Sastry CBSE

NCERT Solutions for Class 12 Micro Economics Elasticity of Demand

September 29, 2019

NCERT Solutions for Class 12 Micro Economics Chapter-4 Elasticity of Demand

NCERT TEXTBOOK QUESTIONS SOLVED

Question 1. Explain price elasticity of demand.
Answer: The degree of responsiveness of quantity demanded to changes in price of commodity is known as price elasticity of demand.

Question 2. Consider the demand for a good. At price Rs 4, the demand for the good is 25 units. Suppose price of the good increases to Rs 5, and as a result, the demand for the good falls to 20 units. Calculate the price elasticity? [3-4 Marks]
Answer:
NCERT Solutions for Class 12 Micro Economics Elasticity of Demand Q2

Question 3.
NCERT Solutions for Class 12 Micro Economics Elasticity of Demand Q3
Answer:

Negative Sign of ED indicates that inverse relationship between price and quantity demanded.
PED = 1 [Unitary elastic demand].

Question 4. Suppose the price elasticity of demand for a good is -0.2. If there is a 5% increase in the price of the good, by what percentage will the demand for the good go down?[3-4 Marks]
Answer:
NCERT Solutions for Class 12 Micro Economics Elasticity of Demand Q4

Question 5. Suppose the price elasticity of demand for a good is -0.2. How will the expenditure on the good be affected if there is a 10% increase in the price of the good? [1 Mark]
Answer: Total expenditure will rise if there is 10% rise in the price of the good since its demand is inelastic (Given ED = 0.2).

Question 6. Suppose, there was 4% decrease in the price of a good and as a result, the expenditure on the goods increased by 2%. What can you say about the elasticity of demand? [1 Mark]
Answer: As total expenditure has increased with a decrease in price, the demand is said to be highly elastic.

NCERT Solutions for Class 12 Micro Economics Demand

September 29, 2019

NCERT Solutions for Class 12 Micro Economics Chapter – 3 Demand

NCERT TEXTBOOK QUESTIONS SOLVED

Question 1. Suppose there are two consumers in the market for a good and their demand functions are as follows: \({ D }_{ 1 }( p) =20-P\) for any price than less 20, and \({ D }_{ 1 }(p)=0\) at any price greater than or equal to 20. \({ D }_{ 2 }(p)=30-2P\) for any price less than 15 and \({ D }_{ 2 }(p)=0\) at any price greater than or equal to 15. Find out the market demand function.
[3-4 Marks]
Answer: It can be seen from the given demand functions that Consumer 1 do not want to demand the goods for any price greater than or equal Rs.20 and consumer 2 do not want to demand the goods for any price greater than Rs 15.
Hence, the market demand function will be,
NCERT Solutions for Class 12 Micro Economics Demand Q1

Question 2. Suppose there are 20 consumers for a good and they have identical demand function?
NCERT Solutions for Class 12 Micro Economics Demand Q2
Answer:

Question 3.
NCERT Solutions for Class 12 Micro Economics Demand Q3
Answer:

Question 4. What do you mean by a normal good?(or)
when good is called ‘normal goods’?
Answer: for normal good, with a raise in income,the demand of the commodity also rises and vice versa. Shortely direct relationship exists the income of a coustomer and demand of normal good.For example, a new car, new clothings.

Question 5. What do you mean by an ‘inferior good’? Give some examples. [CBSE 2006]
Or
Give the meaning of inferior good and explain the same with the help of an example.[NCERT, AI 2014] [3-4 Marks]
Answer:

A good is called ‘inferior goods’ when its demand falls with a rise in the income of a consumer and vice- versa.
For example, Jowar or Bajra for a poor person.
A good is inferior in a relative terms. It means, a good is inferior or normal is determined by the income level of a consumer.
When a consumer moves to higher income, he/she may consider some goods below their income status, and treats them as inferior.

Question 6. What do you mean by substitutes? Give examples of two goods which are substitutes of each other. [3-4 Marks]
Answer:

Substitute goods are those goods which can be used in place of another goods and give the same satisfaction to a consumer.
There would always exist a direct relationship between the price of substitute goods and demand for given commodity.
It means with an increase in price of substitute goods, the demand for given commodity also rises and vice-versa.
For example, Pepsi and Coke, tea and coffee are substitute to each other.

Question 7. What do you mean by complements?
Give examples of two goods which are complements of each other. [3-4 Marks]
Answer:

Complementary goods are those which are useless in the absence of other goods and which are demanded jointly.
There would always exist an inverse relationship between price of complementary goods and demand for given commodity.
It means, with a rise in price of complementary goods, the demand for given commodity falls and vice-versa.
For example pen and refill, tea and sugar are complements to each other.

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios

September 29, 2019

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios

NCERT Solutions CBSE Sample Papers Accountancy Class 12 Accountancy

TEST YOUR UNDERSTANDING I

• State which of the following statements are True or False.
(a) The only purpose of financial reporting is to keep the managers informed about the progress of operations.
Answer False

(b) Analyses of data provided in the financial statements a is termed as financial analysis.
Answer True

(c) Long term creditors are concerned about the ability of a firm to discharge its obligations to pay interest and repay the principal amount of term.
Answer True

(d) A ratio is always expressed as a quotient of one number divided by another.
Answer False

(e) Ratios help in comparisons of a firm’s results over a number of accounting periods as well as with other business enterprises.
Answer True

(f) One ratios reflect both quantitative and qualitative aspects.
Answer False

DO IT YOURSELF I

Question 1. Current ratio =4.5:1,quick ratio =3:1, Inventory is Rs.36,000. Calculate the current assets and current liabilities.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Do it Yourself I Q1

Question 2. Current liabilities of a company are ? 5,60,000 current ratio is 5 : 2 and quick ratio is 2 : 1. Find the value of the stock.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Do it Yourself I Q2

Question 3. Current assets of a company are Rs. 5,00,000. Current ratio is 2.5 : 1 and quick ratio is 1 : 1. Calculate the value of current liabilities, liquid assets and stock.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Do it Yourself I Q3

TEST YOUR UNDERSTANDING II

(i) The following groups of ratios primarily measure risk
(a) liquidity, activity and profitability
(b) liquidity, activity and common stock
(c) liquidity, activity and debt
(d) activity, debt and profitability
Answer (c) Liquidity, activity and debt

(ii) The————-ratios are primarily measures of return.
(a) liquidity (b) activity
(c) debt (d) profitability
Answer (b) Activity

(iii) The…………….of a business firm is measured by its ability to satisfy
its short term obligations as they come due.
(a) activity (b) liquidity
(c) debt (d) profitability
Answer (b) Liquidity

(iv) ……………….ratios are a measure of the speed with which various
accounts are converted into sales or cash.
(a) Activity (b) Liquidity
(c) Debt (d) Profitability
Answer (a) Activity

(v) The two basic measure of liquidity are
(a) inventory turnover and current ratio
(b) current ratio and liquid ratio
(c) gross profit margin and operating ratio
(d) current ratio and average collection period
Answer (b) Current ratio and liquid ratio

(vi) The……………is a measure of liquidity which excludes………………….., generally the least liquid asset.
(a) current ratio, accounts debtors
(b) liquid ratio, accounts debtors
(c) current ratio, inventory
(d) liquid ratio, inventory
Answer (d) Liquid ratio, inventory

DO IT YOURSELF II

Question 1. Calculate the amount of gross profit
Average stock = Rs.80,000
Stock turnover ratio = 6 times
Selling price = 25% above cost
Answer Average stock = ? 80,000
Stock Turnover Ratio = 6 times
Selling Price = 25% above cost
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Do it Yourself II Q1

Question 2. Calculate stock Turnover Ratio
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Do it Yourself II Q2

TEST YOUR UNDERSTANDING III

(i) The………..is useful in evaluating credit and collection policies.
(a) average payment period (b) current ratio
(c) average collection period (d) current asset turnover
Answer (c) Average collection period

(ii) The………measures the activity of a firm’s inventory.
(a) average collection period (b) inventory turnover
(c) liquid ratio (d) current ratio
Answer (b) Inventory turnover

(iii) The………..ratio may indicate the firm is experiencing stock outs and lost sales.
(a) average payment period (b) inventory turnover
(c) average collection period (d) quick
Answer (d) Quick

(iv) ABC Co extends credit terms of 45 days to its customer, its credit collection would be considered poor if its average collection period was
(a) 30 days (b) 36 days
(c) 47 days (d) 57 days
Answer (c) 47 days

(v) …………… are especially interested in the average payment period, since it provides them with a sense of the bill-paying patterns of the firm.
(a) Customers (b) Stockholders
(c) Lenders and suppliers (d) Borrowers and buyers
Answer (c) Lenders and suppliers

(vi) The……………….. ratios provide the information critical to the long-run operation of the firm
(a) liquidity (b) activity
(c) solvency (d) profitability
Answer (c) Solvency

SHORT ANSWER TYPE QUESTIONS

Question 1. What do you mean by Ratio Analysis?
Answer The ratio analysis is the most powerful tool of financial statement analysis. Ratios simply mean one number expressed in terms of another. A ratio is a statistical yardstick by means of which relationship between two or various figures can be compared or measured. Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another.

Question 2. What are various types of ratios?
Answer Accounting ratios are classified in two ways Categories as follows
(i) Traditional Classification: Traditional ratios are those accounting ratios which are based on the Financial Statement like Trading and Profit and Loss Account and Balance Sheet. On the basis of accounts of financial statements, the Traditional Classification is further divided into the following categories
(a) Income Statement Ratios: like Gross Profit Ratio, etc.
(b) Balance Sheet Ratios: like Current Ratio, Debt Equity Ratio, etc.
(c) Composite Ratios :like Debtors Turnover Ratio, etc.
(ii) Functional Classification This classification of ratios is based on the functional need and the purpose for calculating ratio. The functional ratios are further divided into the following categories
(a) Liquidity Ratio: These ratios are calculated to determine short term solvency.
(b) Solvency Ratio :These ratios are calculated to determine long term solvency.
(c) Activity Ratio :These ratios are calculated for measuring the operational efficiency and efficacy of the operations. These ratios relate to sales or cost of goods sold.
(d) Profitability Ratio: These ratios are calculated to assess the

Question 3. What relationships will be established to study?
(a) Inventory Turnover (b) Debtor Turnover
(c) Payables Turnover (d) Working Capital Turnover
Answer (a) Inventory Turnover Ratio: This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio/inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory.
This ratio indicates whether investment in stock is within proper limit or not. The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost. The formula for calculating inventory turnover ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios SAQ Q3

(b)Debtor Turnover Ratio :Debtor turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. The formula for calculating Debtors turnover ratio is as follows

(c)Creditors/Payables Turnover Ratio :It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as debtor’s turnover ratio, creditor’s turnover ratio can be calculated in two forms, creditors’ turnover ratio and average payment period. The following formula is used to calculate the creditors Turnover Ratio

(d)Working Capital Turnover Ratio Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in a year and is calculated as follows

Question 4. Why would the inventory turnover ratio be more important when analysing a grocery store than an insurance company?
Answer Nature of business make inventory turnover ratio more important in case of a grocery store as compare to an insurance company. A grocery store is a trading concern involved in trading i.e., buying and selling of goods and in this regards it is obvious to maintain some inventory in stores. On the other hand, insurance company involved in service business and involved in delivering service there is no question of inventory because service is perishable in nature and cannot be stored. That’s why inventory turnover ratio is more important in case of grocery store than an insurance company.

Question 5. The liquidity of a business firm is measured by its ability to satisfy its long term obligations as they become due? Comment.
Answer Yes it is true that the liquidity of a business firm is measured by its ability to pay its long term obligations as they become due. Here the long term obligation means payments of principal amount on the due date and payments of interests on the regular basis. For measuring the long term solvency of any business we calculate the following ratios.

Debt Equity Ratio: Debt equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company. Following formula is used to calculate debt to equity ratio
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios SAQ Q5

Fixed Assets to Proprietor’s Fund Ratio: Fixed assets to proprietor’s fund ratio establish a relationship between fixed assets and shareholders’ funds. The purpose of this ratio is to indicate the percentage of the owner’s funds invested in fixed assets. The formula for calculating this ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios SAQ Q5.2

Interest Coverage Ratio: This ratio deals only with servicing of return on loan as interest. This ratio depicts the relationship between amount of profit utilise for paying interest and amount of interest payable. A high Interest Coverage Ratio implies that the company can easily meet all its interest obligations out of its profit.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios SAQ Q5.3

Question 6. The average age of inventory is viewed as the average length of time inventory is held by the firm or as the average number of day’s sales in inventory. Explain.
Answer Inventory Turnover Ratio This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio/inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. The formula for calculating inventory turnover ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios SAQ Q6
From the above formula, it is clear that this ratio reveals the average length of time for which the inventory is held by the firm.

LONG ANSWER TYPE QUESTIONS

Question 1. Who are the users of financial ratio analysis? Explain the significance of ratio analysis to them.
Answer Financial ratios help their users to take various managerial decisions. In this context there are four categories of users who are interested in financial ratios. These are the management, investors, long term creditors and short term creditors. The significance of ratios to the above mentioned users is as follows
(i) Management :Management calculate ratios for taking various managerial decisions. Management is always interested in future growth of the organisation. In this regard management design various policy measures and draft future plans. Management wish to know how effectively the resources are being utilised conseguently, they are interested in Activity Ratios and Profitability Ratios like Net Profit Ratio, Debtors Turnover Ratio, Fixed Assets Turnover Ratios, etc. ‘
(ii) Equity Investors :The prime concern of investors before investing in shares is to ensure the security of their principle and return on investment. It is a well known fact that the security of the funds is directly related to the profitability and operational efficiency of the business. In this way they are interested in knowing Earnings per Share, Return on Investment and Return on Equity.
(iii) Long Term Creditors: Long term creditors are those creditors who provide funds for more than one year, so they are interested in long term solvency of the firm and in assessing the ability of the firm to pay interest on time. In this way they are interested in calculating Long term Solvency Ratios like, Debt-Equity Ratio, Proprietory Ratio, Total Assets to Debt Ratio, Interest Coverage Ratio, etc.
(iv) Short Term Creditors :Short term creditors are those creditors who provide financial assistance through short term credit (Generally less than one year). That’s why short-term creditors are interested in timely payment of their debts in short run. In this way they are always interested in Liquidity Ratios like, Current Ratio, Quick Ratios etc. These ratios reveal the current financial position of the business. It is always observed that short term obligations are paid through current assest.

Question 2. What are liquidity ratios? Discuss the importance of current and liquid ratio.
Answer Liquidity ratios are calculated to determine the short-term solvency of the business. Analysis of current position of liquid funds determines* the ability of the business to pay the amount due as per commitment to stakeholders. Included in this category are current ratio, Quick ratio and Cash Fund Ratios.

Current Ratio/Working Capital Ratio: This ratio establish relationship between current assets and current liabilities. The standard for this ratio is 2 : 1. It means a ratio 2 : 1 is considered favourable. It is calculated by dividing the total of the current assets by total of the current liabilities. The formula for the current ratio is as follows
Current Ratio = Current Assets/Current Liabilities Or
Current Assets : Current Liabilities
Importance of Current Ratio Current Ratio Provides a measure of degree to which current assets cover current liabilities. The excess of current assets over current liabilities provides a measure of safety margin available against uncertainty in realisation of current assets and flow of funds. However, it must be interpreted carefully because window-dressing is possible by manipulating the components of current assets and current liabilities, e.g., it can be manipulated by making payment to creditors. A very high current ratio is not a good sign as it reflects under utilisation or improper utilisation of resources.
Liquid/Acid Test/Quick Ratio This ratio establishes relationship between Quick assets and Current liabilities. Quick assets are those assets which can get converted into cash easily in case of emergency. Out of current assets it is believed that stock, and prepaid expenses are not possible to convert in cash quickly. The standard for this ratio is 1:1. It means if quick assets are just equal to the current liabilities they will be considered favourable with the view point of company’s credibility. The formula for the quick ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios LAQ Q2

Importance of Current Ratio: Current Ratio Provides a measure of degree to which current assets cover current liabilities. The excess of current assets over current liabilities provides a measure of safety margin available against uncertainty in realisation of current assets and flow of funds. However, it must be interpreted carefully because window-dressing is possible by manipulating the components of current assets and current liabilities, e.g., it can be manipulated by making payment to creditors. A very high current ratio is not a good sign as it reflects under utilisation or improper utilisation of resources.
Liquid/Acid Test/Quick Ratio:This ratio establishes relationship between Quick assets and Current liabilities. Quick assets are those assets which can get converted into cash easily in case of emergency. Out of current assets it is believed that stock, and prepaid expenses are not possible to convert in cash quickly. The standard for this ratio is 1:1. It means if quick assets are just equal to the current liabilities they will be considered favourable with the view point of company’s credibility. The formula for the quick ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios LAQ Q2.1

Importance of Quick Ratio :It helps in determining whether a firm has sufficient funds if it has to pay all its current liabilities immediately. Because of exclusion of non-liquid current assets, it is considered better than current ratio as a measure of liquidity position of the business. Standard for liquid ratio is 1:1. Sometimes quick ratio is calculated on the basis of quick liability instead of current liabilities. Quick liabilities are calculated by ignoring bank overdraft, if any. It means to get the figure of quick liabilities from current liabilities; bank overdraft is deducted from current liabilities.

Question 3. How would you study the solvency position of the firm?
Answer The solvency position of any firm is determined and measured with the help of solvency ratios. In this way we can say that the ratios which throw light on the debt servicing ability of the businesses in the long run are known as solvency ratios. Solvency of a concern can be measured in two ways first to check the security of Debt and second is to check the security of return on Debt. For calculating the security of debt we calculate Debt-Equity Ratio, Proprietory Ratio, Fixed Assets – Proprietory Fund Ratio, etc. And for calculating Security of Return on Debt we calculate Interest Coverage Ratio. A brief description of the above mentioned ratios is as follows

Debt Equity Ratio :Debt Equity Ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company.

Proprietory Ratio/ Total Assets to Debt Ratio: Total assets to Debt Ratio or Proprietory Ratio are a variant of the debt equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder’s funds to total assets. Proprietory/Equity Ratio indicates the long-term or future solvency position of the business. Formula of Proprietary/Equity Ratio

Shareholder’s funds include equity share capital plus all reserves and surpluses items. Total assets include all assets, including Goodwill. Some authors exclude goodwill from total assets. In that case the total shareholder’s funds are to be divided by total tangible assets. The total liabilities may also be used as the denominator in the above formula.

Fixed Assets to Proprietor’s Fund Ratio: Fixed Assets to Proprietor’s Fund Ratio establish a relationship between fixed assets and shareholders’ funds. The purpose of this ratio is to indicate the percentage of the owner’s funds invested in fixed assets. The formula for calculating this ratio is as follows

The fixed assets are considered at their book value and the proprietor’s funds consist of the same items as internal equities in the case of debt equity ratio.

Interest Coverage Ratio :This ratio deals only with servicing of return on loan as interest. This ratio depicts the relationship between amount of profit utilise for paying interest and amount of interest payable. A high Interest Coverage Ratio implies that the company can easily meet all its interest obligations out of its profit.

Question 4. What are important profitability ratios? How are they worked out? ‘
Answer Profitability Ratios Profitability ratios measure the results of business operations or overall performance and effectiveness of the firm. Some of the most Important and popular profitability ratios are as under
Gross Profit Ratio: Gross Profit Ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales. The basic components for the calculation of gross profit ratio are gross profit and net sales. Net sales mean sales minus sales returns.

Gross profit would be the difference between net sales and cost of goods sold. Cost of goods sold in the case of a trading concern would be equal to opening stock plus purchase, minus closing stock plus all direct expenses relating to purchases. In the case of manufacturing concern, it would be equal to the sum of the cost of raw materials, wages, direct expenses and all manufacturing expenses. In other words, generally the expenses charged to profit and loss account or operating expenses are excluded from the calculation of cost of goods sold.
Following formula is used to calculate gross profit ratios
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios LAQ Q4

Net Profit Ratio :Net Profit Ratio is the ratio of net profit to net sales. It is expressed as percentage. The two basic components of the net profit ratio are the net profit and sales. The net profits are obtained after deducting income-tax and, generally, non-operating expenses and incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as interest on investments outside the business, profit on sales of fixed assets and losses on sales of fixed assets, etc are excluded.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios LAQ Q4.1

Operating Profit Ratio :Operating Profit Ratio is the ratio of operating profit to net sales. There are many non operating expenses and incomes included in the profit and loss account which has nothing to do with the operations of the business such as loss by fire, loss by theft etc. On the other had in credit side of the P&L account, there are so many incomes
which can be considered as operating incomes such as dividend, bank interest, rent etc. In this way net profit ratio will not tell the truth about the profit of the organisation. Hence operating profit ratio will be helpful in that case. The formula for calculating operating ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios LAQ Q4.2

Operating Ratio :Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage, Operating ratio measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales. The two basic components for the calculation of operating ratio are operating cost (cost of goods sold plus operating expenses) and net sales. Operating expenses normally include (a) administrative and office expenses and (b) selling and distribution expenses. The formula for calculating the operating ratio is as follows
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios LAQ Q4.3

Question 5. Financial ratio analysis are conducted by four groups of analysts : managers, equity investors, long term creditors and short term creditors. What is the primary emphasis of each of these groups in evaluating ratios?
Answer This is very much true that the financial ratio analysis is conducted by four groups of analysts : managers, equity investors, long term creditors and short term creditors. The primary emphasis of each of these groups in evaluating these ratios are as follows
(i) Management: Management calculate ratios for taking various managerial decisions. Management is always interested in future growth of the organisation. In this regard management design various policy measures and draft future plans. Management wish to know how effectively the resources are being utilised Consequently, they are interested in Activity Ratios and Profitability Ratios like Net Profit Ratio, Debtors Turnover Ratio, Fixed Assets Turnover Ratios, etc.
(ii) Equity Investors: The prime concern of investors before investing in shares is to ensure the security of their principle and return on investment. It is a well known fact that the security of the funds is directly related to the profitability and operational efficiency of the business. In this way they are interested in knowing Earnings per Share, Return on Investment and Return on Equity.
(iii) Long Term Creditors: Long term creditors are those creditors who provide funds for more than one year, so they are interested in long term solvency of the firm and in assessing the ability of the firm to pay interest on time. In this way they are interested in calculating Long term Solvency Ratios like, Debt-Equity Ratio, Proprietory Ratio, Total Assets to Debt Ratio, Interest Coverage Ratio, etc.
(iv) Short Term Creditors: Short term creditors are those creditors who provide financial assistance through short term credit (Generally less than one year). That’s why short term creditors are interested in timely payment of their debts in short run. In this way, they are always interested in Liquidity Ratios like, Current Ratio, Quick Ratios etc. These ratios reveal the current financial position of the business. It is always observed that short term obligations are paid through current assest.

Question 6. The current ratio provides a better measure of overall liquidity only when a firm’s inventory cannot easily be converted into cash. If inventory is liquid, the quick ratio is a preferred measure of overall liquidity. Explain.
Answer The above mentioned statement is true. There are two different ways to measure the liquidity of a firm first through current ratio of the firm and second through quick ratio of the firm. The second one is considered the more refine form of measuring the liquidity of the firm.
The current ratio ‘explains the relationship between current assets and current liabilities. If current assets are quite capable to pay the current liability the liquidity of the concerned firm will be considered good. But here generally one question arises there are certain assets which cannot be converted into cash quickly such as stock and prepaid expenses.
As far as the matter of prepaid expenses is concerned it’s ok but what about the stock if we measure the liquidity on the basis of conversion of current assets in cash there are many firms where conversion of stock is not possible into cash frequently say e.g., heavy machinery manufacturing companies, locomotive companies, etc. This is because, the heavy stocks like machinery, heavy tools etc. cannot be easily sold off. In this case it is always advisable to follow the current ratio for measuring the liquidity of a firm.

But on the other hand, in case of those firms where the stock can be easily realised or sold off consideration of stock should be avoided and to measure the liquidity of that firm Quick ratio should be calculated, e.g., the inventories of a service sector company are very liquid as there are no stocks kept for sale, so in that case liquid ratio must be followed for measuring the liquidity of the firm.
We can understand from the above mentioned statement in the light of another example where stock contribute the major portion in current assets in that case to find out the liquidity of that firm stock cannot be avoided to measure the liquidity of the firm. On the other hand where stock contributes a reasonably less amount it can be avoided and liquidity of that firm can be measured with the help of quick ratio. On the other hand where there is a lot of fluctuation in the price of stock it is always advisable to compute quick ratio and avoid the stock figure because it will reduce the authenticity of liquidity measure.

NUMERICAL QUESTIONS

Question 1. Following is the Balance Sheet of Rohit and Company as on March 31, 2006.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q1
Calculate Current Ratio.

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q1.2

Question 2. Following is the Balance Sheet of Title Machine Limited as on March 31, 2006.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q2
Calculate Current Ratio and Liquid Ratio.

Question 3. Current Ratio is 3:5 Working Capital is Rs. 9,00,000. Calculate the amount of Current Assets and Current Liabilities.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q3
Note :According to the ratio, current asset is less than current liability hence working capital should be negative. To match the figures and answer of the question current ratio is taken as 3.5 : 1 and working capital ? 90,000.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q3.1

Question 4. Shine Limited has a current ratio 4.5:1 and quick ratio 3:1; if the stock is 36,000, calculate current liabilities and current assets.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q4

Question 5. Current liabilities of a company are Rs. 75,000. If Current ratio is 4 : 1 and liquid ratio is 1:1, calculate value of current assets, liquid assets and stock.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q5

Question 6. Handa Limited has stock of Rs. 20,000. Total liquid assets are Rs. 1,00,000 and quick ratio is 2:1 Calculate current ratio.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q6

Question 7. Calculate debt equity ratio from the following information
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q7

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q7.1

Question 8. Calculate Current Ratio if Stock is ? 6,00,000; Liquid Assets Rs. 24,00,000; Quick Ratio 2:1.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q8

Question 9. Compute Stock Turnover Ratio from the following information
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q9

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q9.1

Question 10. Calculate following ratios from the following information
(i) Current ratio (ii) Acid test ratio
(iii) Operating Ratio (iv) Gross Profit Ratio
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q10

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q10.1
Note (i) Acid test ratio, quick ratio and liquid ratio are one and the same.
(ii) Students mostly get confused in operating ratio and operating profit ratio, so be careful while doing these ratios.

Question 11. From the following information calculate
(i) Gross Profit Ratio (ii) Inventory Turnover Ratio (iii) Current Ratio (iv) Liquid Ratio
(v) Net Profit Ratio (vi) Working Capital Ratio
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q11

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q11.1
Note :In this question stock is given separately from current assets, hence* it is added to make total current assets.

Note :In this question current assetts should be considered as other current asset and stock is separate, in other words, other current assets means liquid assets. Working capital ratio and working capital turnover ratio means same.

Question 12. Compute Gross Profit Ratio, Working Capitat Turnover Ratio, Dept Equity Ratio and Proprietory Ratio from the fottowing information
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Question 13. Calculate Stock Turnover Ratio if Opening Stock is Rs. 76,250, Closing Stock is 98,500, Sales is Rs. 5,20,000, Sales Return is Rs.20,000, Purchase is Rs. 3,22,250.
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Question 14. Calculate Stock Turnover Ratio from the data given below
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q14

Question 15. A trading firm’s average stock is ? 20,000 (cost). If the stock turnover ratio is 8 times and the firm setts goods at a profit of 20% on sales, ascertain the profit of the firm.
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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q15.1

Question 16. You are able to collect the following information about a company for two years
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q16
Calculate Stock Turnover Ratio and Debtor Turnover Ratio if in the year 2004 stock in trade increased by Rs. 2,00,000.

Question 17. The following Balance Sheet and other information, calculate following ratios
(i) Debt Equity Ratio (ii) Working Capital Turnover Ratio
(iii) Debtors Turnover Ratio
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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q17.1

Question 18. The following is the summarised Profit and Loss account and the Balance Sheet of Nigam Limited for the year ended March 31, 2007
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q18

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q18.1
Calculate
(i) Quick Ratio
(ii) Stock Trunover Ratio
(iii) Return on Investment

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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q18.4

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q18.5

Question 19. From the following,
Calculate
(a) Debt Equity Ratio (b) Total Assets to Debt Ratio (c) Propietory Ratio.
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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q19.1

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q19.3

Question 20. Cost of Goods Sold is 1 1,50,000 Operating expenses are Rs. 60,000. Sales is Rs. 2,60,000 and Sales Return is Rs. 10,000. Calculate Operating Ratio.
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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q20.1

Question 21. The following is the summerised transactions and Profit and Loss Account for the year ending March 31, 2007 and the Balance Sheet as on that date.
NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q21

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q21.1
Calculate (i) Gross Profit Ratio (ii) Current Ratio (iii) Acid Test Ratio
(iv) Stock Turnover Ratio (v) Fixed Assets Turnover Ratio.

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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q21.4

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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q21.6

Question 22. From the fotlowing information calcutate Gross Profit Ratio, Stock Turnover Ratio and Debtors Turnover Ratio.
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NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q22.1

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q22.2

NCERT Solutions for Class 12 Accountancy Part II Chapter 5 Accounting Ratios Numerical Questions Q22.3

More Resources for CBSE Class 12
RD Sharma class 12 Solutions
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NCERT Solutions for Class 12 Accountancy Part II Chapter 1 Accounting for Share Capital

September 29, 2019

NCERT Solutions for Class 12 Accountancy Part II Chapter 1 Accounting for Share Capital

NCERT Solutions CBSE Sample Papers Accountancy Class 12 Accountancy

Test Your Understanding I

• State which of the following statements are true
(a) A company is formed according to the provisions of Indian Companies Act, 1932.
Answer False
(b) A company is an artificial person.
Answer True
(c)Shareholders of a company are liable for the acts of the company.
Answer False
(d) Every member of a company is entitled to take part in its management.
Answer False
(e) Company’s shares are generally transferable.
Answer True
(f) Share application account is a personal account.
Answer True
(g) The director of a company must be a shareholder.
Answer True
(h) Application money should not be less than 25% of the face value of shares.
Answer False
(i) Paid-up capital can exceed called-up capital. .
Answer True
(j) Capital reserves are created from capital profits.
Answer True
(k) Securities premium account is shown on the assets side of the balance sheet.
Answer False
(l) Premium on issue of shares is a capital loss.
Answer False
(m) At the time of issue of shares, the maximum rate of securities premium is 10%.
Answer False
(n) The part of capital which is called-up only on winding up is called reserve capital.
Answer True
(o) Forfeited shares can not be issued at a discount.
Answer False
(p) The shares originally issued at discount may be re-issued at a premium.
Answer True

Do it Yourself I

Question 1. On January 01, 2006, a limited company was incorporated with an authorised capital of Rs.40,000 divided into shares of Rs.10 each. It offered to the public for subscription of 3,000 shares payable as follows
Rs.
On Application 3 per share
On Allotment 2 per share
On First Call (One month after allotment) 2.50 per share
On Second and Final Call 2.50 per share
The shares were fully subscribed for by the public and application money duly received on January 15, 2006. The directors made the allotment on February 1, 2006.
How will you record the share capital transactions in the books of a company if the amounts due has been duly received, and the company maintains the combined account for application and allotment.

Do it Yourself II

1. A company issued 20,000 equity shares of Rs.10 each payable at Rs.3 on
application, Rs.3 on allotment, Rs.2 on first call and Rs.2 on second and the
final call. The allotment money was payable on or before May 01, 2005; first
call money on or before August Ist, 2005; and the second and final call on or
before October Ist, 2005; ‘X’, whom 1,000 shares were allotted, did not pay the
allotment and call money; ‘Y’, an allottee of Rs.600 shares, did not pay the
two calls; and ‘Z’, whom 400 shares were allotted, did not pay the final call.
Pass journal entries and prepare the Balance Sheet of the company as on
December 31, 2005.

2. Alfa company Ltd. issued 10,000 shares of Rs.10 each for cash payable at Rs.3
on application, Rs.2 on allotment and the balance in two equal instalments.
The allotment money was payable on or before March 3, 2006; the first call
money on or before 30 June, 2006; and the final call money on or before 31st
August, 2006. Mr. ‘A’, whom 600 shares were allotted, paid the entire remaining
face value of shares allotted to him on allotment. Record journal entries in
company’s books and also prepare their balance sheet on the date.

Test your Understanding – II

Choose the Correct Answer.
(a) Equity share holders are :
(i) creditors
(ii) owners
(iii) customers of the company.
Answer (ii) Owners

(b) Nominal share capital is :
(i) that Part of the authorised capital which is issued by the company.
(ii) the amount of capital which is actually applied for by the prospective shareholders.
(iii) the maximum amount of share capital which a company is authorised to issue.

Answer (iv) the amount actually paid by the shareholders.

(c) Interest on calls-in-arrears is charged according to “Table A” at :
(i) 5%
(ii) 6%
(iii) 8%
(iv) 11%
Answer (i) 5%

(d) Money received in advance from shareholders before it is actually called-up by the directors is :
(i) debited to calls-in-advance account
(ii) credited to calls-in-advance account
(iii) debited to calls account.
Answer (ii) Credited to calls account

(e) Shares can be forfeited
(i) for non-paymnt of call money
(ii) for failure to attend meetings
(iii) for failure to repay the loan to the bank
(iv) for which shares are pledged as a security.
Answer (i) For non-paymntof call money

(f) The balance of share forfeited account after the reissue of forfeited shares is transferred to
(i) general reserve
(ii) capital redemption reserve
(iii) capital reserve
(iv) reveneue reserve
Answer (iii) Capital

(g) Balance of share forfeiture account is shown in the balance sheet under the item :
(i) current liabilities and provisions
(ii) reserves and surpluses
(iii) share capital account
(iv) unsecured loans
Answer (iii) Share capital account

Do it Yourself III
1. A company forfeited 100 equity shares of Rs.10 each issued at a premium of
20% for non-payment of final call of Rs.5 including the premium. Show the
journal entry to be passed for forefeiture of shares.

2. A company forfeited 800 equity shares of Rs.10 each issued at a discount of 10% for non-payment of two calls of Rs.2 each. Calculate the amount forfeited by the company and pass the journal entry for forefeiture of the shares.

Do it Yourself IV

Excell Company Limited made an issue of 1,00,000 Equity Shares of Rs.10 each,
payable as follows :
Rs.
On Application Rs.2.50 per share
On Allotment Rs.2.50 per share
On Ist and Final Call Rs.5.00 per share
X, the holder of 400 shares did not pay the call money and his shares were forfeited. Two hundred of the forfeited shares were reissued as fully paid at Rs.8 per share. Draft necessary journal entries and prepare Share Capital and Share Forfeited’ accounts in the books of the company.

Test your Understanding – III

(a) If a Share of Rs. 10 on which Rs. 8 is called-up and Rs. 6 is paid is forfeited. State with what amount the Share Capital account will be debited.
(b) If a Share of Rs. 10 on which Rs. 6 has been paid is forfeited, at what minimum price it can be reissued.
(c) Allhuwalia Ltd. issued 1,000 equity shares of Rs. 100 each as fully paid-up in consideration of the purchase of plant and machinery worth Rs. 1,00,000. What entry will be recorded in company’s journal.

Answer
(a) On forfeiture, share capital is debited with called up amount i.e.,X 8.
(b) The total price of money collected from 1st issue and reissue should be equal to face value atleast. It can exceed also. The share can be reissue for minimum ? 4 per share.

Do it Yourself V

Journalise the following :
(a) The directors of a company forfeited 200 equity shares of Rs. 10 each on which Rs. 800 had been paid. The Shares were re-issued upon payment of Rs. 1,500.
(b) A holds 100 shares of Rs. 10 each on which he has paid Re. 1 per share on application. B holds 200 Shares of Rs. 10 each on which he has paid Re. 1 on application Rs. 2 on allotment. C holds 300 shares of Rs. 10 each who has paidRe. 1 on applications, Rs. 2 on allotment and Rs. 3 on first call. They all failed to pay their arrears and second call of Rs. 4 per share as well. All the shares of A, B and C were forfeited and subsequently reissued at Rs. 11 per share as fully Paid-up.

Short Answer Type Questions

Question 1. What is public company?
Answer Minimum requirement of a public company is seven person. As per the Section 3 (1) (iv) of Companies Act 1956, public company is a company which (a) is not a private company, (b) has minimum capital of ?5 lakh or such higher paid-up capital as may be prescribed, and (c) is a private company which is a subsidiary public company.

Question 2. What is private limited company?
Answer As per Section 3 (1) (iii) of Companies Act 1956, A private company is one which has a minimum paid up capital of ^ 1 lakh or such higher paid-up capital as may be prescribed by its Articles
(i) Restricts the right to transfer its shares.
(ii) Limits the number of its members to fifty (excluding its employees).
(iii) Prohibits any invitation to the public to subscribe for any shares in or debentures of the company.
(iv) Prohibits any invitation or acceptance of deposits from person other than its members, directors and relatives.

Question 3. Define Government Company.
Answer Section 617 of Companies Act 1956 defines Government Company as a company in which not less than 51% of the paid up share capital is held by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government Company.

Question 4. What do you mean by a listed company?
Answer Listed companies are those companies whose shares are listed on a recognised stock exchange for public trading. When a company’s security is listed in a recognised stock exchange the price fluctuation can easily be observed by the investor and he/she can easily determine the increase/decrease in value of their investment in a concerned listed company.
This is the only reason that the volume remain high in case of a listed company as all the moves can be observed and investment strategy can easily be planned in that company.

Question 5. What are the uses of securities premium?
Answer When securities like shares and debentures are issued to public more than their face value the excess is called security premium. As per the Section 78 of the Companies Act 1956, the amount of securities premium can be used by the company for the following purposes
(i) For paying up unissued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share.
(ii) For writing off the preliminary expenses of the company.
(iii) For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.
(iv) For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.
(v) Further, as per the Section 77A, the securities premium amount can also be utilised by the company to buy-back its own shares.

Question 6. What is buy-back of shares?
Answer When a company repurchase its own share from the market to reduce the number of share it is called buy-back of shares. As per the Section 77A of the Companies Act, 1956 the procedure for buy back of share would be as follows
(i) First of all the Articles of the Association must authorise the company for the buy-back of shares.
(ii) A special resolution must be passed in the companies’ Annual general body meeting.
(iii) The amount of buy-back of shares should not exceed 25% of the paid-up capital and free reserves.
(iv) The debt-equity ratio should not be more than a ratio of 2:1 after the buyback.
(v) All the shares of buy-back should be fully paid-up.
(vi) The buy-back of the shares should be completed within 12 months from the date of passing the special the resolution.
(vii) The company should file a solvency declaration with the Registrar and’ SEBI which must be signed by at least two directors of the company. –

Sources for Buy-back of Share
(i) Free reserves.
(ii) Securities premium account.
(iii) Proceeds of any shares or other specified securities, provided that no buy-back of any kind of shares or other specified securities shall be made out of the proceeds of the earlier issues of the similar kind of shares or specified securities.

Question 7. Write a brief note on ‘Minimum Subscription’
Answer When shares are issued to the general public, it is necessary that the minimum subscription amount should be subscribed so that the company can allot shares to the applicants. This minimum amount of share subscription is termed as minimum subscription. As per the Company Act 1956, the minimum subscription of share cannot be less than 90% of the issued amount. If the minimum subscription is not received, the company cannot allot shares to its applicants and it shall immediately refund the entire application amount received to the public.
e.g., if a company issued 1,00,000 equity share than at least 90,000 share must be subscribed by the public.

Long Answer Type Questions

Question 1. What is meant by the word ‘Company’? Describe i characteristics.
Answer According to Section 3 (1) (i) of the Company Act of 195 “Company means a company formed and registered under this Act or £ existing company.”

In general, a company is an artificial person, created by law that has separate legal entity, perpetual succession, and common seal and t limited liability. It is a voluntary association of person who together contribu in the capital of the company to do business.

Generally, the capital of a company is divided into small parts known shares, the ownership of which is transferable subject to certain terms s conditions.
Characteristics of Company
(i) Incorporated Association A company comes into existence through the operation of law. Therefore, its incorporation under the Companies Act is must. Without such registration, no company can come into existence. Being created by law, it is regarded as an artificial legal person.
(ii) Separate Legal Entity A company has a separate legal entity, which is not affected by changes in the membership. Therefore being a separate entity, a company can contract, sue and be used in its corporate name and capacity.
(iii) Artificial Person A company is an artificial and juristic person that is created by law.
(iv) Limited Liability Every shareholder of accompany has limited liability. His liability is limited to the extent of the unpaid value of the shares held by him. If such shares are fully paid up, he is subject to no further liability.
(v) Perpetual Existence The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Companies Act.
(vi) Common Seal The company is not a natural person and has no physical existence. Hence, it cannot put its signature. Thus, the common seal acts as an official signature of a company that validates the official documents.
(vii) Maintenance of Books A limited company is required by law to keep a prescribed set of account books and any failure in this regard attracts penalties.

Question 2. Explain in brief the main categories in which the share capital of a company is divided.
Answer Share capital of a company can be divided into the following categories
(i) Authorised Capital It refers to that amount which is laid down in clause of the memorandum of association of the company. This i maximum amount with which company is registered and to raise from the public by the issue of shares. The therefore, called the registered or nominal or authorised capital of company.
(ii) Issued Capital The authorised capital which is offered to the public for subscription including shares offered to the vendors for subscription other than cash is called the issued capital.
(iii) Subscribed Capital It is the portion of issued capital which has been subscribed to by the public i.e., applied for and allotted by the company. Thus, face value of allotted shares is known as subscribed capital.
(iv) Called-up Capital The portion of the subscribed capital which the shareholders are called upon to pay is termed as called up capital of the company. The company usually does not require a shareholder to pay in one lot, the full value of the shares he has subscribed for. He is generally required to pay it by instalments. The balance of subscribed capital which has not been called-up represents uncalled capital.
(v) Paid-up Capital The amount of called-up capital which has been actually paid by the shareholders is called as paid-up capital and the amounts yet due from the shareholders are called as calls-in-arrears.
(vi) Reserve Capital Sometimes a company by means of special resolution decides that certain portion of its uncalled capital shall not be called-up during its existence and it would be available as an additional security to its creditors in the event of its liquidation. Such a portion of uncalled capital is termed as reserve capital.

Question 3. What do you mean by the term ‘share? Discuss the type of shares, which can be issued under the Companies Act, 1956 as amended to date.
Answer The capital of a company is divided into a number of equal parts. Each part is called a share. A company may divide its capital into shares of ? 10, ? 50, ^100 or any suitable amount, but it is always preferable to have shares of small denomination in order to bring them within the reach of small investor.
According to Lord Lindley, “The portion of capital to which each member is entitled to his share”. In this way, share is proportionate part of the share capital and forms ownership in a company.
According to Companies Act, 1956 there are two types of shares
(i) Preference Share Preference Share is one which carries the following two rights
(a) They have a right to receive dividend at a fixed rate before any dividend is paid on the equity shares
(b) On the winding up of the company, they have right to return of capital before the capital returned on equity shares.
However, not with standing the above two conditions, a holder of the preference share may have a right to share fully or to a limited extent in the surplus of the company as specified in the Memorandum or Articles* of the company.
(ii) Equity Share Under Indian Companies Act 1956, ‘an equity share is share which is not preference share’. Thus, this share does not carry any preferential right or in other words, equity share is one which is entitled to dividend and repayment of capital after the claim of preference shares is satisfied. Usually the equity shareholders control the affairs of the company and hence right to all the profits after the preference dividend has been paid.

Question 4. Discuss the process for the allotment of shares of a company in case of over subscription.
Answer When shares are issued to the public for subscription through the prospectus by well managed and financially strong companies, it may happen that the total number of applications received for shares exceeds the number of shares offered by the company to the public, such situation is called the situation of over-subscription. A company can opt for any of the three alternatives to allot shares in case of over-subscription of shares.
(i) Excess Applications are Refused and Money received on Excess Applications is Returned to the Applicants

(ii) If the Applicant are made Partially Allotment (or Pro-rata Basis) In case of over-subscription, when a company allots shares rateable to all the applicants, it is called as pro-rata allotment.
In such a case, the main problem is what to do with the excess amount received on application. Practically, it will be quite irrational to refund the excess money first and then ask the allottee applicants to pay the allotment money.

In practice, generally excess application money receive on these shares is adjusted towards the amount due on allotment or call. For this purpose the entry is made as follows
Pro-rata and Refund of Money In case of over-subscription, the director can adopt a combination of the above two alternatives i.e., they can accept full allotment to some applications, a pro-rata allotment to others and no allotment to the rest.

Question 5. What is a ‘Preference Share’? Describe the different types of preference shares.
Answer Preference share is one which carries the following two rights
(i) They have a right to receive dividend at a fixed rate before any dividend is paid on the equity shares.
(iii) On the winding up of the company, they have right to return of capital before of the capital returned on equity shares.
However, not with standing the above two conditions, a holder of the preference share may have a right to share fully or to a limited extent in the surplus of the company as specified in the Memorandum or Articles of the Company.
Preference shares can be of various types which are as follows
(i) Cumulative Preference Shares If there are no profits in one year and the arrears of dividends are to be carried forward and paid out of the profits of subsequent years, the preference share is said to be cumulative. It is noted that the company should pay dividend out of profits only.
(ii) Non-Cumulative Preference Shares If unpaid dividend lapses, the share is said to be non-cumulative preference share. It means when a preference shareholder receives dividend only in case of profit and is not entitled any right to recover the arrears of dividend, then the type of preference shares held by the shareholder is known as non-cumulative preference shares.
(iii) Redeemable Preference Shares When shares are repaid after some specified time in accordance with the terms of issue they are called redeemable preference shares.
(iv) Non-Redeemable Preference Shares These are the preference shares, which do not carry with them the arrangement regarding redemption. According to Section 80 (54), no company limited by shares shall issue irredeemable preference shares or preference shares redeemable after the expiry of 20 years from the date of issue.
(v) Participating Preference Shares When a preference shareholder enjoys the right to participate in the surplus profit (in addition to the fixed rate of dividend) that is left after the payment of dividend to the equity shareholders, the type of shares held by the shareholder is known as participating preference shares.
(vi) Non-Participating Preference Shares When a preference shareholder receives only a fixed rate of dividend every year and do not enjoy the additional participation in the surplus profit, then the type of shares held by the shareholder is known as non-participating preference shares.
(vii) Convertible Preference Shares These shares give the right to the holder to get them converted into equity shares at their option according to the terms and conditions of their issue.
(viii) Non-Convertible Preference Shares When the holder of a preference share has not been conferred the right to get his holding converted into equity share, it is called non-convertible preference shares. Preference shares are non-convertible unless otherwise stated.

Question 6. Describe the provisions of law relating to ‘Calls-in- Arrears’ and ‘Calls in Advance’
Answer Calls-in-Arrears The portion of called up capital which is not paid by the shareholder within a specified time is known as calls-in-arrears. In other words, when a shareholder fails to pay the amount due on allotment or any subsequent calls, then it is termed as call-in-arrears.
The company is authorised by its Article of Association to charge interest at a specified rate on the amount of call-in-arrears from the due date till the date of payment. If the Article of Association is silent in this regard, then Table A shall be applicable that is interest at 5% pa is charged.
It is deducted from the called-up share capital on the liabilities side of the Company’s Balance Sheet. The company can also forfeit the shares on account of non-payment of the calls money after giving proper notice to shareholders.
Calls in Advanqe It means calls not due but paid by the shareholder in advance. Thus, the amount of future calls is received in advance by the company.
In other words, when a shareholder pays the whole amount or a part of the amount in advance, i.e., before the company calls, then it is termed as calls in advance. The company is authorised by its Article of Association to pay interest at the specified rate on call in advance from the date of payment till the date of call made.
If the Article of Association is silent in this regard, then the Table A shall be applicable that is, interest at 6% pa is provided. It is shown under the heading of current liabilities on the liabilities side of the Company’s Balance Sheet.

Question 7. Explain the terms ‘Over-subscription’ and ‘Under-subscription’. How are they dealt with in accounting records?
Answer When shares are issued to the public for subscription through the prospectus by well managed and financially strong companies, it may happen that the total number of applications received for shares exceeds the number of shares offered by the company to the public, such situation is called the situation of over-subscription. A company can opt for any of the three alternatives to allot shares in case of over-subscription of shares.
(i) Excess Applications are Refused and Money Received on Excess Applications is Returned to the Applicants

(ii) If the Applicant are made Partially Allotment (or Pro-rata Basis) In case of over-subscription, when a company allots shares rateable to all the applicants, it is called as pro-rata allotment. In such a case the main problem is what to do with the excess amount received on application.
Practically, it will be quite irrational to refund the excess money first and then ask the allottee applicants to pay the allotment money.
In practice, generally excess application money receive on these shares is adjusted towards the amount due on allotment or call. For this purpose the entry is made as follows

(iii) Pro-rata and Refund of Money In case of over-subscription, the director can adopt a combination of the above two alternatives i.e., they ,can accept full allotment to some applications, a pro-rata allotment to others and no allotment to the rest.

Under-Subscription: In case when share are issued by the company and the number of shares applied by the public is lesser than the number of shares issued this is called the situation of under-subscription.
As per the Comprise Act, the minimum subscription is 90% of the shares issued by the company. This implies that the company can allot shares to the applicants provided if applications for 90% of the issued shares are received. Otherwise, the company should refund the entire application amount received.
In this regard, necessary journal entry is passed only after receiving and refunding of the application. In this case, normal entries are made as the adjustment is not needed for any excess.

Question 8. Describe the purposes for which a company can use ‘Securities Premium Account.
Answer Securities premium account can be used only for the following four purposes as laid down by Section 78 of the Companies Act 1956
(i) To issue fully paid bonus shares to an extent not exceeding unissued share capital of the company.
(ii) To write-off preliminary expenses of the company.
(iii) To write-off the expenses of, or commission paid, or discount allowed on any of the shares or debentures of the company.
(iv) To pay premium on the redemption of preference shares or debentures of the company.

Question 9. State clearly the conditions under which a company can issue shares at a discount.
Answer In normal condition as a general rule, a company cannot ordinarily issue shares at a discount. It can do so only in cases such as ‘reissue of forfeited shares’ and in accordance with the provisions of Section 79 of the Companies Act. According to Section 79 of the Companies Act, 1932, a company is permitted to issue shares, at a discount provided the following conditions ara satisfied
(i) The issue of shares at a discount is authorised by an ordinary resolution passed by the company at its general meeting and sanctioned by the Company Law Board now Central Government.
(ii) The resolution must specify the maximum rate of discount at which the shares are to be issued but the rate of discount must not exceed 10 per cent of the nominal value of shares. The rate of discount can be more than 10 per cent if the government is convinced that a higher rate is called-for under special circumstances of a case.
(iii) At least one year must have elapsed since the date on which the company became entitled to commence the business.
(iv) The shares are of a class which has already been issued. •
(v) The shares issued within two months from the date of receiving sanction for the same from the government or within such extended period as the government may allow.
(vi) If the offer prospectus at the date of issue must mention particulars of the discount allowed on the issue of shares.

Question 10. Explain the term ‘Forfeiture of Shares’ and give the accounting treatment on forfeiture.
Answer If a shareholder fails to pay the allotment money and or any call money on his shares as called upon by the directors, his shares may be forfeited by the directors, if they are so authorised by the Articles of Association. This is known as forfeiture of shares.
As per the Table A of the Company Act, the procedure of forfeiting shares is mentioned below.
(i) A notice is sent to default shareholder stating him/her to pay calls-in-arrears along with the interest accrued on the outstanding calls money within a period of 14 days of the receipt of notice, otherwise, the shares will be forfeited.
(ii) If the shareholder does not pay the amount, then the company has the right to forfeit his/her share by passing a resolution.
(iii) A notice of that resolution is send to the default shareholder and a public notice of the same is published in a daily newspaper.
(iv) The name of the shareholder is removed from the register of members (i.e., shareholders).

Accounting Treatment for Forfeiture of Shares
(i) Forfeiture of Shares that were Issued at Par

(ii) Forfeiture of Shares that were Issued at Premium
(a) Sometimes forfeited shares would have been issued at premium in that case if amount of premium is received than premium received is not shown.

(b) Sometimes forfeited shares would have been issued at premium in that case if amount of premium is not received than premium not received is shown.

(iii) Forfeiture of shares that were issued at discount Sometimes forfeited shares would have been issued at discount in that case amount of discount will always be shown.

NUMERICAL QUESTIONS

1. Anish Limited issued 30,000 equity shares of Rs.100 each payable at Rs.30 on application, Rs.50 on allotment and Rs.20 on Ist and final call. All money was duly received. Record these transactions in the journal of the company.

2. The Adersh Control Device Ltd was registered with the authorised capital of Rs.3,00,000 divided into 30,000 shares of Rs.10 each, which were offered to the public. Amount payable as Rs.3 per share on application, Rs.4 per share on allotment and Rs.3 per share on first and final call. These share were fully subscribed and all money was dully received. Prepare journal and Cash Book.

3. Software solution India Ltd inviting application for 20,000 equity share of Rs.100 each, payable Rs.40 on application, Rs.30 on allotment and Rs.30 on call. The company received applications for 32,000 shares.
Application for 2,000 shares were rejected and money returned to Applicants. Applications for 10,000 shares were accepted in full and applicants for 20,000 share allotted half of the number of share applied and excess application money adjusted into allotment. All money received due on allotment and call. Prepare journal and cash book.

4. Rupak Ltd. issued 10,000 shares of Rs.100 each payable Rs.20 per share on application, Rs.30 per share on allotment and balance in two calls of Rs.25 per share. The application and allotment money were duly received. On first call
all member pays their dues except one member holding 200 shares, while another member holding 500 shares paid for the balance due in full. Final call was not made. Give journal entries and prepare cash book.

5. Mohit Glass Ltd. issued 20,000 shares of Rs.100 each at Rs.110 per share, payable Rs.30 on application, Rs.40 on allotment (including Premium), Rs.20 on first call and Rs.20 on final call. The applications were received for 24,000
shares and allotted 20,000 shares and reject 4,000 shares and amount returned thereon. The money was duly received. Give journal entries.

6. A limited company offered for subscription of 1,00,000 equity shares of Rs.10 each at a premium of Rs.2 per share. 2,00,000. 10% Preference shares of Rs.10 each at par.
The amount on share was payable as under :

7. Eastern Company Limited, having an authorised capital of Rs.10,00,000 in shares of Rs.10 each, issued 50,000 shares at a premium of Rs.3 per share payable as follows :

Applications were received for 60,000 shares and the directors allotted the shares as follows :
(a) Applicants for 40,000 shares received shares, in full.
(b) Applicants for 15,000 shares received an allotment of 8,000 shares.
(c) Applicants for 500 shares received 200 shares on allotment, excess money being returned.
All amounts due on allotment were received. The first call was duly made and the money was received with the exception of the call due on 100 shares.
Give journal and cash book entries to record these transactions of the company. Also prepare the Balance Sheet of the company.

8. Sumit Machine Ltd issued 50,000 shares of Rs.100 each at discount of 5%. The shares were payable Rs.25 on application, Rs. 40 on allotment and Rs.30 on first and final call. The issue were fully subscribed and money were duly
received except the final call on 400 shares. The discount was adjusted on allotment. Give journal entries and prepare balance sheet.

9. Kumar Ltd purchases assets of Rs.6,30,000 from Bhanu Oil Ltd. Kumar Ltd. issued equity share of Rs.100 each fully paid in consideration. What journal entries will be made, if the share are issued, (a) at par, (b) at discount of 10 %
and (c) at premium of 20%

10. Bansal Heavy machine Ltd purchased machine worth Rs.3,20,000 from Handa Trader. Payment was made as Rs.50,000 cash and remaining amount by issue of equity share of the face value of Rs. 100 each fully paid at an issue
price of Rs.90 each. Give journal entries to record the above transaction.

11. Naman Ltd issued 20,000 shares of Rs.100 each, payable Rs.25 on application, Rs.30 on allotment , Rs.25 on first call and The balance on final call. All money duly received except Anubha, who holding 200 shares did not pay allotment
and calls money and Kumkum, who holding 100 shares did not pay both the calls. The directors forfeited shares of Anubha and kumkum. Give journal entries.

12. Kishna Ltd issued 15,000 shares of Rs.100 each at a premium of Rs.10 per share, payable as follows:

All the shares subscribed and the company received all the money due, With the exception of the allotment and call money on 150 shares. These shares were forfeited and reissued to Neha as fully paid share of Rs.12 each.
Give journal entries in the books of the company.

13. Arushi Computers Ltd issued 10,000 equity shares of Rs.100 each at 10% discount. The net amount payable as follows:

A shareholder holding 200 shares did not pay final call. His shares Were forfeited. Out of these 150 shares were reissued to Ms.Sonia at Rs.75 per shares. Give journal entries in the books of the company.

14.Raunak Cotton Ltd. issued a prospectus inviting applications for 6,000 equity shares of Rs.100 each at a premium of Rs.20 per shares, payable as follows:

Application were received for 10,000 shares and allotment was made Pro-rata to the applicants of 8,000 shares, the remaining applications Being refused. Money received in excess on the application was adjusted toward the amount
due on allotment.Rohit, to whom 300 shares were allotted failed to pay allotment and calls money, his shares were forfeited. Itika, who applied for 600 shares, failed to pay the two calls and her share were also forfeited. All these shares were sold to Kartika
as fully paid for Rs.80 per shares. Give journal entries in the books of the company

15. Himalaya Company Limited issued for public subscription of 1,20,000 equity shares of Rs.10 each at a premium of Rs.2 per share payable as under :

Applications were received for 1,60,000 shares. Allotment was made on pro-rata basis. Excess money on application was adjusted against the amount due on allotment.
Rohan, whom 4,800 shares were allotted, failed to pay for the two calls. These shares were subsequently forfeited after the second call was made. All the shares forfeited were reissued to Teena as fully paid at Rs 7 per share.
Record journal entries in the books of the company to record these transactions relating to share capital. Also show the company’s balance sheet.

16. Prince Limited issued a prospectus inviting applications for 2,00,000 equity shares of Rs.10 each at a premium of Rs.3 per share payable as follows :

Applications were received for 30,000 shares and allotment was made on prorata basis. Money overpaid on applications was adjusted to the amount due on allotment.
Mr. ‘Mohit’ whom 400 shares were allotted, failed to pay the allotment money and the first call, and her shares were forfeited after the first call. Mr. ‘Joly’, whom 600 shares were allotted, failed to pay for the two calls and hence, his
shares were forfeited.Of the shares forfeited, 800 shares were reissued to Supriya as fully paid for Rs.9 per share, the whole of Mr. Mohit’s shares being included. Record journal entries in the books of the Company and prepare the Balance
Sheet.

17. Life machine tools Limited, issued 50,000 equity shares of Rs.10 each at Rs.12 per share, payable at to Rs.5 on application (including premium), Rs.4 on allotment and the balance on the first and final call.
Applications for 70,000 shares had been received. Of the cash received, Rs.40,000 was returned and Rs.60,000 was applied to the amount due on allotment, the balance of which was paid. All shareholders paid the call due,
with the exception of one share holder of 500 shares. These shares were forfeited and reissued as fully paid at Rs.8 per share. Journalise the transactions.

18.The Orient Company Limited offered for public subscription 20,000 equity shares of Rs.10 each at a premium of 10% payable at Rs.2 on application; Rs.4 on allotment including premium; Rs.3 on First Call and Rs.2 on Second and Final call. Applications for 26,000 shares were received. Applications for 4,000 shares were rejected. Pro-rata allotment was made to the remaining applicants. Both the calls were made and all the money were received except the final call on 500 shares which were forfeited. 300 of the forfeited shares were later on issued as fully paid at Rs.9 per share. Give journal entries and prepare the balance sheet

19.Alfa Limited invited applications for 4,00,000 of its equity shares of Rs.10 each on the following terms :

Applications for 5,00,000 shares were received. It was decided :
(a) to refuse allotment to the applicants for 20,000 shares;
(b) to allot in full to applicants for 80,000 shares;
(c) to allot the balance of the available shares’ pro-rata among the other applicants; and
(d) to utilise excess application money in part as payment of allotment money.
One applicant, whom shares had been allotted on pro-rata basis, did not pay the amount due on allotment and on the call, and his 400 shares were forfeited.
The shares were reissued @ Rs.9 per share. Show the journal and prepare Cash book to record the above .

20. Ashoka Limited Company which had issued equity shares of Rs.20 each at a discount of Rs. 4 per share, forfeited 1,000 shares for non-payment of final call of Rs.4 per share. 400 of the forfeited shares are reissued at Rs.14 per share
out of the remaining shares of 200 shares reissued at Rs.20 per share. Give journal entries for the forfeiture and reissue of shares and show the amount transferred to capital reserve and the balance in Share Forfeiture Account.

21. Amit holds 100 shares of Rs.10 each on which he has paid Re.1 per share as application money. Bimal holds 200 shares of Rs.10 each on which he has paid Re.1 and Rs.2 per share as application and allotment money, respectively.
Chetan holds 300 shares of Rs.10 each and has paid Re.1 on application, Rs.2 on allotment and Rs.3 for the first call. They all fail to pay their arrears and the second call of Rs.2 per share and the directors, therefore, forfeited their shares.
The shares are reissued subsequently for Rs.11 per share as fully paid. Journalise the transactions.

22. Ajanta Company Limited having a normal capital of Rs.3,00,000, divided into shares of Rs.10 each offered for public subscription of 20,000 shares payable at Rs.2 on application; Rs.3 on allotment and the balance in two calls of Rs.2.50
each. Applications were received by the company for 24,000 shares. Applications for 20,000 shares were accepted in full and the shares allotted. Applications for the remaining shares were rejected and the application money was refunded.
All moneys due were received with the exception of the final call on 600 shares which were forfeited after legal formalities were fulfilled. 400 shares of the forfeited shares were reissued at Rs.9 per share.Record necessary journal entries and prepare the balance Sheet showing the
amount transferred to capital reserve and the balance in Share forfeiture account.

23. Journalise the following transaction in the books Bhushan Oil Ltd:
(a) 200 shares of Rs.100 each issued at a discount of Rs.10 were forfeited for the non payment of allotment money of Rs.50 per share. The first and final call of Rs.20 per share on these share were not made. The forfeited share were reissued at Rs.70 per share as fully paid-up.
(b) 150 shares of Rs.10 each issued at a premium of Rs.4 per share payable with allotment were forfeited for non-payment of allotment money of Rs.8 per share including premium. The first and final call of Rs.4 per share were not made. The forfeited share were reissued at Rs.15 per
share fully paid-up.
(c) 400 share of Rs.50 each issued at par were forfeited for non-payment of final call of Rs.10 per share. These share were reissued at Rs.45 per share fully paid-up.

24. Amisha Ltd inviting application for 40,000 shares of Rs.100 each at a premium of Rs.20 per share payable; on application Rs.40 ; on allotment Rs.40 (Including premium): on first call Rs.25 and Second and final call Rs.15.
Application were received for 50,000 shares and allotment was made on prorata basis. Excess money on application was adjusted on sums due on allotment.
Rohit to whom 600 shares were allotted failed to pay the allotment money and his shares were forfeited after allotment. Ashmita, who applied for 1000 shares failed to pay the
Two calls and his shares were forfeited after the second call. Of the shares forfeited, 1200 shares were sold to Kapil for Rs.85 per share as fully paid, the whole of Rohit’s shares being included. Record necessary journal entries.

NCERT Solutions Accountancy Business Studies Macro Economics Commerce

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership : Basic Concepts

September 29, 2019

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership : Basic Concepts

TEST YOUR UNDERSTANDING – I

1. Mohan and Shyam are partners in a firm. State whether the claim is valid if the
partnership agreement is silent in the following matters:
(i) Mohan is an active partner. He wants a salary of Rs. 10,000 per year;

Answer Invalid
I In the absence of partnership agreement, no interest on capital, interest on drawings, salary, commission is to be allowed to partners.

(ii) Shyam had advanced a loan to the firm. He claims interest @ 10% per annum;
Answer Invalid
Interest on partners loan to be allowed @ 6% pa,

(iii) Mohan has contributed Rs. 20,000 and Shyam Rs. 50,000 as capital. Mohan wants equal share in profits.
Answer Valid
Profit and losses are to be shared equally.

(iv) Shyam wants interest on capital to be credited @ 6% per annum.
Answer Invalid
No interest on capital is to be allowed to partners.
2. State whether the following statements are true or false:
(i) Valid partnership can be formulated even without a written agreement between the partners;
Answer True

(ii) Each partner carrying on the business is the principal as well as the agent for all the other partners;
Answer True

(iii) Maximum number of partners in a banking firm can be 20;
Answer True

(iv) Methods of settlement of dispute among the partners can’t be part of the partnership deed;
Answer False

(v) If the deed is silent, interest at the rate of 6% p.a. would be charged on the drawings made by the partner;
Answer False

(vi) Interest on partner’s loan is to be given @ 12% p.a. if the deed is silent about the rate.
Answer False

DO IT YOURSELF

Q.1. Soumya and Bimal are partners in a firm Sharing profits and losses in the ratio of 3:2. The balance in their capital and current accounts as on April 01, 2006 were as under:
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q1
The partnership deed provides that Soumya is to be paid salary @ Rs, 500 per month where as Bimal is to get a commission of Rs. 40,000 for the year. Interest on capital is to be credited at 6% p.a. The drawings of Soumya and Bimal for the year
were Rs. 30,000 and Rs. 10,000 respectively. The net profit of the firm before making these adjustment was Rs, 2,49,000. Interest on Soumya’s drawings was Rs. 750 and
Bimal’s drawings, Rs. 250. Prepare Profit and Loss Appropriation Account and Partner’s Capital and Current Accounts.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q1.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q1.2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q1.3

2. Soniya, Charu and Smita started a partnership firm on April 1, 2006. They contributed Rs, 5,00,000, Rs. 4,00,000 and Rs. 3,00,000 respectively as their capitals and decided to share profits and losses in the ratio of 3:2:1.The partnership provides that Soniya is to be paid a salary of Rs. 10,000 per
month and Charu a commission of Rs. 50,000. It also provides that interest on capital be allowed @6% p.a. The drawings for the year were Soniya Rs. 60,000, Charu Rs. 40,000 and Smita Rs. 20,000. Interest on drawings was charged as Rs. 2,700 on Soniya’s drawings, Rs. 1,800 on Charu’s drawings and Rs. 900 on Smita’s drawings. The net amount of profit as per Profit and Loss Account for the year 2006-07 was Rs. 3,56,600.
(i) Record necessary journal entries.
(ii) Prepare profit and loss appropriation account
(iii) Show capital accounts of the partners.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q2.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q2.2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 1 Q2.3

TEST YOUR UNDERSTANDING – II

1. Raju and Jai commenced business in partnership on April 1, 2006. No partnership agreement was made whether oral or written. They contributed Rs. 4,00,000 and
Rs. 1,00,000 respectively as capitals. In addtion, Raju advanced Rs. 2,00,000 as loan to the firm on October 1, 2006. Raju met with an accident on July 1, 2006 and could not attend the business up to september 30, 2006. The profit for the year ended March 31, 2007 amounted to Rs, 50,600. Disputes have arisen between them on sharing the profits of the firm.
Raju Claims:
(i) He should be given interest at 10% p.a. on capital and so also on loan.
(ii) Profit should he distributed in the proportion of capitals.
Jai Claims:
(i) Net profit should be shared equally.
(ii) He should be allowed remuneration of Rs, 1,000 p.a. during the period of
Raju’s illness.
(iii) Interest on capital and loan should be given @ 6% p.a.

State the correct position on each issue as per the provisions of the partnership Act. 1932.

Answer Raju’s Claims
(i) He cannot claim interest on capital and he is entitled only for 6A interest on loan.
(ii) In absence ot any agreement profits are distributed equally
Jai’s Claims
(i) It will be accepted.
(ii) He is not entitled for any remuneration.
(iii) No interest on capital is allowed whereas 6% interest for loan should be given.

2. Reena and Raman are partners with capitals of Rs. 3,00,000 and Rs. 1,00,000 respectively. The profit (as per Profit and Loss Account) for the year ended March
31, 2007 was Rs. 1,20,000. Interest on capital is to be allowed at 6% p.a. Raman was entitled to a salary of Rs. 30,000 p.a. The drawings of partners were Rs. 30,000 and 20,000. The interest on drawings to be charged to Reena was Rs. 1,000 and to Raman, Rs. 500.
Assuming that Reena and Raman are equal partners. State their share of profit after necessary appropriations.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Test Your Understanding II Q2

TEST YOUR UNDERSTANDING -III

1.Rani and Suman are in partnership with capitals of Rs, 80,000 and Rs. 60,000, respectively. During the year 2006-2007, Rani withdrew Rs. 10,000 from her capital and Suman Rs. 15,000. Profits before charging interest on capital was Rs. 50,000. Ravi and Suman shared profits in the ratio of 3:2. Calculate the amounts of interest on their capitals @ 12% p.a. for the year ended March 31, 2007.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Test Your Understanding III Q1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Test Your Understanding III Q1.1
2. Priya and Kajal are partners in a firm, sharing profits and losses in the ratio of 5:3. The balance in their fixed capital accounts, on April 1, 2006 were: Priya,
Rs. 6,00,000 and Kajal, Rs. 8,00,000. The profit of the firm for the year ended March 31, 2007 is Rs, 1,26,000. Calculate their shares of profits: (a) when there is no agreement in respect of interest on capital, and (b) when there is an agreement that the interest on capital will be allowed @ 12% p.a.
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NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Test Your Understanding III Q2.1

DO IT YOURSELF

1. Govind is a partner in a firm. He withdrew the following amounts during the year 2006-07:
DATE (Rs.)
April 30, 2006 6,000
June 30, 2006 4,000
Sept. 30, 2006 8,000
Dec. 31, 2006 3,000
Jan. 31, 2007 5,000
he interest on drawings is to be charged @ 6% p.a. The books are closed on March 31, every year.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 2 Q1
2. Ram and Syam are partners sharing profits/losses equally. Ram withdrew Rs. 1,000 p.m. regularly on the first day of every month during the year 2006-07 for personal expenses. If interest on drawings is charged @ 5% p.a. Calculate interest on the drawings of Ram.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 2 Q2

3. Verma and Kaul are partners in a firm. The partnership agreement provides that interest on drawings should be charged @ 6% p.a. Verma withdraws Rs. 2,000 per month starting from April 01, 2006 to March 31, 2007. Kaul withdrew Rs, 3,000 per quarter, starting from April 01, 2006. Calculate interest on partner’s drawings.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 2 Q3

DO IT YOURSELF

Q.1.Gupta and Sarin are partners in a firm sharing profits in the ratio of 3:2. Their fixed capitals are: Gupta 2,00,000, and Sarin 3,00,000. After the accounts for the year are prepared it is discovered that interest on capital @10% p.a. as provided in the partnership agreement, has not been credited in the capital accounts of partners before distribution of profits. Record adjustment entry to rectify the error.
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NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 3 Q1.1

2. Krishna, Sandeep and Karim are partners sharing profits in the ratio of 3:2:1. Their fixed capitals are: Krishan Rs. 1,20,000, Sandeep 90,000 and Karim 60,000.
For the year 2006-07, interest was credited to them @ 6% p.a. instead of 5% p.a. Record adjustment entry.
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NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 3 Q2.1

3. Leela, Meera and Neha are partners and have omitted interest on capital @9% p.a. for three years ended March 31, 2007. Their fixed capitals on which interest was to be allowed throughout were: Leela Rs. 80,000, Meera Rs. 60,000 and Neha Rs. 1,00,000. Their profit sharing ratio during the last three years were:

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 3 Q3

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Do it Yourself 3 Q3.1

SHORT ANSWER TYPE QUESTIONS

Question 1. Define Partnership Deed.
Answer A partnership deed is a agreement among the partners which contains ai! the terms of the Partnership. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capita! by each partner, -atio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan etc.

Question 2. Why it is considered desirable to make the partnership agreement in writing?
Answer As .per Partnership Act 1932 it is not necessary that a partnership agreement must be in writing but still it is always suggested that it should be in written form Because today there are very good relationship among the partners but n future if there may be any dispute regarding any issue, a written partnership agreement will help in avoiding disputes and misunderstandings among the partners.

Question 3. List the items which may be debited or credited in capital accounts of the partners when
(i) Capitals are fixed
(ii) Capitals are fluctuating

Answer (i)When capitals are fixed, the following items will be debited or^ credited in partners capital account
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts SAQ Q3

Question 4. Why is Profit and Loss Adjustment Account prepared? Explain.
Answer Profit and loss adjustment account is prepared to record those transaction or omissions and errors which were left while preparing the final accounts and they are found after the final accounts have been prepared and the profits distributed among the partners. The omission may be in respect of interest on capital, interest on drawings, interest on partners’ loan, partner’s salary, partner’s commission or outstanding expenses.
There may also be some changes in the provisions of partnership deed or system of accountings having impact with retrospective effect. All these acts of omission and commission need adjustments for correction of their impact. These omission errors and corrections can be recorded in partners’ capital account directly but still it seems convenient to prepare the profit and loss adjustment account.
Question 5. Give two circumstances under which the fixed capitals of partners may change.
Answer Under the fixed capital method the capital of partners may change in the following two circumstances
(i) First, when fresh capital is introduced by the partner with the consent of other partners.
(ii) Second, when a part of capital is withdrawn by the partner with the consent of other partners.

Question 6. If a fixed amount is withdrawn on the first day of every quarter, for what period the interest on total amount withdrawn will be calculated?
Answer When fixed amount of money is withdrawn quarterly, it can be withdrawn either at the beginning or at the end of each quarter, if the amount is withdrawn at the end of each quarter, the interest is calculated on the total money withdrawn during the period of seven and half months .

Question 7. In the absence of partnership deed, specify the rules relating to the following
(i) Sharing of profits and losses (ii) Interest on partner’s capital
(iii) Interest on partner’s drawings (iv) Interest on partner’s loan
(v) Salary to a partner
Answer :(i)Sharing of Profit and Losses
In the absence of partnership deed profit sharing ratio among the pad maw will be equal.
(ii) Interest on Partner’s Capital
In the absence of paonemnio oeeu interest on partners capital will not be given.
(iii) Interest on Partner’s Drawings
In the absence of partnership deed no interest will be charged on partners drawings .
(iv) Interest on Partners Loan
In the absence of partnership deed if partner gives any loan to the firm he/she will be entitled to get fixed percentage of interest @6% of annum.
(v) Salary of Partner
In the absence of the patnership deed a partner will be entitled for getting any salary for his work even if the other are non working.

Long Answer Type Questions

Question 1. What is partnership? What are its chief characteristics? Explain.
Answer According to the Section 4 of the Partnership Act, 1932
Partnership is an agreement between two or more persons who have agreed to share profits or losses of a business that will be carried by all or any one of them acting for all.
Person who joined their hands to set up the business are called ‘partners individually and ‘firm’ collectively and the name under which they carry out their business is termed as ‘firm name’.
The following are the important characteristics of partnership
(i) Two or More Persons
In order to form partnership, there should be at least two person coming together for a common goal In other words, the minimum number of partners in a firm can be two. There is however, a limit on their maximum number, if a firm is engaged in the banking business, it can have a maximum of ten partners while in case of any other business, the maximum number of partners can be twenty.
(ii) Partnership Deed
A partnership deed is an agreement among the partners which contains all the terms of the partnership. It generally contains the details about all the aspects affecting the relationship between the partners including the objective of business, contribution of capital by each partner, ratio in which the profits and the losses will be shared by the partners and entitlement of partners to interest on capital, interest on loan, etc.
(iii) Business
One of the important characteristics of a partnership is that it is formed to carry out a legal business. Partnership in case of illegal business is not valid.
(iv) Sharing of Profit
In case of a partnership the partners are suppose to share profit or loss on an agreed ratio or as per the provisions of the Partnership Act, 1932, as per which they will share profit equally.
(v) Liability
In the case of a partnership liability of partners are unlimited. If there is any obligation against the third party the partner will have to pay it out of his personal property.

Question 2. Discuss the main provisions of the Indian Partnership Act, 1932 that are relevant to partnership accounts if there is no partnership deed.
Answer It is always suggested that there must be a partnership deed among the partners before getting into any partnership venture. But sometimes a partnership is started without signing any such document. In this case the rules of partnership will be applicable as per the provisions of the Indian Partnership Act, 1932. The following are the provisions that are relevant to the partnership accounts in absence of partnership deed.
(i) Profit Sharing Ratio When a partnership deed is not made or even if it is made and silent on sharing of profit or losses among the partners of a firm, then according to the Partnership Act 1932, profits and losses are to be shared equally among all the partner of the firm.
(ii) Interest on Capital When there is absence of partnership deed or the partnership deed is silent on the issue related to interest on partner’s capital, then according to the Partnership Act 1932, no interest on partners’ capital will be provided. However, if they mutually agree on this issue than they are free to give interest on capital out of the profit of the firm.
(iii)Interest on Drawings there is no partnership Peed the issue ‘elated h die interest on drawing will be handled according to the provisions Partnership Act. 1932 According sc which no Interest on drawing will be charge loan the orders on withdraw in the form of drawings.
(iv) Interest on Partner’s Loan When there is no partnership deed among the partners or the partnership deed is silent on interest on partner’s loan then according to the Partnership Act, 1932. the partners are entitled for 6% pa interest on the loan forwarded by them to the firm
(v) Salary to Partner When partnership deed is not there or it is silent on the issue related to salary to a partner, then as per the rules of the partnership Act. 1932. no partner will be entitled to any salary.

Question 3. Explain why it is considered better to make a partnership agreement in writing.
Answer As per Partnership Act. 1932, it is not necessary that a partnership agreement must be in writing but still it is always suggested that it should be in written form. Because today there are very good relationship among the partners but in future there may be any dispute regarding any Issue a written partnership agreement will help in avoiding dusputes and misunderstandings among the partners.
In this way a written partnership deed is more desirable than the ora agreements. A written partnership agreement ensures the smooth functioning of the business of the partnership firm It aiso helps in settling the disputes among the partners. Moreover a duly signed and registered partnership deed can be used as evidence in the court of law. Therefore, it s desirable to form partnership deed in writing because of the moots associated with written documents over its oral counterparts.

Question 4. Illustrate how interest on drawings will be calculated under various situations.
Answer When a partner withdraws any amount, either in cash or in any other form, from the firm for his/her personal use, then it is termed as drawings. The interest charged by the firm on the amount of drawings is termed as interest on drawings. The method of calculating interest on drawings depends on the information available for time and frequency of the drawings made by the partner. The following different situations of drawings made illustrate the calculation of interest charged on drawings.
Situation I When ail the information regarding amount, date and rate of interest on drawings is given
When a partner withdrew Rs 10,000 on July 01 and interest on drawings is charged at 12% pa and the firm closed its books on December 31 every year then interest on drawings amount to Rs 600.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.8

Situation(II) When information regarding amount, rate of interest on drawings is given
Case I Sometimes amount and rate of interest on drawings (per annum) is given but date is not mentioned
in this case when the details regarding the amount of drawings and rate of interest on drawings (pa) is given but the date of drawings is not given then interest will be charged on average basis and the period of drawings will be taken as 6 months

Case II Sometimes the amount and rate of is interest on drawings is given but the date and per anum rate of interest is not mentioned.
In this case when the date and the rate of interest aim given but per annum is not specified, then annual interest is charged.
e.g., If a partner withdrewRs 10 000 and interest rate is 12%, then the interest on drawings amounts to Rs.12,000.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.2

Situation III When a fixed amount is withdrawn at regular interval
Case I Sometimes a fixed amount is withdrawn at the beginning of each month and the rate of interest is given then the interest is calculated for 6 5 months.
e.g.. If a partner withdraws Rs1,000 in the beginning of every month and the rate of interest is 12% pa, then the interest on drawings amount to RS 780.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.3

Case II Sometimes a fixed amount is withdrawn at the end of each month and the rate of interest is given then the interest is calculated for 5.5 months.
e.g.. if a partner withdraws Rs 1.000 at the end of each month arid rate of interest is 12% pa then the interest on drawings amount to Rs 660.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.4

Case III Sometimes a fixed amount is withdrawn at the mid of each month and the rate of interest is given then the interest is calculated for 6 months.
e g. if a partner.withdraws Rs.1,000 on 15th of every month and the rate of in’crest is 12% pa then the interest on drawings amount to Rs 720.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.5
Case IV If a fixed amount is withdrawn in the beginning of every quarter then the interest is calculated for 7.5 months.
e.g.. If a partner withdraws Rs.5,000 in the beginning of every quarter and the rate of interest is 12% pa then the interest on drawings amount to Rs 1,800.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.6

Case V If a fixed amount is withdrawn at the end of every quarter, then the interest is calculated for 4.5 months.
e.g., If a partner withdraws Rs. 5,000 at the end of every quarter and the rate of interest is 12% pa then the interest on drawings amounts to Rs. 900
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.7

Situation IV When different amount is at different intervals
When different amount is withdrawn by a partner at different dates then the interest is calculated by product method. The period of drawings is calculated from the date of withdrawal to the last date of the accounting year,
e.g., A partner withdraws?6,000 on March 01, Rs.4,000 on June 01, Rs.5,000 on Aug 30 and Rs.2,000 on Nov 30 and the rate of interest on drawings is 12% pa. The firm closes its book on December 31.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q4.8

Question 5. How will you deal with a change in profit sharing ratio among existing partners? Take imaginary figures to illustrate your answer.
Answer Change in the profit sharing ratio occurs only in case of the admission, retirement or death of a partner or sometimes due to the general agreement among the partners in which they may decide to change the profit sharing ratio. There may be number of issues that should be considered during the change in the profit sharing ratio such as goodwill, reserves and accumulated profits, profit or loss on the revaluation of assets and liabilities and adjustment of capital, etc.
As far as the issue related to general reserve is concerned it is basically the accumulated profits (if any) and profit (or loss) on revaluation of assets and liabilities and should be distributed in the partner’s capital account in partners old profit sharing ratio.
Sometimes the existing partners may decide to change the profit sharing ratio then some partners gain at the cost of other partners. In other words one partner gain and other one sacrifice equal to the gain. In that case the former should compensate the latter. Therefore, the gaining partner’s capital account’s are debited to the extent of their gain and sacrificing partner’s capital accounts are credited to the extent of their sacrifice .The following journal entry is passed
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q5

Example Ram. Mohan and Shyam are partners in a firm sharing profit and loss in 3 2 :1 ratio. They decide to share profit and loss equally in future. On dm: date, the books of the firm showsRs.2.40.000 as general reserve, profit on ^evaluation of Plant and Machinery Rs.60.000. The following adjustment entry is passed through the capital accounts without affecting the books of accounts.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts LAQ Q5.1
Hence, in the above example. Shyam gains at the cost of Ram. so the Ram needs to be compensated by Shyam with the amount of Rs.50.000. The following adjustment entry is passed.

Numerical Type Problems

1. Triphati and Chauhan are partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were Rs.60,000 and Rs.40,000 as on January 01, 2005. During the year they earned a profit of Rs. 30,000. According to the partnership deed both the partners are entitled to Rs. 1,000 per month as Salary and 5% interest on their capital. They are also to be charged an interest of 5% on their drawings, irrespective of the period, which is Rs. 12,000 for Tripathi, Rs. 8,000 for Chauhan. Prepare Partner’s Accounts when, capitals are fixed.

Answer In case, Interest on capital ,partners salary and interest on drawings is charged against profit.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q1.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q1.2

2.Anubha and Kajal are partners of a firm sharing profits and losses in the ratio of 2:1. Their capital, were Rs.90,000 and Rs.60,000. The profit during the year were Rs. 45,000. According to partnership deed, both partners are allowed salary, Rs. 700 per month to Anubha and Rs. 500 per month to Kajal. Interest allowed on capital @ 5%p.a. The drawings at the end of the period were Rs. 8,500 for Anubha and Rs. 6,500 for Kajal. Interest is to be charged @ 5% p.a. on drawings. Prepare partners capital accounts, assuming that the capital account are fluctuating.
Answer. Assuming that partners salary,interest on capital and interest on drawinghave already been adjusted in profit and loss account.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q2.1
3.Harshad and Dhiman are in partnership since April 01, 2006. No Partnership agreement was made. They contributed Rs. 4,00,000 and 1,00,000 respectively as capital. In addition, Harshad advanced an amount of Rs. 1,00,000 to the firm, on October 01, 2006. Due to long illness, Harshad could not participate in business activities from August 1, to September 30, 2006. The profits for the year ended March 31, 2006 amounted to Rs. 1,80,000. Dispute has arisen between Harshad and Dhiman.
Harshad Claims:
(i) he should be given interest @ 10% per annum on capital and loan;
(ii) Profit should be distributed in proportion of capital;
Dhiman Claims:
(i) Profits should be distributed equally;
(ii) He should be allowed Rs. 2,000 p.m. as remuneration for the period he managed the business, in the absence of Harshad;
(iii) Interest on Capital and loan should be allowed @ 6% p.a. You are required to settle the dispute between Harshad and Dhiman. Also prepare Profit and Loss Appropriation Account.

Answer Decisions according to partnership Act,1932, if there is no agreement .
Decission on Harshads Claim
(i) Interest on partners capital will not be allowed to partners
(ii) Profits shall be distributed equally among all the partners
Decission on Dhimans Claim
(i) Profits should be distributed equally among all the partners, fii) No salary shall be allowed to any partner if there is no agreement regarding remuneration.
(iii) Interest shall be allowed on partner’s Loan @ 6% pa whereas no interest is allowed on capital.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q3

4.Aakriti and Bindu entered into partnership for making garment on April 01, 2006 without any Partnership agreement. They introduced Capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively on October 01, 2006. Aakriti Advanced. Rs, 20,000 by way of loan to the firm without any agreement as to interest. Profit and Loss account for the year ended March 2007 showed profit of Rs, 43,000. Partners could not agree upon the question of interest and the basis of division of profit.
You are required to divide the profits between them giving reason for your solution.
Answer In the absence of any agreement between partners
(i) Interest on partners loan is allowed @ 6% pa.
(ii) Interest on capital shall not be allowed.
(iii) Profits are to be distributed equally.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q4

5.Rakhi and Shikha are partners in a firm, with capitals of Rs. 2,00,000 and Rs, 3,00,000 respectively. The profit of the firm, for the year ended 2006-07 is Rs. 23,200. As per the Partnership agreement, they share the profit in their capital ratio, after allowing a salary of Rs. 5,000 per month to Shikha and interest on Partner’s capital at the rate of 10% p.a. During the year Rakhi withdrew Rs. 7,000 and Shikha Rs. 10,000 for their personal use. You are required to prepare Profit and Loss Appropriation Account and Partner’s Capital Accounts.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q5

6.Lokesh and Azad are partners sharing profits in the ratio 3:2, with capitals of Rs. 50,000 and 30,000, respectively. Interest on capital is agreed to be paid @ 6% p.a. Azad is allowed a salary of Rs. 2,500 p.a. During 2006, the profits prior to the calculation of interest on capital but after charging Azad’s salary amounted to Rs. 12,500. A provision of 5% of profits is to be made in respect of manager’s commission. Prepare accounts showing the allocation of profits and partner’s capital accounts.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q6

7.The partnership agreement between Maneesh and Girish provides that:
(i) Profits will be shared equally;
(ii) Maneesh will be allowed a salary of Rs. 400 p.m;
(iii) Girish who manages the sales department will be allowed a commission equal to 10% of the net profits, after allowing Maneesh’s salary;
(iv) 7% interest will be allowed on partner’s fixed capital;
(v) 5% interest will be charged on partner’s annual drawings;
(vi) The fixed capitals of Maneesh and Girish are Rs. 1,00,000 and Rs. 80,000, respectively. Their annual drawings were Rs. 16,000 and 14,000, respectively. The net profit for the year ending March 31, 2006 amounted to Rs. 40,000; Prepare firm’s Profit and Loss Appropriation Account.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q7

8. Ram, Raj and George are partners sharing profits in the ratio 5 : 3 : 2. According to the partnership agreement George is to get a minimum amount of Rs. 10,000
as his share of profits every year. The net profit for the year 2006 amounted to Rs, 40,000. Prepare the Profit and Loss Appropriation Account.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q8

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q8.1

9.Amann, Babita and Suresh are partners in a firm. Their profit sharing ratio is 2:2:1. Suresh is guaranteed a minimum amount of Rs. 10,000 as share of profit,
every year. Any deficiency on that account shall be met by Babita. The profits for two years ending December 31, 2005 and December 31, 2006 were Rs. 40,000 and Rs. 60,000, respectively. Prepare the Profit and Loss Appropriation Account for the two years.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q9

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q9.1

10. Simmi and Sonu are partners in a firm, sharing profits and losses in the ratio of 3:1. The profit and loss account of the firm for the year ending March 31, 2006 shows a net profit of Rs. 1,50,000. Prepare the Profit and Loss Appropriation Account by taking into consideration the following information:
(i) Partners capital on April 1, 2005; Simmi, Rs. 30,000; Sonu, Rs. 60,000;
(ii) Current accounts balances on April 1, 2005; Simmi, Rs. 30,000 (cr.); Sonu, Rs. 15,000 (cr.);
(iii) Partners drawings during the year amounted to Simmi, Rs. 20,000; Sonu, Rs. 15,000;
(iv) Interest on capital was allowed @ 5% p.a.;
(v) Interest on drawing was to be charged @ 6% p.a. at an average of six months;
(vi) Partners’ salaries : Simmi Rs. 12,000 and Sonu Rs. 9,000. Also show the partners’ current accounts.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q10

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q10.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q10.2

11.Ramesh and Suresh were partners in a firm sharing profits in the ratio of their capitals contributed on commencement of business which were Rs. 80,000 and Rs. 60,000 respectively. The firm started business on April 1, 2005. According to the partnership agreement, interest on capital and drawings are 12% and 10% p.a., respectively. Ramesh and Suresh are to get a monthly salary of Rs. 2,000 and Rs. 3,000, respectively.
The profits for year ended March 31, 2006 before making above appropriations was Rs. 1,00,300. The drawings of Ramesh and Suresh were Rs. 40,000 and Rs. 50,000, respectively. Interest on drawings amounted to Rs. 2,000 for Ramesh and Rs. 2,500 for Suresh. Prepare Profit and Loss Appropriation Account and partners’ capital accounts, assuming that their capitals are fluctuating.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q11

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q11.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q11.2

12.Sukesh and Vanita were partners in a firm. Their partnership agreement
provides that:
(i) Profits would be shared by Sukesh and Vanita in the ratio of 3:2;
(ii) 5% interest is to be allowed on capital;
(iii) Vanita should be paid a monthly salary of Rs. 600.
The following balances are extracted from the books of the firm, on December 31, 2006.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q12
Net profit for the year, before charging interest on capital and after charging partner’s salary was Rs. 9,500. Prepare the Profit and Loss Appropriation Account and the Partner’s Current Accounts.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q12.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q12.2

13.Rahul, Rohit and Karan started partnership business on April 1, 2006 with capitals of Rs. 20,00,000, Rs. 18,00,000 and Rs. 16,00,000, respectively.
The profit for the year ended March 2007 amounted to Rs.1,35,000 and the partner’s drawings had been Rahul Rs. 50,000, Rohit Rs. 50,000 and Karan Rs. 40,000. The profits are distributed among partner’s in the ratio of 3:2:1. Calculate the interest on capital @ 5% p.a
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q13

14.Sunflower and Pink Rose started partnership business on April 01, 2006 with capitals of Rs. 2,50,000 and Rs.1,50,000, respectively. On October 01, 2006,
they decided that their capitals should be Rs. 2,00,000 each. The necessary adjustments in the capitals are made by introducing or withdrawing cash.
Interest on capital is to be allowed @ 10% p.a. Calculate interest on capital as on March 31, 2007.

Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q14

15.On March 31, 2006 after the close of accounts, the capitals of Mountain, Hill and Rock stood in the books of the firm at Rs. 4,00,000,Rs.3,00,000 and Rs. 2,00,000, respectively. Subsequently, it was discovered that the interest on capital @ 10% p.a. had been omitted. The profit for the year amounted to Rs. 1,50,000 and the partner’s drawings had been Mountain: Rs. 20,000, Hill Rs. 15,000 and Rock Rs. 10,000. Calculate interest on capital.

Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q15

16.Following is the extract of the Balance Sheet of, Neelkant and Mahdev as on March 31, 2007:
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q16
During the year Mahadev’s drawings were Rs. 30,000. Profits during 2007 is Rs. 10,00,000. Calculate interest on capital @ 5% p.a for the year ending March 31, 2007.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q16.2

17.Rishi is a partner in a firm. He withdrew the following amounts during the year ended March 31, 2007.
May 01, 2006 Rs. 12,000
July 31, 2006 Rs. 6,000
September 30, 2006 Rs. 9,000
November 30, 2006 Rs. 12,000
January 01, 2007 Rs. 8,000
March 31, 2007 Rs. 7,000
Interest on drawings is charged @ 9% p.a. Calculate interest on drawings

Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q17

18.The capital accounts of Moli and Golu showed balances of Rs.40,000 and Rs. 20,000 as on April 01, 2006. They shared profits in the ratio of 3:2. They allowed interest on capital @ 10% p.a. and interest on drawings, @ 12 p.a. Golu advanced a loan of Rs. 10,000 to the firm on August 01, 2006.
During the year, Moli withdrew Rs. 1,000 per month at the beginning of every month whereas Golu withdrew Rs. 1,000 per month at the end of every month. Profit for
the year, before the above mentioned adjustments was Rs.20,950. Calculate interest on drawings show distribution of profits and prepare partner’s capital accounts.

Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q18

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q18.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q18.2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q18.3

19. Rakesh and Roshan are partners, sharing profits in the ratio of 3:2 with capitals of Rs. 40,000 and Rs. 30,000, respectively. They withdrew from the firm the following amounts, for their personal use:
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q19
Interest is to be charged @ 6% p.a. Calculate interest on drawings, assuming that book of accounts are closed on March 31, 2007, every year.

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q19.2

20.Himanshu withdrews Rs. 2,500 at the end Month of each month. The Partnership deed provides for charging the interest on drawings @ 12% p.a. Calculate interest on Himanshu’s drawings for the year ending 31st December, 2006.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q20
21. Bharam is a partner in a firm. He withdraws Rs. 3,000 at the starting of each month for 12 months. The books of the firm closes on March 31 every year. Calculate interest on drawings if the rate of interest is 10% p.a.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q21
22.Raj and Neeraj are partners in a firm. Their capitals as on April 01, 2005 were Rs. 2,50,000 and Rs. 1,50,000, respectively. They share profits equally. On July
01, 2005, they decided that their capitals should be Rs. 1,00,000 each. The necessary adjustment in the capitals were made by introducing or withdrawing
cash by the partners’. Interest on capital is allowed @ 8% p.a. Compute interest on capital for both the partners for the year ending on March 31, 2006

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q22

23.Amit and Bhola are partners in a firm. They share profits in the ratio of 3:2. As per their partnership agreement, interest on drawings is to be charged @ 10% p.a. Their drawings during 2006 were Rs. 24,000 and Rs. 16,000, respectively. Calculate interest on drawings based on the assumption that the amounts were withdrawn evenly, throughout the year.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q23
24.Harish is a partner in a firm. He withdrew the following amounts during the
year 2006 : Rs.
February 01 4,000
May 01 10,000
June 30 4,000
October 31 12,000
December 31 4,000
Interest on drawings is to be charged @ 7 1/2 % p.a.
Calculate the amount of interest to be charged on Harish’s drawings for the year ending December 31, 2006.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q24
25.Menon and Thomas are partners in a firm. They share profits equally. Their monthly drawings are Rs. 2,000 each. Interest on drawings is to be charged @ 10% p.a. Calculate interest on Menon’s drawings for the year 2006, assuming that money is withdrawn: (i) in the beginning of every month, (ii) in the middle of every month, and (iii) at the end of every month.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q25
26.On March 31, 2003, after the close of books of accounts, the capital accounts of Ram, Shyam and Mohan showed balance of Rs. 24,000 Rs. 18,000 and Rs. 12,000, respectively. It was later discovered that interest on capital @ 5% had been omitted. The profit for the year ended March 31, 2003, amounted to Rs. 36,000 and the partner’s drawings had been Ram, Rs. 3,600; Shyam, Rs. 4,500 and Mohan, Rs. 2,700. The profit sharing ratio of Ram, Shyam and Mohan was 3:2:1. Calculate interest on capital.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q26

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q26.1
27.Amit, Sumit and Samiksha are in partnership sharing profits in the ratio of 3:2:1. Samiksha’ share in profit has been guaranteed by Amit and Sumit to be a minimum sum of Rs. 8,000. Profits for the year ended March 31, 2006 was Rs. 36,000. Divide profit among the partners.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q27

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q27.1
28.Pinki, Deepati and Kaku are partner’s sharing profits in the ratio of 5:4:1. Kaku is given a guarantee that his share of profits in any given year would not be less than Rs. 5,000. Deficiency, if any, would be borne by Pinki and Deepti equally. Profits for the year amounted to Rs. 40,000. Record necessary journal entries in the books of the firm showing the distribution of profit.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q28
29.. Abhay, Siddharth and Kusum are partners in a firm, sharing profits in the ratio of 5:3:2. Kusum is guaranteed a minimum amount of Rs. 10,000 as per share in the profits. Any deficiency arising on that account shall be met by Siddharth. Profits for the years ending March 31, 2006 and 2007 are Rs. 40,000 and 60,000 respectively. Prepare Profit and Loss Appropriation Account.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q29

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q29.1
30.Radha, Mary and Fatima are partners sharing profits in the ratio of 5:4:1. Fatima is given a guarantee that her share of profit, in any year will not be less than Rs. 5,000. The profits for the year ending March 31, 2006 amounts to Rs. 35,000. Shortfall if any, in the profits guaranteed to Fatima is to be borne by Radha and Mary in the ratio of 3:2. Record necessary journal entry to show distributioin of profit among partner.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q30
31.X, Y and Z are in Partnership, sharing profits and losses in the ratio of 3 : 2 : 1, respectively. Z’s share in the profit is guaranteed by X and Y to be a minimum of Rs. 8,000. The net profit for the year ended March 31, 2006 was Rs. 30,000. Prepare Profit and Loss Appropriation Account, indicating the amount finally due to each partner.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q31

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q31.1
32.Arun, Boby and Chintu are partners in a firm sharing profit in the ratio or 2:2:1. According to the terms of the partnership agreement, Chintu has to get a minimum of Rs. 60,000, irrespective of the profits of the firm. Any Deficiency to Chintu on Account of such guarantee shall be borne by Arun. Prepare the profit and loss appropriation account showing distribution of profits among partners in case the profits for year 2006 are: (i) Rs. 2,50,000; (ii) 3,60,000.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q32

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q32.1
33.Ashok, Brijesh and Cheena are partners sharing profits and losses in the ratio of 2 : 2 : 1. Ashok and Brijesh have guaranteed that Cheena share in any year shall be less than Rs. 20,000. The net profit for the year ended March 31, 2006 amounted to Rs. 70,000. Prepare Profit and Loss Appropriation Account .
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q33

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q33.1
34.Ram, Mohan and Sohan are partners with capitals of Rs. 5,00,000, Rs. 2,50,000
and 2,00,000 respectively. After providing interest on capital @ 10% p.a. the
profits are divisible as follows:
Ram 1/2 , Mohan 1/3 and Sohan 1/6 . But Ram and Mohan have guaranteed that Sohan’s share in the profit shall not be less than Rs. 25,000, in any year.
The net profit for the year ended March 31, 2007 is Rs. 2,00,000, before charging interest on capital. You are required to show distribution of profit
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q34

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q34.1
35.Amit, Babita and Sona form a partnership firm, sharing profits in the ratio of 3 : 2 : 1, subject to the following :
(i) Sona’s share in the profits, guaranteed to be not less than Rs. 15,000 in any year.
(ii) Babita gives guarantee to the effect that gross fee earned by her for the firm shall be equal to her average gross fee of the proceeding five years,
when she was carrying on profession alone (which is Rs. 25,000). The net profit for the year ended March 31, 2007 is Rs. 75,000. The gross fee earned by Babita for the firm was Rs. 16,000. You are required to show Profit and Loss Appropriation Account (after giving effect to the alone).
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q35

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q35.1
36.The net profit of X, Y and Z for the year ended March 31, 2006 was Rs. 60,000 and the same was distributed among them in their agreed ratio of 3 : 1 : 1. It was subsequently discovered that the under mentioned transactions were not recorded in the books :
(i) Interest on Capital @ 5% p.a.
(ii) Interest on drawings amounting to X Rs. 700, Y Rs. 500 and Z Rs. 300.
(iii) Partner’s Salary : X Rs. 1000, Y Rs. 1500 p.a.
The capital accounts of partners were fixed as : X Rs. 1,00,000, Y Rs. 80,000 and Z Rs. 60,000. Record the adjustment entry.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q36

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q36.1
37. The firm of Harry, Porter and Ali, who have been sharing profits in the ratio of 2 : 2 : 1, have existed for same years. Ali wants that he should get equal share in the profits with Harry and Porter and he further wishes that the change in the profit sharing ratio should come into effect retrospectively were for the last
three year. Harry and Porter have agreement on this account.
The profits for the last three years were:
(Rs.)
2003-04 22,000
2004-05 24,000
2005-06 29,000
Show adjustment of profits by means of a single adjustment journal entry.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q37

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q37.1
38.Mannu and Shristhi are partners in a firm sharing profit in the ratio of 3 : 2. Following is the balance sheet of the firm as on March 31, 2006.

Profit for the year ended March 31, 2006 was Rs. 5,000 which was divided in the agreed ratio, but interest @ 5% p.a. on capital and @ 6% p.a. on drawings was inadvertently enquired. Adjust interest on drawings on an average basis for 6 months. Give the adjustment entry
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q38.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q38.2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q38.3
39.On March 31, 2006 the balance in the capital accounts of Eluin, Monu and Ahmed, after making adjustments for profits, drawing, etc; were Rs. 80,000, Rs. 60,000 and Rs. 40,000 respectively. Subsequently, it was discovered that interest on capital and interest on drawings had been omitted. The partners were entitled to interest on capital @ 5% p.a. The drawings during the year were Eluin Rs. 20,000; Monu, Rs. 15,000 and Ahmed, Rs. 9,000. Interest on drawings chargeable to partners were Eluin Rs, 500, Monu Rs. 360 and Ahmed Rs. 200. The net profit during the year amounted to Rs. 1,20,00
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q39

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q39.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q39.2
40.Azad and Benny are equal partners. Their capitals are Rs. 40,000 and Rs. 80,000, respectively. After the accounts for the year have been prepared it is discovered that interest at 5% p.a. as provided in the partnership agreement, has not been credited to the capital accounts before distribution of profits. It is decided to make an adjustment entry at the beginning of the next year. Record the necessary journal entry.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q40

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q40.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q40.2
41. Kavita and Pradeep are partners, sharing profits in the ratio of 3 : 2. They employed Chandan as their manager, to whom they paid a salary of Rs. 750 p.m. Chandan deposited Rs. 20,000 on which interest is payable @ 9% p.a. At the end of 2001 (after the division of profit), it was decided that Chandan should be treated as partner w.e.f. Jan. 1., 1998 with 1/6 th share in profits. His deposit being considered as capital carrying interest @ 6% p.a. like capital of other partners. Firm’s profits after allowing interest on capital were as follows:
(Rs.)
2001 Profit 59,000
2002 Profit 62,000
2003 Loss (4,000)
2004 Profit 78,000
Record the necessary journal entries to give effect to the above
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q41

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q41.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q41.2
42.Mohan, Vijay and Anil are partners, the balance on their capital accounts being Rs. 30,000, Rs. 25,000 and Rs. 20,000 respectively. In arriving at these figures, the profits for the year ended March 31, 2007 amounting to Rupees 24,000 had been credited to partners in the proportion in which they shared profits. During the tear their drawings for Mohan, Vijay and Anil were Rs. 5,000, Rs. 4,000 and Rs. 3,000, respectively. Subsequently, the following omissions were noticed:
(a) Interest on Capital, at the rate of 10% p.a., was not charged.
(b) Interest on Drawings: Mohan Rs. 250, Vijay Rs. 200, Anil Rs. 150 was not recorded in the books.
Record necessary corrections through journal entries.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q42

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q42.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q42.2
43.Anju, Manju and Mamta are partners whose fixed capitals were Rs. 10,000,
Rs. 8,000 and Rs. 6,000, respectively. As per the partnership agreement, there
is a provision for allowing interest on capitals @ 5% p.a. but entries for the
same have not been made for the last three years. The profit sharing ratio
during there years remained as follows:
Year Anju Manju Mamta
2004 4 3 5
2005 3 2 1
2006 1 1 1
Make necessary and adjustment entry at the beginning of the fourth year i.e. Jan. 2007.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q43

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q43.1

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q43.2
44.Dinker and Ravinder were partners sharing profits and losses in the ratio of 2:1. The following balances were extracted from the books of account, for the year ended December 31, 2005.
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q44

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q44.1
Prepare final accounts for the year ended December 31,2005, with following
adjustment:
(a) Stock on December 31,2005, was Rs. 42,500.
(b) A Provision is to be made for bad debts at 5% on debtors.
(c) Rent outstanding was Rs.1,600.
(d) Wages outstanding were Rs.1,200.
(e) Interest on capital to be allowed on capital @ 4% per annum and interest on drawings to be charged @ 6% per annum.
(f) Dinker and Ravinder are entitled to a Salary of Rs.2,000 per annum
(g) Ravinder is entitled to a commission Rs.1,500.
(h) Depreciation is to be charged on Building @ 4%, Plant and Machinery, 6%, and furniture and fixture, 5%.
(i) Outstanding interest on loan amounted to Rs. 350.
Answer
NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q44.2

NCERT Solutions for Class 12 Accountancy Chapter 2 Accounting for Partnership Basic Concepts Numerical Problems Q44.3

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