Oswaal NTA CUET (UG)| Question Bank Chapterwise & Topicwise Accountancy For 2024 Exam 9789359588995, 9359588997

Citation preview

For 2024 Exam

Highly Recommended

CHAPTER-WISE

QUESTION BANK Includes SOLVED PAPERS (2021 - 2023)

ACCOUNTANCY Section-II (Domain Specific Subject) Strictly as per the Latest Exam Pattern issued by NTA

The ONLY book you need to #AceCUET(UG)

1

2

3

4

5

100% Updated

Previous Years’ Questions

Revision Notes

Concept Videos

800+ Questions

With 2023 CUET Exam Paper

(2022-2023) for Better Exam Insights

for Crisp Revision with Smart Mind Maps

for Complex Concepts Clarity

for Extensive Practice

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1st EDITION

I S BN

YEAR 2024 "9789359588995"

CUET (UG)

SYLLABUS COVERED

PUBLISHED BY OSWAAL BOOKS & LEARNING PVT. LTD.

COP Y RIGHT

RESERVED

1/11, Sahitya Kunj, M.G. Road, Agra - 282002, (UP) India

BY THE PUBLISHERS

All rights reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without written permission from the publishers. The author and publisher will gladly receive information enabling them to rectify any error or omission in subsequent editions.

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DI SCL A IM ER

This book is published by Oswaal Books and Learning Pvt Ltd (“Publisher”) and is intended solely for educational use, to enable students to practice for examinations/tests and reference. The contents of this book primarily comprise a collection of questions that have been sourced from previous examination papers. Any practice questions and/or notes included by the Publisher are formulated by placing reliance on previous question papers and are in keeping with the format/pattern/ guidelines applicable to such papers. The Publisher expressly disclaims any liability for the use of, or references to, any terms or terminology in the book, which may not be considered appropriate or may be considered offensive, in light of societal changes. Further, the contents of this book, including references to any persons, corporations, brands, political parties, incidents, historical events and/or terminology within the book, if any, are not intended to be offensive, and/or to hurt, insult or defame any person (whether living or dead), entity, gender, caste, religion, race, etc. and any interpretation to this effect is unintended and purely incidental. While we try to keep our publications as updated and accurate as possible, human error may creep in. We expressly disclaim liability for errors and/or omissions in the content, if any, and further disclaim any liability for any loss or damages in connection with the use of the book and reference to its contents”.

Kindle Edition (2)

Preface Welcome to the ultimate resource for your Common University Entrance Test (CUET) preparation! The Common University Entrance Test (CUET) marks a significant shift in the admission process for UG programs in Central Universities across India. The introduction of CUET aims to create a level playing field for students nationwide, regardless of their geographical location, and revolutionize the way students connect with these prestigious institutions. CUET (UG), administered by the esteemed National Testing Agency (NTA), is a prestigious all-India test that serves as a single-window opportunity for admissions. The NTA consistently provides timely notifications regarding the exam schedule and any subsequent updates. The curriculum for CUET is based on the National Council of Educational Research and Training (NCERT) syllabus for class 12 only. CUET (UG) scores are mandatory required while admitting students to undergraduate courses in 44 central universities. A merit list will be prepared by participating Universities/organizations. Universities may conduct their individual counselling on the basis of the scorecard of CUET (UG) provided by NTA. Oswaal CUET (UG) Question Bank is your strategic companion designed to elevate your performance and simplify your CUET journey for success in this computer-based test.

Here’s how this book benefits you: • 100% Updated with 2023 CUET Exam Paper • Previous years Questions (2022-2023)for Better Exam insights • Revision Notes for Crisp Revision with Smart Mind Maps • Concept Videos for complex concepts clarity • 800+ questions for Extensive Practice Almost 1.92 million candidates registered for CUET (UG) in 2023. Candidates have been quite anxious about appearing for CUET (UG), however, with the right preparation strategy and resources, you can secure a good rank in CUET (UG). We believe that with dedication, hard work, and the right resources, you can conquer CUET and secure your place in the Central Universities of your choice. Good luck with your preparations, with this trusted companion on your journey to academic success! All the best! Team Oswaal Books

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Contents l Know your CUET(UG) Exam

5 - 5

l Latest CUET (UG) Syllabus

6 - 7

l Examination Paper CUET 2023



10 - 16

Accounting for Not-for-Profit Organisation and Partnership Firms Chapter-1 – Accounting Not-For-Profit Organisation Chapter-2 – Accounting For Partnership

1-8 9 - 16

Chapter-3 – Reconstitution of Partnership

17 - 27

Chapter-4 – Dissolution of Partnership

28 - 36

Chapter-5 – Accounting For Share And Debenture Capital

37 - 45

Chapter-6 – Analysis of Financial Statements

46 - 55

Chapter-7 – Statement of Changes In Financial Position

56 - 64

Computerised Accounting System Chapter-1 – Overview of Computerised Accounting System

65 - 71

Chapter-2 – Using Computerised Accounting System

72 - 77

Chapter-3 – Accounting Using Database Management (DBMS)

78 - 82

Chapter-4 – Accounting Application of Electronic Spreadsheet

83 - 88

qqq

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2 Languages + 6 Domain Specific Subject + General Test

OR

3 Languages + 5 Domain Specific Subjects + General Test

Subject/Language Choice

Objective Type with MCQs

CBT

Mode of Test

Test Pattern

Know Your CUET (UG) Exam SECTIONS

SECTION I (A) 13 Languages

Tested through reading Comprehension (i) Factual (ii) Literary (iii) Narrative

SECTION III SECTION I (B)

SECTION II

20 Languages

Domain Specific Subjects ( 27 Subjects)

General Test (Compulsory)

INCLUDES : NCERT Model syllabus (only of 12th Standard) is available on all the Subjects

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• • • • • •

General Knowledge Current Affairs General Mental Ability Numerical Ability Quantitative Reasoning Logical & Analytical Reasoning

Latest CUET (UG) Syllabus SYLLABUS FOR LANGUAGES (IA AND IB) Note: There will be one Question Paper which will have 50 questions out of which 40 questions need to be attempted. Accounting for Not-for-Profit Organizations and Partnership Firms Unit I: Accounting Not-for-Profit Organisation • Not-for-profit organization: Meaning and Examples. • Receipts and Payments: Meaning and Concept of fund-based and non-fund-based accounting. • Preparation of Income and Expenditure Account and Balance sheet from receipt and payment account with additional information. Unit II: Accounting for Partnership • Nature of Partnership Firm: Partnership deed (meaning, importance). • Final Accounts of Partnership: Fixed v/s Fluctuating capital, Division of profit among partners, Profit, and Loss Appropriation account. Unit III: Reconstitution of Partnership Changes in profit sharing ratio among the existing partners – Sacrificing ratio and Gaining ratio. • Accounting for Revaluation of Assets and Liabilities and Distribution of reserves and accumulated profits. • Goodwill: Nature, Factors affecting and Methods of valuation: Average profit, Super profit, Multiplier, and Capitalization methods. • Admission of a Partner: Effect of admission of a partner, Change in profit sharing ratio, the Accounting treatment for goodwill, Revaluation of assets and liabilities, Reserves (accumulated profits), and Adjustment of capitals. • Retirement/Death of a Partner: Change in profit sharing ratio, Accounting treatment of goodwill, Revaluation of assets and liabilities, Adjustment of accumulated profits (Reserves). Unit IV: Dissolution of Partnership Firm • Meaning, Settlement of accounts: Preparation of realization account and related accounts (excluding piecemeal distribution, sale to a company and insolvency of a Partner)

Company Accounts and Financial Statement Analysis Unit V: Accounting for Share and Debenture Capital • Share Capital: Meaning, Nature and Types. • Accounting for Share Capital: Issue and Allotment of Equity and Preference Shares; Over subscription and Under subscription; Issue at par, premium and at discount; Calls in advance, Calls in arrears, Issue of shares for consideration other than cash. • Forfeiture of Shares: Accounting treatment, Re-issue of forfeited shares. • Presentation of shares and Debentures Capital in the company’s balance sheet. • Issue of Debenture – At par, premium, and discount; Issue of debentures for consideration other than cash.

• Redemption of the debenture. • Out of proceeds of fresh issue, accumulated profits, and sinking fund. Unit VI: Analysis of Financial Statements • Financial Statements of a Company: Preparation of simple financial statements of a company in the prescribed form with major headings only. • Financial Analysis: Meaning, Significance, Purpose, Limitations. • Tools for Financial Analysis: Comparative statements, Common size statements. (6)

Contd... •

Accounting Ratios: Meaning and Objectives, Types of ratios: Liquidity Ratios: Current ratio, Liquidity ratio. Solvency Ratio: Debt to equity, Total assets to debt, Proprietary ratio. Activity Ratio: Inventory turnover, Debtors turnover, Payables turnover, Working capital turnover, fixed assets turnover, Current assets turnover. Profitability Ratio: Gross profit, Operating ratio, Net profit ratio, Return on Investment, Earning per Share, Dividend per Share, Profit Earning ratio. Unit VII: Statement of Changes in Financial Position • Cash Flow Statement: Meaning and Objectives, Preparation, Adjustments related to depreciation, dividend and tax, sale and purchase of non-current assets (as per revised standard issued by ICAI).

Computerized Accounting System Unit I: Overview of Computerized Accounting System • Concept and Types of Computerized Accounting System (CAS). • Features of a Computerized Accounting System. • Structure of a Computerized Accounting System. Unit II: Using Computerized Accounting System • Steps in the installation of CAS, Preparation of chart of accounts, Codification, and Hierarchy of account heads. • Data entry, Data validation, and Data verification. • Adjusting entries, Preparation of financial statements, Closing entries, and Opening entries. • Security of CAS and Security features are generally available in CAS (Students are expected to understand and practice the entire accounting process using an accounting package.) Unit III: Accounting Using Database Management System (DBMS) • Concepts of DBMS.Objects in DBMS: Tables, Queries, Forms, Reports. • Creating data tables for accounting. • Using queries, forms, and reports for generating accounting information. Applications of DBMS in generating accounting information such as shareholders’ records, sales reports, customers’ profiles, suppliers’ profiles payroll, employees’ profiles, and petty cash registers. Unit IV: Accounting Applications of Electronic Spreadsheet • Concept of an Electronic Spreadsheet (ES). • Features offered by Electronic Spreadsheet. • Applications of Electronic Spreadsheet in generating accounting information, preparing depreciation schedules, loan repayment schedules, payroll accounting, and other such company

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0808

VIJAYAWADA

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HARYANA AMBALA

BOKARO

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INDORE

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CHHINDWARA

Pustak Bhawan, 9827255997

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MAHARASHTRA

PRAYAGRAJ

Format Center, 9335115561, Garg Brothers Trading & Services Pvt. Ltd., 7388100499

NAGPUR

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PUNE

Pragati Book Centre, 9850039311

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New Student Agencies LLP, 7045065799

ODISHA

Inder Book Agancies, 9634045280

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Bijay Pustak Bhandar Pvt. Ltd., 8961260603, Saha Book House, 9674827254 United Book House, 9831344622, Techno World, 9830168159

Trimurti Book World, 9437034735

0808

BARIPADA

UTTAR PRADESH DEHRADUN

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CUET Question Paper - 2023 NATIONAL TESTING AGENCY Held on 24th May, 2023

Accountancy

Max. Marks : 200

Time allowed : 45 Minutes

General Instructions:

(i) This paper consists of 50 MCQs, attempt any 40 out of 50 . (ii) Correct answer or the most appropriate answer: Five marks (+5) . (iii) Any incorrect option marked will be given minus one mark (– 1) . (iv) Unanswered/Marked for Review will be given no mark (0) . (v) If more than one option is found to be correct then Five marks (+5) will be awarded to only those who have marked any of the correct options . (vi) If all options are found to be correct then Five marks (+5) will be awarded to all those who have attempted the question . (vii) If none of the options is found correct or a Question is found to be wrong or a Question is dropped then all candidates who have appeared will be given five marks (+5). (viii) Calculator / any electronic gadgets are not permitted. 1. On R’s retirement, the amount payable to him after all adjustments, work out to be ` 60,000 but the remaining partners P and Q agreed to pay him `  75,000 in full settlement of his claim. Identify the term which represent ` 15,000 extra, that is paid to R. (1) Share in Profits (2) Hidden Goodwill (3) Interest on his Capital (4) Compensation for Past work 2. Identify the term that is used to show the amount received as per the will of a deceased person. (1) Specific Donations (2) Life membership fees (3) Subscription (4) Legacies 3. Identify that account to which share of profit of a deceased partner is debited from the date of the last Balance Sheet to the date of his/her death. (1) His capital account (2) Profit and loss account (3) Profit and Loss Suspense account (4) Trading account 4. Find out cash flow form financing Activities from the following information. Issue of Equity Shares Redemption of Preference Shares Interim Dividend Paid Interest on Debentures Issue of Debentures

` 80,000 ` 30,000 ` 25,000 ` 15,000 ` 30,000

(1) Inflow ` 80,000 (2) Outflow ` 80,000 (3) Inflow ` 40,000 (4) Qutflow ` 40,000 5. A, B, and C are partners with equal profit sharing ratio. Their fixed capitals are ` 30,000, ` 25,000 and ` 30,000 respectively. C decided to take retirement. A and B decided to continue the partnership firm and change their profit sharing ratio into Capital Ratio. What is the gaining ratio of A and B? (1) 6 : 5 (2) 1 : 1 (3) 7 : 4 (4) 3 : 2 6. Out of the following when will the need for valuation of goodwill does not arise: (1) Admission of a partner (2) Retirement of a partner

(3) Dissolution of partnership firm (4) Death of a partners 7. Which command reverse the last action performed in the worksheet? (1) Ctrl + Z (2) Ctrl +P (3) Ctrl + Y (4) Ctrl +C 8. In which of the following case, claim is valid if the partnership agreement is silent? (1) Sanjay is an active partner and wants a salary of ` 1,00,000 per year. (2) Monika had advanced a loan to the firm and claims interest @10% per annum. (3) Sanjay and Monika contributed `  2,00,000 and ` 5,00,000 as capital respectively and Monika wants equal share. (4) Monika wants interest on capital to be credited @ 10% per annum. 9. Read the following facts about admission of a partner. A. A new partner acquires his share from the old partners that reduces the old partners share in profits. B. The partnet's capital must be adjusted so as to be proportionate to their new profit sharing ratio. C. Assets and Liabilities may be revalued and reassessed on admission of a partner. D. Adjustment for Reserves and Accumulated profits/ loss is done. E. Profit sharing ratio of existing partners may change on admission of a new partner. Choose the correct answer from the options given below: (1) A, B, C and D only (2) B, C, D and E only (3) C, D and E only (4) A, C, D and E only 10. Identify the ratio which is not computed for evaluating solvency of the business. (1) Debt-Equity Ratio (2) Proprietary Ratio (3) Operating Ratio (4) Interest Coverage Ratio

11

CUET (UG) Exam Paper 2023

11. A company can buy its own shares when: (1) The debt-equity ratio is not more than 1 : 1 after the buy back. (2) The amount of buy back shares in any financial year not exceeding 20% of the paid-up capital and free reserves. (3) Partly paid up shares are considered buy back. (4) Article of Association must authorise and special resolution has been passed for the buy back of shares. 12. From the following, identify the items which are payable to retiring partner, if mentioned in deed: A. Credit balance of his/her Capital/Current Account B. Share of goodwill C. Goodwill of the firm D. Share in revaluation gain/loss E. Share in accumulated profits (Reserves) Choose the correct answer from the options given below: (1) A, B only (2) A, B, D, E only (3) B, C, D, E only (4) A, C, D, E only 13. W Ltd. has given you following information: Machinery (opening balance) ` 50,000 Machinery (closing balance) ` 60,000 Accumulated Depreciation (opening balance) ` 25,000 Accumulated Depreciation (closing balance) ` 15,000 During the year, a machine costing ` 25,000 with accumulated depreciation of ` 15,000 was sold for `  13,000. Calculate Cash Flow from Investing Activity: (1) 22,000 (2) (22,000) (3) (35,000) (4) 13,000 14. Match List I with List II: (A) (B) (C)

(D)

List -I Loss on Revaluation Profit on Revaluation Premium brought by new partner On the death of a partner, profit till the date of death is ` 2,000

(I) (II) (III)

(IV)

List - II Credited to old partners in old ratio Debited to Profit and Loss Suspense A/c Credited to old partners in sacrificing ratio Debited to old partners in the old ratio

Choose the correct answer from the options given below: (1) (A)-(I), (B)-(IV), (C)-(III), (D)-(II) (2) (A)-(IV), (B)-(I), (C)-(III), (D)-(II) (3) (A)-(II), (B)-(II, (C)-(IV), (D)-(III) (4) (A)-(III), (B)-(II), (C)-(IV), (D)-(I) 15. Identify those debentures on which no interest will be paid/provided. (1) Debentures issued to underwriters (2) Debentures issued for cash (3) Debentures issued to vendor (4) Debentures issued as collateral security

16. Complete the sequence where interest on capital has to be provided as per partnership deed, but available profits are not sufficient to provide full amount of interest on capital. A. If it is appropriation, calculate interest on capital for all partners at given rate B. Divide the available amount in the capital ratio among the partners C. Calculate ratio between capital of partners D. Consider the partnership deed and decide whether interest on capital is a charge or an appropriation E. Consider the available profit Choose the correct answer from the options given below: (1) A, B, C, D, E (2) B, C, D, E, A (3) D, A, E, C, B (4) C, D, A, B, E 17. Identify the key that allows the access to the system. (1) Security (2) Encryption (3) Software (4) Password 18. Identify the correct sequence where new partner is to bring proportionate capital. A. Calculation of Capital Balance of old partners B. Preparation of Revaluation A/c C. Determination of Revaluation gain/loss D. Presentation of Treatment of Goodwill E. Calculation of Capital to be brought in by the new partner Choose the correct answer from the options given below: (1) C, B, D, A, E (2) D, B, C, E, A (3) D, C, B, A, E (4) B, C, D, A, E 19. Which of the following will be shown on the credit side of Deceased Partner A/c? A. Revaluation Gain Share B. Goodwill written off C. Share of profit till date of death D. Drawings till date of death E. Interest on capital till date of death Choose the correct answer from the options given below: (1) A and C only (2) B, D and E only (3) A, B and D only (4) A, C and E only 20. In a partnership firm, partners share profit and loss in the ratio of 3 : 2. If the firm incurred a loss of ` 10,000 during the year then calculate the amount of loss to be shared by partners. (1) Equally (2) According to profit sharing ratio. (3) According to gaining ratio. (4) According to sacrificing ratio. 21. Which of the following will be added to operating profit before working capital changes, while preparing Cash Flow statement from indirect method? (1) Increase in Trade Receivable by ` 80,000 (2) Decrease in Inventory by ` 50,000 (3) Increase in Prepaid Expenses by ` 30,000 (4) Decrease in Trade Payable by ` 20,000

12

OSWAAL CUET (UG) Chapterwise Question Bank ACCOUNTANCY

22. Match List I with List II: List -I

List - II

(A)

Interest on capital

(I)

Admission of partner

(B)

Gaining Ratio

(II)

Profit and Loss in the old profit sharing ratio

(C)

Sacrificing ratio

(III)

Continuing partners

(D)

Revaluation of (IV) Assets and Liabilities

When partnership deed specifically provide for it

Choose the correct answer from the options given below: (1) (A)-(I), (B)-(II), (C)-(III), (D)-(IV) (2) (A)-(III), (B)-(IV), (C)-(I), (D)-(II) (3) (A)-(II), (B)-(III), (C)-(IV), (D)-(I) (4) (A)-(IV), (B)-(III), (C)-(I), (D)-(II) 23. Identify the term that indicate excess of Expenditure over Income, in case of a Not-for-profit Organisation. (1) Payment (2) Expenditure (3) Deficit (4) Loss 24. Identify the salient features of Income and Expenditure account from the following: A. It is prepared on accrual basis. B. It includes both revenue as well as capital items. C. It is prepared after taking into account the additional information regarding outstanding prepaid expenses and depreciation etc. D. Its result is surplus or deficit. E. It is prepared with the help of Receipts and Payments Account. Choose the correct answer from the options given below: (1) A, B, C and D only (2) A, B, C and E only (3) B, C, D and E only (4) A, C, D and E only 25. C Ltd. made a profit of ` 10,000 after charging depreciation of ` 2,000 on Assets, transfer to General Reserve ` 3,000. Written off Goodwill ` 700, Profit on sale of Asset ` 300, increase in Debtors ` 300, increase in creditors ` 600, increase in prepaid expenses ` 20 and decrease in outstanding expenses ` 200. What will be the cash from operating activities? (1) ` 15,500 (2) ` 15,480 (3) ` 5,000 (4) ` 16,000 26. On 1st July' 22, Centaur Ltd. issued ` 25,00,000 8% debentures of ` 100 each as collateral security to First Level Bank against loan dues of ` 20,00,000, How much amount will be shown in the Balance sheet? (1) ` 25,00,000 (2) ` 45,00,000 (3) ` 20,00,000 (4) ` 70,00,000

27. Arrange following in a sequence in which amount realised from assets will be utilised to pay. A. Partner's Loan B. Partner's Capital C. Secured debts of the firm D. Unsecured debts of the firm E. Residue to partners Choose the correct answer from the options given below: (1) C, D, E, A, B (2) C, D, E, A, B (3) C, D, A, B, E (4) C, D, A, E, B 28. A part of fixed assets costing ` 2,00,000 (Book value 1,50,000) was sold at a gain of ` 10,000. How it will affect the cash flow statement? (1) Inflow ` 1,60,000 in Investing Activities and Add ` 10,000 in Operating Activities (2) Inflow ` 1,60,000 in Investing Activities and less ` 10,000 in Operating Activities (3) Inflow ` 2,10,000 in Investing Activities Add ` 10,000 in Operating Activities (4) Inflow ` 2,10,000 in Investing Activities and Less ` 10,000 in Operating Activities 29. Match List I with List II: List -I

List - II

(A)

Current Maturities of long term Debt

(I)

Other Non-Current Liabilities

(B)

Securities Premium

(II)

Short term Borrowing

(C)

Outstanding salaries

(III)

Other Current Liability

(D)

Premium on Redemption of Debentures

(IV)

Reserves and Surplus

Choose the correct answer from the options given below: (1) (A)-(III), (B)-(IV), (C)-(II), (D)-(I) (2) (A)-(II), (B)-(I), (C)-(III), (D)-(IV) (3) (A)-(II), (B)-(IV), (C)-(III), (D)-(I) (4) (A)-(III), (B)-(II), (C)-(I), (D)-(IV) 30. What is the correct sequence to prepare company’s Balance Sheet as per the standard format given according to Schedule III of Companies Act 2013? A. Non Current Liability B. Non Current Assets C. Shareholder's Funds D. Current Assets E. Current Liability Choose the correct answer from the options given below: (1) C, A, B, E, D (2) A, B, C, D, E (3) C, A, E, B, D (4) A, C, E, B, D

13

CUET (UG) Exam Paper 2023

31. When a company issues shares in open market and the amount is payable in instalments. What is the sequence of amount demanded by the company? A. Money received on calls B. Money due on calls C. Allotment money received

Choose the choose answer from the option given below: (1) C and E only

(2) C, D and E only

(3) A, B and C only

(4) A, C and E only

35. Separate disclosure of cash flow arising from Financial Activities is important because (1) It helps in identifying the investment activities.

D. Application money transferred to Share Capital A/c

(2) It helps in gaining in investing activities.

E. Allotment money due

(4) It is useful in predicting claims on future cash flow by providers of funds to the enterprise.

Choose the correct answer from the options given below:

(3) It helps in making investing decision.

(1) D, C, B, A, E

36. How many blank worksheet(s) are shown, by default when a new workbook is created?

(2) D, E, C, B, A

(1) One

(2) Two

(3) D, C, A, B, E

(3) Three

(4) Four

(4) D, E, C, A, B

37. Capital gain tax paid on sale of fixed assets should be classified as ......

32. Trade payables to be settled beyond 12 months from the date of Balance sheet or beyond the operating cycle are classified under: (1) Long term provisions (2) Other long term liabilities (3) Deferred tax liabilities (4) Long term Borrowing 33. Match List I with List II: (A) (B)

(C) (D)

List -I Transfer of accumulated profits Unrecorded asset sold on dissolution of firm Manager's commission Partner's commission

(I) (II)

(III) (IV)

List - II Realisation Account Profit and Loss Account Profit and Loss Appropriation Account Partner's Capital Account

(1) Cash inflow from Operating Activities (2) Cash outflow from Operating Activities (3) Cash inflow from Investing Activities (4) Cash outflow from Investing Activities 38. Match List I with List II: (A)

List -I Interest charges

(I)

(B) (C)

Sale of services Salary

(II) (III)

(D)

Dividend Income

(IV)

List - II Employees Benefit Expenses Other incomes Revenue from Operations Finance cost

Choose the correct answer from the options given below: (1) (A)-(IV), (B)-(III), (C)-(I), (D)-(II) (2) (A)-(IV), (B)-(II), (C)-(I), (D)-(III) (3) (A)-(II), (B)-(I), (C)-(III), (D)-(IV)

Choose the correct answer from the options given below: (1) (A)-(IV), (B)-(I), (C)-(III), (D)-(II)

(4) (A)-(II), (B)-(IV), (C)-(I), (D)-(III)

(2) (A)-(IV), (B)-(I), (C)-(II), (D)-(III)

(1) The Encryption of data

(3) (A)-(IV), (B)-(II), (C)-(III), (D)-(I)

(2) To secure various accounts

(4) (A)-(IV), (B)-(III), (C)-(II), (D)-(I)

(3) To keep proper records

34. Every company analyse its earning capacity of the business which is outcome of utilisation of resources employed in the business. To analyse profitability company can use:

(4) All of the above

A. Dividend Payout Ratio B. Return on Net Worth C. Gross Profit Ratio D. Quick Ratio E. Inventory Turnover Ratio

39. Select out of the following that leads to the need of codification.

40. Select the sub-head under which loose tools will be shown in the Balance Sheet of a company (1) Current Assets (2) Trade Receivables (3) Inventories (4) Other current Assets 41. Based on following passage answer questions from 41-45.

14

OSWAAL CUET (UG) Chapterwise Question Bank ACCOUNTANCY

A Ltd. with an Authorised Capital of ` 10,00,000 is divided into shares of ` 10 each, issued 50,000 shares at a premium of ` 2 per share payable as follows: on Application ` 3 per share on Allotment ` 5 per share (including premium) on First and Final call Balance amount Application were received for 60,000 shares and the directors allotted shares to all on proportionate basis. All money received except first and final call from Hari who had applied for 1200 shares. His shares were forfeited and later half of his forfeited shares were reissued at ` 8 per share as fully paid up. Identify the number of shares with which A Ltd. is registered. (1) 1,00,000 Shares (2) 50,000 Shares (3) 60,000 Shares (4) 10,00,000 Shares 42. Based on following passage answer questions from 41-45. A Ltd. with an Authorised Capital of ` 10,00,000 is divided into shares of ` 10 each, issued 50,000 shares at a premium of ` 2 per share payable as follows: on Application ` 3 per share on Allotment ` 5 per share (including premium) on First and Final call Balance amount Application were received for 60,000 shares and the directors allotted shares to all on proportionate basis. All money received except first and final call from Hari who had applied for 1200 shares. His shares were forfeited and later half of his forfeited shares were reissued at ` 8 per share as fully paid up. Select the amount received on Share Allotment Account: (1) ` 2,50,000 (2) ` 50,000 (3) ` 2,20,000 (4) ` 3,00,000 43. Based on following passage answer questions from 41-45. A Ltd. with an Authorised Capital of ` 10,00,000 is divided into shares of ` 10 each, issued 50,000 shares at a premium of ` 2 per share payable as follows: on Application ` 3 per share on Allotment ` 5 per share (including premium) on First and Final call Balance amount Application were received for 60,000 shares and the directors allotted shares to all on proportionate basis. All money received except first and final call from Hari who had applied for 1200 shares. His shares were forfeited and later half of his forfeited shares were reissued at ` 8 per share as fully paid up.

Select the amount that is received from Hari's reissued shares: (1) ` 4,800 (2) ` 4,000 (3) ` 8,000 (4) ` 9,600 44. Based on following passage answer questions from 41-45. A Ltd. with an Authorised Capital of ` 10,00,000 is divided into shares of ` 10 each, issued 50,000 shares at a premium of ` 2 per share payable as follows: on Application ` 3 per share on Allotment ` 5 per share (including premium) on First and Final call Balance amount Application were received for 60,000 shares and the directors allotted shares to all on proportionate basis. All money received except first and final call from Hari who had applied for 1200 shares. His shares were forfeited and later half of his forfeited shares were reissued at ` 8 per share as fully paid up. Identify the account to which the discount allowed on reissue of forfeited shares should be debited. (1) Bank Account (2) Forfeited Share Account (3) Capital Reserve Account (4) Securities Premium Reserve Account 45. Based on following passage answer questions from 41-45. A Ltd. with an Authorised Capital of ` 10,00,000 is divided into shares of ` 10 each, issued 50,000 shares at a premium of ` 2 per share payable as follows: on Application

` 3 per share

on Allotment

` 5 per share



(including premium)

on First and Final call

Balance amount

Application were received for 60,000 shares and the directors allotted shares to all on proportionate basis. All money received except first and final call from Hari who had applied for 1200 shares. His shares were forfeited and later half of his forfeited shares were reissued at ` 8 per share as fully paid up. The balance, if any, left in the share forfeited account relating to reissued shares, should be transferred to: (1) Forfeited Share Account (2) Share Capital Account (3) Reserve Capital Account (4) Capital Reserve Account 46. Meena and Tina are partners in a firm and sharing profit as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows:

15

CUET (UG) Exam Paper 2023

Balance Sheet Meena and Tina as on March 31, 2017 Liabilities

Amount (`)

Capital: Meena 90,000 Tina 80,000 Sundry creditors Bills payable

Assets

Amount (`)

Machinery Investments

70,000 50,000

1,70,000

Stock

60,000 20,000 2,50,000

Sundry Debtors Cash at bank

22,000 1,03,000 5,000 2,50,000

The assets and liabilities were disposed off as follows: a. Machinery were given to creditors in full settlement of their account and stock were given bills payable in full settlement. b. Investment were took over by Tina at book value. Sundry debtors of book value ` 50,000 took over by Meena at 10% less and remaining debtors realised ` 51,000. c. Realisation expenses amount to ` 2,000. When a creditor accepts an asset whose value is more than the amount due to him, he will ........ the excess amount which will be credited to ..... Account. (1) Pay, Bank (2) Not pay, Creditors (3) Pay, Realisation (4) Not pay, Realisation 47. Meena and Tina are partners in a firm and sharing profit as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows: Balance Sheet Meena and Tina as on March 31, 2017 Liabilities

Amount (`)

Capital: Meena 90,000 Tina 80,000 Sundry creditors Bills payable

Assets

Amount (`)

Machinery Investments

70,000 50,000

1,70,000

Stock

60,000 20,000 2,50,000

Sundry Debtors Cash at bank

22,000 1,03,000 5,000 2,50,000

The assets and liabilities were disposed off as follows: a. Machinery were given to creditors in full settlement of their account and stock were given bills payable in full settlement. b. Investment were took over by Tina at book value. Sundry debtors of book value ` 50,000 took over by Meena at 10% less and remaining debtors realised ` 51,000. c. Realisation expenses amount to ` 2,000. Which mode of dissolution is highlighted in the above case? (1) Compulsory dissolution (2) Dissolution by agreement

(3) Dissolution by court (4) Dissolution on happening of contingencies 48. Meena and Tina are partners in a firm and sharing profit as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows: Balance Sheet Meena and Tina as on March 31, 2017 Liabilities

Amount (`)

Capital: Meena 90,000 Tina 80,000 Sundry creditors Bills payable

Assets

Amount (`)

Machinery Investments

70,000 50,000

1,70,000

Stock

60,000 20,000 2,50,000

Sundry Debtors Cash at bank

22,000 1,03,000 5,000 2,50,000

The assets and liabilities were disposed off as follows: a. Machinery were given to creditors in full settlement of their account and stock were given bills payable in full settlement. b. Investment were took over by Tina at book value. Sundry debtors of book value ` 50,000 took over by Meena at 10% less and remaining debtors realised ` 51,000. c. Realisation expenses amount to ` 2,000. Identify the amount realised in cash from Sundry Debtors. (1) ` 96,000

(2) ` 1,03,000

(3) ` 1,00,000 (4) ` 51,000 49. Meena and Tina are partners in a firm and sharing profit as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows: Balance Sheet Meena and Tina as on March 31, 2017 Liabilities

Amount (`)

Capital: Meena 90,000 Tina 80,000 Sundry creditors Bills payable

Assets

Amount (`)

Machinery Investments

70,000 50,000

1,70,000

Stock

60,000 20,000 2,50,000

Sundry Debtors Cash at bank

22,000 1,03,000 5,000 2,50,000

The assets and liabilities were disposed off as follows: a. Machinery were given to creditors in full settlement of their account and stock were given bills payable in full settlement. b. Investment were took over by Tina at book value. Sundry debtors of book value ` 50,000 took over by Meena at 10% less and remaining debtors realised ` 51,000. c. Realisation expenses amount to ` 2,000.

16

OSWAAL CUET (UG) Chapterwise Question Bank ACCOUNTANCY

State Journal entry for payment of realisation expenses. (1) Realisation Expenses A/c Dr. ` 2,000

To Realisation A/c ` 2,000

(2) Realisation A/c

Dr. ` 2,000

To Realisation Expenses A/c ` 2,000

(3) Realisation A/c

Dr. ` 2,000

To Bank A/c ` 2,000

(4) Bank A/c

Dr. ` 2,000

To Realisation A/c ` 2,000

50. Meena and Tina are partners in a firm and sharing profit as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows: Balance Sheet Meena and Tina as on March 31, 2017 Liabilities

a. Machinery were given to creditors in full settlement of their account and stock were given bills payable in full settlement. b. Investment were took over by Tina at book value. Sundry debtors of book value ` 50,000 took over by Meena at 10% less and remaining debtors realised ` 51,000. c. Realisation expenses amount to ` 2,000. State Journal entry for realisation of investment. (1) Tina's Capital A/c

Dr. ` 30,000



Dr. ` 20.000

Meena's Capital A/c

Amount (`)



Machinery Investments

70,000 50,000



1,70,000

Stock

22,000

60,000 20,000 2,50,000

Sundry Debtors Cash at bank

Meena 90,000

1,03,000 5,000 2,50,000

Dr. ` 50,000

To Realisation A/c ` 50,000

(2) Tina's Capital A/c

Assets

Amount (`)

Capital: Tina 80,000 Sundry creditors Bills payable

The assets and liabilities were disposed off as follows:

To Realisation A/c ` 50,000

(3) Realisation A/c

Dr. ` 50,000

To Tina's Capital A/c ` 50.000

(4) Realisation A/c

Dr. ` 50,000



To Tina's Capital A/c ` 30,000



To Meena's Capital A'c ` 20,000



Accounting for Not-for-Profit Organisation and Partnership Firms Study Time

CHAPTER

1

  Revision Notes

Max. Time: 1:25 Hours Max. Questions: 40

ACCOUNTING NOT-FOR-PROFIT ORGANISATION

 Meaning of Non-trading Organisation: The organisations whose basic aim is to serve the society are called Non-trading or Not-for-profit organisations.  Features: The basic features are as follows:   Main aim of the organisation is to provide service to its members or general public either free of cost or at a very minimal fee.  It is not formed to earn profit.  They are charitable trusts and societies.  They are treated as separate entity from its members.  The major source of income is subscription fees, donations, financial assistance, grant-in-aid etc.  The surplus of funds is not distributed amongst its members.  They need to maintain accounts as per the legal requirements.   Financial Statements of Not-for-Profit Organisations: Non-Trading Organisations must prepare the following basic statements:  Receipts and Payments Account: It shows the summary of all cash and bank transactions occurred during the accounting year.  Income and Expenditure Account: It includes only those items which are revenue in nature.  Balance Sheet: It is prepared in the same manner as in the case of business enterprise to show the financial position of the organisation.  Receipts and Payments Account: Scan to know more about According to Willian Pickles, “Receipts this topic and Payments Account is nothing more than a summary of the Cash Book over a certain period, analysed and classified under suitable headings. It is the form of Account most adopted by the treasures of society Receipts and clubs, associations etc. when preparing the Payments Account results of the year’s working.”  Features of Receipts and Payment Account:  It is a real account just like Cash Account.  It starts with the balances of cash and bank just like the Cash Book.  The cash receipts are shown on the debit side irrespective of it being revenue or capital in nature.  The cash payments are recorded, irrespective of it being capital or revenue in nature, on the credit side.  The closing balance of cash and bank balances the account.  The non-cash items are not recorded.

 Its objective is to show the closing Balance of the cash in hand and at bank. Scan to know  Income and Expenditure Account: more about this topic  It is like Trading and Profit and Loss Account.  It is prepared to ascertain the surplus or deficit arising out of organisation’s activities. Income and Expenditure  Features: Account  It is a nominal Account.  Only Revenue items are recorded.  It is prepared in the same manner as the Profit and Loss A/c.  It records activities pertaining to current year only.  Its main purpose is to ascertain the surplus or deficit.  Balance Sheet:  It is prepared to show the financial Scan to know more about position of the organisation. this topic  It contains only the capital items.  Consideration while preparing Balance Sheet:  Asset Side: Balance Sheet  Fixed Assets from opening Balance Sheet needs to be adjusted.  Prepaid expenses, Accrued Income and investments are to be shown in the Asset side.  The closing balance of cash and Dr. Balance of Bank needs to be shown.  Liability Side:  Net amount of Loans and new loans are shown.  Donations are shown.  Outstanding Expenses and Prepaid Incomes are shown.  Surplus is added and Deficit is subtracted from the Capital Fund. Scan to know  Important Items Relating To Nonmore about Profit Seeking Organisations: this topic  Subscription: It is the main source of income. The amount paid in a year is shown on the receipts side of the Receipts and Payments account and the subscription Subscription pertaining to the current year is shown in the Income and Expenditure Account.  Subscription to be transferred to Income and Expenditure A/c: Subscription Received – Outstanding Last Year + Outstanding Current Year + Prepaid Last Year – Prepaid Current Year.

res

_

All Income

_

All Expenses

for-Pro Not-anisatiofit ns Org

Not–for–Profit Organisation

Second Level

cs

Third Level

ac ter isti

Trace the Mind Map First Level

_

Amount

• Subscriptions • Grants and Aids • Income from different Activities • Membership fees • Investment Income • Loan financing

• Service motive. • Managed by elected members. • Main sources of funds are donations, grants, etc. • Trustees are the members. • Does not work for the profitability but for the social welfare.

• Udaan India Foundation in Mumbai • BHUMI • The Dove Foundation based in U.P.

Not-for-profit organisations refer to that type of organisation whose main objective is welfare and to serve the society. Profit is not the objective of these ogranisations.

Examples

nd s

ha r

g in

u

_ _ Excess of income Excess of over expenditure _ expenditure _ over income

Amount

Income

Amount

Income & Expenditure Account

Accounts Maintained by Not–for–Profit Organisation

Receipts & Payments Account

rm Fo

By All Payments in Cash

Payments

By Balance c/d _ _ _ _

_

Amount

fF

Expenditure

mat For

Fea tu

that are related to the current year. • It is a nominal account. • Closing balance shows either surplus or deficit balance. • Prepared on the basis of information contained in Receipts and Payments Account.

• This account records only those transactions

Amount Assets Liabilities Amount _ _ Capital Fund and All Assets _ _ Other Liabilities _ _

at

To Balance b/d To All Receipts in Cash

Receipts

M ea n

• It commences with the opening balance of cash in hand/or at Bank. • Only actual cash transactions are recorded. • It is a real account. • Closing balance shows how much cash balance is available.

B

et She ce n a la 

es

S

o ce s r u o 

ur Feat

C



2 Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY

3

ACCOUNTING NOT-FOR-PROFIT ORGANISATION

Life-Membership Fees: The fees paid by the members in lump sum pertaining to their lifetime membership. It is shown in the Receipts side of Receipts and Payment A/c and added to the Capital Fund in the Liability side of the Balance Sheet.  Endowment Funds: It is created from the bequest, legacy or gifts received in the non-profit organisations. The total amount received on such account is shown as receipts in the Receipts and Payments Account and amount of endowment funds shall be shown on the liabilities side of Balance Sheet.  Entrance or Admission Fee: The fee charged to the new member apart from the periodic subscription fees is called Entrance or Admission Fees. It is shown on the Receipts side of Receipts and Payment A/c and added to the Capital Fund on the liabilities side of the Balance Sheet.  Specific Donation: Donation received for a particular purpose like building, swimming pool, rest room etc, is called specific Donation. It is shown in the liability side of the Balance Sheet.  General Donation: Donations received not for any specific purpose are general donations. Such can be of two types:  Of Big Amount: It is shown in the Liability side of the Balance Sheet.  Of Small Amount: It is shown in the income or credit side of the Income and Expenditure Amount.  Legacy: Legacy is the amount received from the family 

of a deceased member as per the will. It appears on the receipts side of Receipts and Payment account and added to the Capital Fund in the Liability side of the Balance Sheet.  Sale of Old Asset: Shown on the receipts side of Receipts and Payments account, Profit or Loss from the sale proceeds is shown in the Income and Expenditure account, and the book value is subtracted from the respective asset sold.  Sale of old Newspaper and Sports Material: It is shown on the receipts side of Receipts and Payment A/c and credit side of the Income and Expenditure A/c.  Payment of Honorarium: The payment made to the persons who are not the organisation’s employee is called honorarium. It is shown on the Payment side of Receipts and Payment A/c and Debit side of Income and Expenditure A/c.  Capital Fund: The difference between the asset and outside liabilities of the organisation is Capital Fund.  It is like the Capital A/c of business entity.  Surplus from the Income and Expenditure A/c is added, and Deficit is subtracted from the Capital Fund.  It is also called General Fund.  Special Fund: Funds created for some specific purpose or requirement of contributions.  Income is added and expense is subtracted from the fund directly in the Balance Sheet.

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

1. Identify the term that is used to show the amount received as per the will of a deceased person. [CUET 2023] (1) Specific Donations (2) Life membership fees (3) Subscription (4) Legacies 2. Complete the sequence where interest on capital has to be provided as per partnership deed, but available profits are not sufficient to provide full amount of interest on capital.  (A) If it is appropriation, calculate interest on capital for all partners at given rate (B) Divide the available amount in the capital ratio among the partners (C) Calculate ratio between capital of partners (D) Consider the partnership deed and decide whether interest on capital is a charge or an appropriation (E) Consider the available profit  Choose the correct answer from the options given below:  [CUET 2023] (1) A, B, C, D, E (2) B, C, D, E, A (3) D, A, E, C, B (4) C, D, A, B, E 3.  Identify the term that indicate excess of Expenditure over Income, in case of a Not-for-profit Organisation.   [CUET 2023] (1) Payment (2) Expenditure (3) Deficit (4) Loss 4.  Identify the salient features of Income and Expenditure account from the following: (A) It is prepared on accrual basis. (B) It includes both revenue as well as capital items. (C)  I t is prepared after taking into account the additional information regarding outstanding prepaid expenses and depreciation etc.

(D) Its result is surplus or deficit. (E) I t is prepared with the help of Receipts and Payments Account. Choose the correct answer from the options given below:  [CUET 2023] (1) A, B, C and D only (2) A, B, C and E only (3) B, C, D and E only (4) A, C, D and E only 5.  As per Receipts and Payments Account for the year ended on March 31, 2020, subscription received were ₹2,50,000 subscriptions outstanding on 1-04-2019 ₹50,000. Subscription received in advance as on 31-3-2020 are ₹30,000. Subscriptions for the year 2019-20 will be: [CUET 2022] (1) ₹2,30,000 (2) ₹1,50,000 (3) ₹2,40,000 (4) ₹1,70,000 6.  Identify the steps in preparation of final accounts of not for profit organisation (NPO) (A) Prepare Balance Sheet of NPO (B) Prepare Income and Expenditure Account from Receipts and Payment Account. (C) Prepare Receipts and Payments Account (D)  Adjust outstanding/prepaid expenditure/Income and determine surplus/deficit. (E) Prepare Cash Book Choose the correct answer from the options given below:  [CUET 2022] (1) E, C, B, D, A (2) D, E, A, B, D (3) A, B, C, D, E (4) E, C, A, B, D 7.  It is the amount-paid to the person who is not the regular employee of the institution:  [CUET 2022] (1) Wages (2) Honorarium (3) Salary (4) Donation 8. Income and Expenditure Account records: (1) Receipts and Payments of Revenue and Capital nature both (2) Income and Expenditure of Revenue nature only

4 Oswaal CUET (UG) Chapterwise Question Bank (3) Expenditure of Capital nature only (4) Receipts of Revenue nature only 9. Jaipur Club has a prize fund of ₹ 6,00,000. It incurs expenses on prizes amounting to ₹ 5,20,000. The expenses should be:  (1) debited to income and expenditure account. (2) presented on the assets side of the balance sheet. (3) debited to income and expenditure account and presented on the assets side of the balance sheet. (4)  deducted from the prize fund on the liabilities side of the balance sheet. 10.  The following information has been extracted from the financial statements of a not-for-profit organization for the year ended 31st March 2019: Particulars

Amount (₹)

Opening Balance of Match Fund

5,00,000

Sale of Match tickets

3,75,000

Donation for Match Fund received during the year

1,24,000

Match expenses

10,00,000



 hich of the following statements is correct for the W presentation of the above items in the financial statements of the not-for-profit organization? (1) Negative Balance of Match fund ₹ 1,000 will be shown on the liabilities side of the Balance Sheet as at 31st March, 2019. (2)  Opening Balance of Match Fund ₹ 5,00,000 will be shown on the liabilities side of Balance Sheet as at 1.4.2018. (3)  Negative balance of match fund ₹ 1,000 will be shown on the expenditure side of the Income and Expenditure Account for the year ended 31.3.2019. (4) Both (2) and (3). 11.  Subscription received in advance during the current year is: (1) An income (2) An asset (3) A liability (4) None of the above 12. The following information below is related to an NPO:  Dr. Receipts and Payments A/c [An Extract] Cr. Receipts To Interest on Investments

Amount (₹) Nil

Payments

Amount (₹)

By 8% Invest60,000 ments [01-10-18]

I f the firm closes its accounts on 31st March every year, what amount of accrued interest on investments will be shown in the Balance Sheet of the firm on 31-03-19? (1) ₹ 2,400 (2) ₹ 4,800 (3) ₹ 6,000 (4) None of these 13. Which of the following is not a capital receipt? (1) Donations for tournament (2) Donations for building fund (3) Life membership fee (4) Entrance fees 14.  Sports Star Charitable Club has income of ₹ 16,000 and ‘deficit’ debited to capital fund of ₹ 4,300 for the year 2019-20, then expenditure for 2019-20 is:

ACCOUNTANCY

(1) ₹ 11,700 (2) ₹ 4,300 (3) ₹ 20,300 (4) None of the above 15. The following is the extract of Receipts and Payments Account of the Rajasthan Society for the year ending 31st December, 2021. Receipts

Amount (₹)

Payments By medicine

Amount (₹) 18,000

A bill of medicine purchased during the year amounting to ₹2,000 was outstanding. The amount debited to Income and Expenditure Account will be: (1) ₹18,000 (2) ₹20,000 (3) ₹16,000 (4) ₹2,000 16. Identity the type of fund stated below: ‘Himanshu Club has a fund which can only be used for the distribution of prizes.’ (1) Prize fund (2) Endowment fund (3) Non-approved fund (4) Honorarium 17. Donations for specific purpose are always capitalised and it is transferred to______, irrespective of the fact whether the amount is big or small. (1) Assets side of the Balance Sheet (2) Liabilities side of the Balance Sheet (3)  Income side of the Income and Expenditure Account (4) None of the above 18.  Subscription received in cash during the year amounted to ₹40,000; subscription outstanding at the end of previous year was ₹1,500 and outstanding at the end of current year was ₹2,000. Subscription received in advance for next year was ₹800. The amount credited to Income and Expenditure Account will be: (1) ₹38,700 (2) ₹39,700 (3) ₹40,300 (4) ₹41,300 19.  The amount of ‘Entrance Fees’ received by a Not-forprofit organisation (if it is received regularly) is shown in which of the following? (1) Liabilities side of Balance Sheet (2) Assets side of Balance Sheet (3) Debit side of Income and Expenditure Account. (4) Credit side of Income and Expenditure Account. 20. Sports expenses ₹27,000 (excluding ₹7,000 unpaid expenses). The amount to be credited to Receipts and Payments Account will be: (1) ₹20,000 (2) ₹27,000 (3) ₹7,000 (4) ₹34,000

[B] ASSERTION REASON QUESTIONS Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as: (1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A). (3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): The Subscription received during the year is recorded in the Receipts and Payments Account.

ACCOUNTING NOT-FOR-PROFIT ORGANISATION

 Reason (R): Receipts and Payments Account records all the cash transactions whether pertaining to the current year or previous year. 2.  Assertion (A): The Income and Expenditure Account is like the cash book.  Reason (R): Income and Expenditure Account shows the surplus or deficit that is earned during the financial year by the non-profit organisation. 3.  Assertion (A): The amount of subscription of ₹15,000 was paid out of which ₹3,000 is pertaining to the next year. The amount of subscription to be recorded in the Income and Expenditure Account is ₹12,000.  Reason (R): The Income and expenditure account records all the transactions that are relevant only for the current financial year. 4. Assertion (A): Endowment Fund is recorded only in the Balance Sheet.  Reason (R): Endowment is treated as capital receipt hence shown on the liabilities side of Balance Sheet. 5. Assertion (A): Endowment Fund is created from the bequest, legacy or gifts received in the non-profit organisations.  Reason (R): Endowment fund is recorded in the Income and Expenditure Account as Income of the not-for-profit organisation. 6. Assertion (A): Donation received by the school for the purpose of repairing the library is a specific donation.  Reason (R): Such specific donations are recorded in the Receipts side of the Receipts and Payments account and on the Liability side of the Balance Sheet. 7. Assertion (A): The accountant of Manita Club, recorded ₹200 received as donations in the income side of the Income and Expenditure Account.  Reason (R): Donation received in small amount are treated as revenue receipts and so are recorded in the Income and Expenditure Account. 8. Assertion (A): Legacy is shown in the liability side of the balance sheet of the not-for-profit organisation.  Reason (R): Legacy is a capital receipt for the not-forprofit organisation which is the amount received from the family of a deceased member as per the will. 9. Assertion (A): The opening bank and cash balance and the closing bank and cash balance is recorded in the Receipts and Payments Accounts of the not-for-profit organisation.  Reason (R): Receipts and Payments Account is prepared at the end of the year. 10. Assertion (A): Profit and Loss Account is made after making the Income and Expenditure Account for the notfor-profit organisation.  Reason (R): Income and Expenditure Account is made to ascertain the surplus or deficit earned during the financial year.

[C] COMPETENCY BASED QUESTIONS

I.  Based on following passage answer questions from 1-5 Dr. Rajani Mehta a qualified M.B.B.S. doctor got voluntary retirement at the age of 50 years from a renowned hospital. She was residing in a flat of a wide apartment which is surrounded by a slum which is inhabited by economically weaker strata of the society. As the people in that area were not aware about importance of health care, a widespread ailment had been persistently prevailing. Rajani met with some of the well-off

5 people of apartment and decided to open a dispensary named as ₹Local Clinic’ to provide them cost free medical assistance and make them aware about hygienic living, physical fitness, and economic balance diet. Many of the apartment members agreed to it. She approached health department of the town with her proposal which was accepted and an initial one-time grant of ₹ 2,00,000 was sanctioned immediately for purchase of medical equipment and test kits for pathological tests. 10 members of the apartment contributed ