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101.

X and YAre Partners sharingprofits andlossesin theof 7:3theirCapitalAccountsas at1stApril , 2018stood at X-Rs. 5.00.000 , Y - Rs. 4.00.000partnres are allowedinterestoncapital@5% p.aDrawingof thepartnersduringthe yearended31st MArch , 019 werers. 72,000 ad Rs. 50,000 respectively prfot for theyearbefore allowingintereston capitalandsalary to Y @ Rs. 5.000 per monthswas Rs. 8.00.000 10%of thene profitisto be setaside asGeneral Reserve. passthe journalenterisforappropricarionprepare profitand lossApproproationAccountforthe yearended 31st March, 2019 andcapitalandCurrentaccounts of thepartners .

Answer»

SOLUTION :



WorkingNote :
RS. 8.00.000(PROFIT )-Rs. 80.000 (GENERAL Reserve )-Rs. 60.000 (y'ssalary ) -Rs, 25.000(intereston X's capital)-Rs. 20.000(intereston Y'scapital )=6.15.000
Discussion
102.

X andYare partners sharingprofit and losses in theratio of 2: 3withcapitalsof Rs. 2,00,000 and Rs. 1,00,000 respectively passthenecessary Journal enteryor enteriesfor thedistributaion ofprofits / loss for theyear for theyear31stMarch , 2019 in each of theof thealternative cases : caseIfPArtnership Deed is silentas to theintereston capitaland theprofitfor theyear is Rs. 20,000. Case 2.if partnership Deed provides for intereston capital@ 6%p.aandlossfor theyearis Rs. 15,000. Case 3.if partnership Deed provides for interestforintereston capital@ 6% p.a and theprofitfor thetheyear is Rs. 21,000 . Case 4.if partnershipDeedprovides for interestforintereston capital @ 6% p.aas acharge onon profitandtheprofitfor theyear is Rs. 20,000. Case 5.if partnership Deedprovidesfor intereston capital @ 6%p.aas a chargeon profit andth profitfor theyear is Rs. 2,000 Case 6.ifpartners Deedprovides forinterest o capital@ 6%p.aas achargeon profitandth profitfor theyear is Rs. 18.000.

Answer»

Solution :

NOTE : profitand LOSSAPPROPRIATIONACCOUNT willnot bepreparedbecauseinterest on capital iscahrge onprofit and hancedebiteed toprofitand LOSSACCOUNT after allowingintereston capital , itresults INNEITHER PROFIT nor loss.
Discussion
103.

X andY arepartners in a frimsharingprofits in the ratio of 3:2. With effect from1st April, 2019, they agreed to share profits equally. For this purpose, goodwillof thefirmis valued at ₹75,000.You are required to fillup the following Journal entry:

Answer»

SOLUTION :
WORKING Note :
Calculationof Sacrifices/(Gain) of Parnters,
`{:(,,"X","Y"),(("i"), "Their Old Shares",3//5,2//5),(("ii"),"Their NEW Shares", 1//2,1//2),(("iii"),"Sacrifice /(Gain) (i)-(ii)",3//5-1//2= 1//10,,2//5-1//2=-1//10),(,,"Sacrifice","(Gain)"):}`
Thus X, Sacrifices `1//10th` share and Y gain `1//10th` share in profits.
Discussion
104.

X and Yarepartnerssharingprofits and Lossesin theratio7:3theircapitalAccountsAs at1stApril2018 Stood AtX -Rs.5.00.000 ,Y - Rs. 4,00,000 Pertners areallowedintereston capitals@5%p.aDrawing of X and YDuringendedallowed 31 stMarch,2019wereRs. 72,000andRs, 50.000Respectively.Profit for theyearbeforeallowinginterest on capital andSalary to Y @ Rs. 5,000Per month amountedTo Rs. 8,00,000. 10 %of thedivisbleprofitisto be setasideas General Reserve .

Answer»

SOLUTION :
AMOUNTTRANSFERRED to GENERALRESERVE =10%ofDivisibleprofit
=10%Of6,95,000i.e., RS. 8,00,000 -Rs. 25,000 -Rs.20,000-Rs. 60.000)
=Rs. 69,500.,
Discussion
105.

