCHEDULE NOS.--RESPECTIVELYARE PART OF SCHEDULE NOS.--RESPECTIVELY

a.a. 6,7,8,96,7,8,9b.b. 7,8,9,107,8,9,10c.c. 88,,99,10,11,10,11d.d. 9,10,11,129,10,11,12

31.31. LIABILITY FOR PARTIALLY PAID INVESTMENTS IN RESPECT OF LIABILITY FOR PARTIALLY PAID INVESTMENTS IN RESPECT OF BANKING COMPANIES IS GROUPED UNDER THE HEAD-----BANKING COMPANIES IS GROUPED UNDER THE HEAD-----

a.a. INVESTMENTSINVESTMENTSb.b. OTHER ASSETSOTHER ASSETSc.c. OTHER LIABILITIES AND PROVISIONSOTHER LIABILITIES AND PROVISIONSd.d. CONTINGENTCONTINGENT LIABILITIES LIABILITIES

8484

EXAMPLESEXAMPLES

32.32. One of the items is a misfit in a group One of the items is a misfit in a group namely ‘other income’ of a banking namely ‘other income’ of a banking company. Select this item from the company. Select this item from the following following

a.a. INCOMEINCOME ON INVESTMENTS ON INVESTMENTSb.b. PROFIT ON SALE OF INVESTMENTSPROFIT ON SALE OF INVESTMENTSc.c. PROFIT ON REVALUATION OF INVESTMENTSPROFIT ON REVALUATION OF INVESTMENTSd.d. PROFIT ON EXCHANGE TRANSACTIONS PROFIT ON EXCHANGE TRANSACTIONS

33.33. Depreciation on bank’s property is part of Depreciation on bank’s property is part of “Operating Expenses”. Some of the items “Operating Expenses”. Some of the items included under this category are listed below. included under this category are listed below. One of the expenses is wrongly included. One of the expenses is wrongly included. Identify that item of expense.Identify that item of expense.

a.a. depreciation on motor carsdepreciation on motor carsb.b. depreciationdepreciation on stationary and stamps on stationary and stampsc.c. depreciation on furnituredepreciation on furnitured.d. depreciation on non-banking assetsdepreciation on non-banking assets

8585

EXAMPLESEXAMPLES

34.34. The provisional requirement for The provisional requirement for standard asset is-----standard asset is-----

a.a. 0.0.4040%(revised) of total outstanding%(revised) of total outstandingb.b. 10%(revised) of total outstanding10%(revised) of total outstandingc.c. 40%(revised) of total outstanding40%(revised) of total outstandingd.d. 100%(revised) of total outstanding100%(revised) of total outstanding

35.35. The investment under “held to The investment under “held to maturity” should not exceed -----of maturity” should not exceed -----of bank’s total investment. bank’s total investment.

a.a. 25%25%b.b. 75%75%c.c. 5%5%d.d. None of the aboveNone of the above

8686

EXAMPLESEXAMPLES

36.36. Acceptances, endorsements and Acceptances, endorsements and guarantees are shown as-----guarantees are shown as-----

a.a. other assetsother assetsb.b. contingentcontingent liabilities liabilitiesc.c. advancesadvancesd.d. other liabilities and provisionsother liabilities and provisions

37.37. Choose the wrong pair from the Choose the wrong pair from the following. The information given in the following. The information given in the pair is pertaining to banking companiespair is pertaining to banking companies

a.a. Reserves & surplus - Share premiumReserves & surplus - Share premiumb.b. TimeTime deposits - Matured time deposits deposits - Matured time depositsc.c. Borrowings in India - Refinance from NABARDBorrowings in India - Refinance from NABARDd.d. Other Liabilities & Provisions - Inter office/branch Other Liabilities & Provisions - Inter office/branch

adjustments(netadjustments(net

8787

EXAMPLESEXAMPLES

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

a.a. Closing balance of provisions held towards NPA -Closing balance of provisions held towards NPA - Opening Opening Balance plus provisions made during the year less write off Balance plus provisions made during the year less write off of bad debts/write back of excess provisionsof bad debts/write back of excess provisions

b.b. InterestInterest Earned - interest on advances plus income on Earned - interest on advances plus income on investments plus interest on deposit with RBI plus income investments plus interest on deposit with RBI plus income earned by way of dividends from subsidiaries plus discount earned by way of dividends from subsidiaries plus discount on bills less unexpired discounton bills less unexpired discount

c.c. Reserves & surplus - Opening balance plus additions Reserves & surplus - Opening balance plus additions during the year less deductions during the yearduring the year less deductions during the year

d.d. Term deposits - from banks and from OthersTerm deposits - from banks and from Others39.39. Identify a pair which is mismatch from the Identify a pair which is mismatch from the

following pairs in respect of Company Accountsfollowing pairs in respect of Company Accounts Miscellaneous Expenditure – Preliminary ExpensesMiscellaneous Expenditure – Preliminary Expenses Contingent Liabilities – footnote to balance sheetContingent Liabilities – footnote to balance sheet DebenturesDebentures – Unsecured Loans – Unsecured Loans Outstanding Expenses – Current LiabilitiesOutstanding Expenses – Current Liabilities

8888

EXAMPLESEXAMPLES

40.40. Identify a pair which is mismatch Identify a pair which is mismatch from the following pairs infrom the following pairs in respect respect of Company Accountsof Company Accounts

a.a. Miscellaneous Expenditure – Miscellaneous Expenditure – Preliminary ExpensesPreliminary Expenses

b.b. Contingent Liabilities – footnote to Contingent Liabilities – footnote to balance sheetbalance sheet

c.c. DebenturesDebentures – Unsecured Loans – Unsecured Loansd.d. Outstanding Expenses – Current Outstanding Expenses – Current

LiabilitiesLiabilities

8989

EXAMPLESEXAMPLES

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

a.a. DebitDebit Dividend by Rs.25000 & Credit Bank by Rs.25000 Dividend by Rs.25000 & Credit Bank by Rs.25000 b.b. Prepaid Insurance by Rs.2000 & Insurance by Rs.2000 Prepaid Insurance by Rs.2000 & Insurance by Rs.2000 c.c. Debit Profit & Loss Account by Rs.25,000 & Credit Provision Debit Profit & Loss Account by Rs.25,000 & Credit Provision

for Tax by Rs.25,000for Tax by Rs.25,000d.d. Debit Profit & Loss by Rs.5,000 & Credit Provision for Debit Profit & Loss by Rs.5,000 & Credit Provision for

doubtful debts by Rs.5,000doubtful debts by Rs.5,000

9090

EXAMPLESEXAMPLES

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

a.a. DebitDebit side of partner’s current account side of partner’s current accountb.b. Credit side of partner’s capital accountCredit side of partner’s capital accountc.c. Debit side of partner’s current accountDebit side of partner’s current accountd.d. Credit side of partner’s current accountCredit side of partner’s current account

9191

ExampleExample43.43. L,K and P are partners. The following differences as listed L,K and P are partners. The following differences as listed

at (i) to (iv) have arisen due to misunderstanding. The at (i) to (iv) have arisen due to misunderstanding. The answer to each point is given at (a) to (d). One of the answer to each point is given at (a) to (d). One of the solutions is incorrect. Identify the wrong solution. (i) L solutions is incorrect. Identify the wrong solution. (i) L used Rs.25,000 belonging to the firm and made a profit of 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 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 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 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) 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 L has given loan of Rs. 50,000 to the firm, he wants interest at 6% ( there is no partnership deed)interest at 6% ( there is no partnership deed)

a.a. K is right .L must pay Rs.29,000 to the firmK is right .L must pay Rs.29,000 to the firmb.b. PP isis rightright . Firm should bear profit as well as losses. . Firm should bear profit as well as losses.c.c. P is right. No new partner can be admitted without P is right. No new partner can be admitted without

the consent of all. the consent of all. d.d. L is right. He is entitled for interest at 6% in the L is right. He is entitled for interest at 6% in the

absence of partnership agreement.absence of partnership agreement.

9292

ExampleExample43.43. A firm earns Rs.10,000 as its normal A firm earns Rs.10,000 as its normal

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

a.a. RsRs..5252,000,000b.b. Rs.1,00,000Rs.1,00,000c.c. Rs.28,000Rs.28,000d.d. NilNil

9393

ExampleExample44.44. If the adjustment in the values of If the adjustment in the values of

assets at the time of the admission of a assets at the time of the admission of a partner shows a profit, it should be partner shows a profit, it should be credited to the capital accounts of-----credited to the capital accounts of-----

a.a. The old partners in their new profit-sharing ratioThe old partners in their new profit-sharing ratiob.b. All partners in their new profit sharing ratioAll partners in their new profit sharing ratioc.c. TheThe old partners in their old profit sharing ratio old partners in their old profit sharing ratiod.d. None of the aboveNone of the above

9494

ExampleExample45.45. Choose the correct treatment for premium Choose the correct treatment for premium

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

a.a. PremiumPremium amount is debited to P & L account amount is debited to P & L account every year and when claim becomes due then to every year and when claim becomes due then to be shared by all partnersbe shared by all partners

b.b. Every year amount debited to Joint Life Policy Every year amount debited to Joint Life Policy Account and balance is shown on asset side at Account and balance is shown on asset side at surrender value . The difference between surrender value . The difference between surrender value and premium paid is written off surrender value and premium paid is written off to Profit and Loss accountto Profit and Loss account

c.c. Joint Life Policy and Joint Life reserve Account are Joint Life Policy and Joint Life reserve Account are adjusted to bring them down to surrender value adjusted to bring them down to surrender value of policy.of policy.

d.d. None of the above.None of the above.