X and Y arepartnersin a firmX isentitedto a salaryof Rs.10,000per month andcommissionof the10%of the netprofitpartners 'salariesbutbeforebutbeforecharingcommissionY isentitedto a salaryofRs. 25,000p.aandcommissionof 10%of thenet profitafter charging all commissionandpartnerssalariesnetprofitbeforeproviding for partnerssalariesand commissionfor theyearended31st March,2019wasRS. 4,20,000showdistributionfo profit .

Answer»


SOLUTION :Y's commission `=10//110 ` of2,47,5000 (i.e.,Rs. 4,20,000 and Rs, 80,000 interestis chargeable@6%p.a on thedrawings whatis THEAMOUNT of drawing for a periodof 6MONTHS .
Discussion
106.

X and Y are partnersin a firm . Their capital accounts show credit balance of Rs. 1,80,000 and Rs. 1, 20, 000 respectively, A new partner Z is admitted with 1//5th share in profits . He bring Rs. 1,40,000 for his capital. Value ofhidden goodwill at the time of Z's admission will be

Answer»

RS. 2,60,000.
Rs. 2,50,000.
Rs. 2,00,000.
None of these.

Answer :a
Discussion
107.

X and Y are partners in a firm sharing profits in the ratio of 5 : 3. On March 1, 2017 they admitted Z as a new partner. Thenew profit sharing ratio will be 4 : 3 : 2. Z brought in Rs. 1,00,000 in cash as his share of capital but could not bring any amount forgoodwill in cash. The firm's goodwill on Z's admission was valued at Rs. 1,80,000. Atthe time of Z's admission goodwill existed in the booksof thefirm at Rs. 2,40,000. You are required to pass necessary journal entries in the booksof the firm on Z's admission.

Answer»

Solution :(a) When Goodwill is adjusted through new PARTNER's Current ACCOUNT :

Working NOTE : Calculation of Sacrificing Ratio :
Old Ratio - New Ratio
X's Sacrifice= ` 5/8 - 4/9 = (45-32)/72 = 13/72`
Y's Sacrifice = ` 3/8 - 3/9 = (27-24)/72 = 3/72`
Thus , Sacrificing ratio between X andY = 13 : 3
ALTERNATE SOLUTION :ltBRgt (b) When Goodwill is raised and written off :
Discussion
108.

X and Y are partners in a firmsharing profits in the ratio of 3:2 .Theydecide to share future profits equally. On thedate of changein theprofit-sharing ratio,Profitand Loss Accountshowed a debit balance of ₹50,000.Pass Journal entry fordistribution of balance in Profitand Loss Accountimmediatelybefore change in theprofit-sharing ratio.

Answer»

SOLUTION :
Discussion
109.

X and Y are partners in a firm sharing profits and losses in the ratio of 3: 2. With effect from 1st April ,2019they decided to share future profitequally. On the date of change in theprofits- sharingratio-sharing ratio, theProfit and Loss Account showed a creditbalanceof ₹1,50,000. Record the necessary Journalentry for thedistributionof the balance in theProfitand Loss Accountinthe Profit and Loss Accountimmediately before the changein the profit-sharing ratio.

Answer»


Answer :Dr PROFIT and Loss A/c - ₹1,50,000;CR. X 's CapitalA/c - ₹ 90,000 and Y's CapitalA/c - ₹60,000
Discussion
110.

X and Y are equal partners in a firm. Their capital accounts show credit balances of Rs 1,80,000 and Rs 1,20,000 respectively, A new partner Z is admitted with 1/5th share in profits. He brings Rs 1,40,000 for his capital, Value of hidden goodwill at the time of Z's admission will be

Answer»

RS 2,60,000
Rs 2,50,000
Rs 2,00,000
None of these

Answer :A
Discussion
111.

Working Capital Turnover Ratio of the firm is 0.94 against industry standard of 2. Do you think the firm is performing better in this area as compared to industry?

Answer»

Solution :No. The FIRM's performance in the area is not up to the MARK. It shows that Working Capital is not used efficiently. It is also INDICATED by high CURRENT Ratio.
Discussion
112.

Working Capital is the :

Answer»

Cash and Bank Balance
Capital BORROWED from the BANKS
Difference between Current ASSETS and Current LIABILITIES
Difference between Current Assets and FIXED Assets

Answer :C
Discussion
113.

Working Capital is Rs.7,20,000, Trade payables Rs.40,000, Other Current Liabilities Rs.2,00,000, CalculateCurrent Ratio.

Answer»

`3 :1`
` 4:1`
`5 :1`
`7:1`

SOLUTION :` 4:1`
Discussion
114.

Working Capital is Rs 7,20,000, Trade Payables Rs 40,000, other Current Liabilities Rs 2,00,000, Calculate Current Ratio

Answer»

`3 : 1`
`4 : 1`
`5 : 1`
`7 : 1`

Answer :B
Discussion
115.

William Pens Ltd. Issued 10,000, 7% Debentures of Rs 100 each at a discount of Rs 4. It has a balance in Securities Premium Reserve of Rs 25,000. it will wirte off Discount on Issue of Debentures

Answer»

Rs 40,000 from Securities PREMIUM RESERVE
Rs 40,000 from STATEMENT of PROFIT and Loss
Rs 25,000 from Securities Premium Reserve and Rs 15,000 from Statement of Profit and Loss (Finance Cost)
Rs 15,000 from Securities Premium Reserve and Rs 25,000 from Statement of Profit and Loss (Finance Cost)

Answer :C
Discussion
116.

With the help of the following information, calculate Return on Investment: Net profit after interest and tax Rs. 8,00,000,10% DebenturesRs. 9,00,000, Tax @ 50%, Capital Employed Rs. 2,00,000.

Answer»

SOLUTION :RETURN on INVESTMENT = 8.45%.
Discussion
117.

William Pens Ltd . Issued 10,000,7% Debentures of Rs.100 each at a discount of Rs.4. it has a balance in Securities Premium Reserve of Rs.25, 000. It Will write off Discount on Issue of Debentures

Answer»

Rs.40,000 from Securities Premium Reserve
Rs.40,000 from Statement of PROFIT and LOSS
Rs. 25,000 from Securities Premium Reserve and Rs. 15,000from Statement of Profit and Loss (Finance COST)
Rs.15,000 from Securities Premium Reserve and Rs.25,000 from Statement of Profit and Loss (Finance Cost)

Answer :C
Discussion
118.

Why would an investor prefer to invest partly in Shares and partly in Debentures of a Company?

Answer»

Solution :Shares provied higher return than debentures but Debentures PROVIDE a fixed return EVEN in case of LOSS. So by investing in both an investor gets higher return with LOWER risk.
Discussion
119.

Why would an investor prefer to invest in the shares of a company rather than in the Debentures ?

Answer»

SOLUTION :[Hint: Because shares give voting right/right to take ACTIVE PART in menagement and also better chances of EARNING higher income.]
Discussion
120.

Why would an investor prefer to inverst in share and partly in the debentures of a company ?

Answer»

SOLUTION :[HINT: To have STEADY INCOME with HIGHER reture.]
Discussion
121.

Why Vertical Analysis is also known as Static Analysis?

Answer»

Solution :Vertical ANALYSIS is the STUDY of quantitative relationship existing among the ITEMS of a single set of Finanical STATEMENTS at a particlular data. This justifies the CONVENTION that Vertical Analysis is a StaticAnalysis.
Discussion
122.

Why should a new partner contribute towards goodwill on his admission?

Answer»

Solution :When a partner is admitted in the firm, he geta FOLLOWING TWO rights,
(i) Right to share FUTURE profits of the firm, and
(ii) Right to share in the assets of the firm.
Discussion
123.

Why should a new partner contirbute towards goodwill on his admission?

Answer»

Solution :Since, a new partner gets his SHARE of profit from old partners, so he must compensate the old (SACRIFICING) partnres for the share SACRIFICED by them. The amount of compensation GIVEN by the new partner is know as goodwill.
Discussion
124.

Why receipts irrespective of their natureand the period to which they relate are , shown in Receipts and Payments Accounts ?

Answer»


SOLUTION :RECEIPTS and Payments ACCOUNT is a summary of cash and bank transactions of a Not-for-Profit organisation. Sincethe amount received or paid during the accounting period of EVERY nature and whether RELATION to current accounting period or not are recorded in Cash Book, all receipts and payments are shown in the Receipts and Payments Account.
Discussion
125.

Why Losse Tools and Stores and Spares are not included in Current Assets while calculating Current Ratio?

Answer»

Solution :Loose TOOLS and STORES and Spares are not included because they are not HELD for conversion into CASH.
Discussion
126.

Why liquidity ratiois considered to be more dependable than current ratio? Explain.

Answer»
Discussion
127.

Why is the General Reserve distiributed among the old partners before new partner is admitted?

Answer»

Solution :General Reserve REPRESENTS ACCUMULATED profits relating to the periof prior to the ADMISSION of a new partner. It belongs to old partners and, THEREFORE, is DISTRIBUTED among old partners.
Discussion
128.

Why is specific disclosure of Cash Flow from Financing Activities important while preparing Cash Flow Statement?

Answer»

Solution :It is important because the amount of Cash Flow from Financing ACTIVITIES is useful in assessing CLAIMS on FUTURE Cash Flows by the contributors of funds to the ENTERPRISE.
Discussion
129.

Why is separate disclosure of Cash Flow from Investing Activities important while preparing Cash Flow Statement?

Answer»

SOLUTION :It is IMPORTANT because it SHOWS the investment made to generate INCOME and Cash Flows in future.
Discussion
130.

Why is self-generated goodwill not recorded in the books of account?

Answer»

Solution :Self-generated goodwill is not accounted in the books of acccount because CONSIDERATION in money or money's worth is not paid for it. ACCORDING to AS-26, INTANGIBLE ASSETS only Purchased Goodwill should be accounted in the books of ACCOUNT.
Discussion
131.

Why is Journal called a Book of Prime Entry?

Answer»

Solution : A JOURNAL is called a Book of PRIME ENTRY (ALSO called Book of Original Entry) because all business TRANSACTIONS are enteredfirst in this book
Discussion
132.

Why is it necessary to revalue the assets and liabilities of a firm on its reconstituation? Explain briefly.

Answer»

SOLUTION :At the time of reconstitusion of the firm, assets and liabilities of the firm are revalued. The net gain (or loss) DUE to revaluation of assets and liabilities is shared by the existing partners in their old profit-sharing ratio. Gain (or loss) on reveluation is computed by OPENING 'Revaluation Account' at the time of ADMISSION or retirement of a partner. The objective acheived in this process is that the net benefit of increase (or decrease) in the value of assets and liabilities due to the efforts of the existing partners is shared by then only.
Discussion
133.

Why is it necessary to revalue assets and liabilities of a firm in case of admission of a partner?

Answer»

Solution :It is NECESSARY to REVALUE ASSETS and LIABILITIES of a firm in case of admission of a partner so that the incoming partner is NEITHER put to an advantage nor to disadvantage due to change in the market value of assets and liabilities.
Discussion
134.

Why is it necessary to revalue assets and liabilities of a firm in case of admission of a partner ?

Answer»

Solution :It is necessary to REVALUE assets and liabilities of a FIRM in case of admission of a partner so that the incoming partner is neither put to an advatage not to disadvantage due to change in the MARKET VLAUE of assets and liabilities .
Discussion
135.

Why is it necessary to prepare Trial Balance ?

Answer»

Solution : Trial Balance is a statement of debit and credit balances of ACCOUNTS in the LEDGER. It is necessary to prepare a Trial Balance because:
I) it tests the arithmetical accuracy of the transactions RECORDED in the BOOKS of accounts,and
ii)it HELPS in preparing the financial statements
Discussion
136.

Why is it necessary for Ms. Parul and Ms. Aruna to enter into partnership Deed?

Answer»

Solution : It is necessary for them to ENTER into PARTNERSHIP Deed so that a DISPUTE does not arise between them.
Discussion
137.

Why is it important to know Cash Flow from Operating Activity?

Answer»

Solution :It is important because Operating ACTIVITIES are principal revenue producing activities of the enterprise. If cash tiow under the activity is negative, it is a cause of concern. It SHOWS that the enterprise is not generating ADEQUATE cash to maintain its operations and also servicing of loans and capital.
Discussion
138.

Why is 'Goodwill' considered and 'Intangible Asset' but not a 'Fictitious Assets'?

Answer»

Solution :Goodwill cannot be seen or TOUCHED, it can only be felt. Hence, it is treated as an INTANGIBLE ASSET. But it is not a ficitious asset because ficitious ASSETS do not have a value whereas goodwill has a value and it can be PURCHASED or sold with any other asset.
Discussion
139.

Why is difference between opening and closing inventories of materials not shown against Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade?

Answer»


SOLUTION :It is not shown in Changes in Inventories of Finished GOODS, Work-in-Progress and Stock-in-Trade because it is accounted in Cost of MATERIALS Consumed.
Discussion
140.

Why is depreciation added back to net profit while preparing 'Cash Flow Statement'?

Answer»

Solution :Depreciation is ADDED back to net profit while preparing Cash Flow Statement becauseit does not involve OUTFLOW of cash but results in DECREASE in PROFITS.
Discussion
141.

Why is Cash Flow Statement prepared?OrWhat is the objective of preparing a Cash Flow Statement?OrState the primary objective of preparing Cash Flow Statement.

Answer»

SOLUTION :CASH Flow Statement is prepared to determine the cash FLOWS of an ENTERPRISE during a SPECIFIC period from its Operating, Investing and Financing Activities.
Discussion
142.

Why Is Closing Stock valued at lower of cost or net realisable value?

Answer»

SOLUTION :CLOSING STOCK is VALUED at lower of Cost or net realisable value because of the Prudence CONCEPT of accounting
Discussion
143.

Why have you shown₹ 23,755 lakhs being dividend related to financial year ended 31st March, 2014 as outflow of cash in the financial year ended 31st March, 2015 ?

Answer»

SOLUTION :It is SHOWN as an OUTFLOW during the year because proposed dividend is PAID after it is apporved by the shareholders .Since proposed dividend pf 2014 is approved by the shareholders subsequnt to 31 stmarch, 2014 it MUST have been paid in financial year ended 31st march 2015.
Discussion
144.

Why heirs of retring/deceased partner are entitled to share of goodwill of the firm ?

Answer»

Solution :The RETIRING PARTNER/heirs of deceased partner are entitled to the SHARE of GOODWILL earned by the firm is the RESULT of the efforts of the all the existing partners in the past.
Discussion
145.

Why Horizontal Analysis is considered dynamic in nature?

Answer»

Solution :HORIZONTAL Analysis is dynamic in nature since it is a TIME series analysis. It shows comparison of financial data for SEVERAL years against a CHOSEN base YEAR.
Discussion
146.

Why does a firm revaluate its assets and reassess its liabilities on retirement or death of a partner ?

Answer»

SOLUTION :At the time of retirement of DEATH of a partner, assects are REVALUED and liabilities are reassessed so that the gain (profit) or LOSS arising on account of such revalution up to the deat of retirement or death of a partner may be ascertained and adjusted in the Capital Accounts of all the PARTNERS in their old profit-sharing ratio.
Discussion
147.

Why does a 'Non-for-Profit Organisation' prepare an 'Income and Expenditure Account' instead of 'Profit and Loss Account'?

Answer»

Solution :Since a 'Not-for-Profit Organisation' is not run to EARN profit it does not prepare Profit and Loss ACCOUNT but for evaluating the FINANCIAL results (i.e., surplus or deficit ARISING from the activities of a non-profit organisation), it prepares Income and Expenditure Account at the end of the year.
Discussion
148.

Why do you think lower Trade Payables Turnover Ratio is not good for the firm?

Answer»

SOLUTION : Lower Trade Payables Turnover RATIO indicates thatCreditors are not paid on TIME meaning DELAY in PAYMENTS to tradeCreditors
Discussion
149.

Why do we recognise 'income earned but not received' and 'expenses incurred but not paid' in the books of account?

Answer»

Solution :They are recognised because of the ACCRUAL CONCEPT of accounting, which REQUIRES that transactions be recorded in the books of account when they are ENTERED into and not when they are SETTLED.
Discussion
150.

Why do we calculate Gaining Ratio?

Answer»

Solution :The objective of calculating GAINING Ratio is to FIND out the COMPENSATION to be paid by each of the REMAINING partners to the retirng/deceased PARTNER.
Discussion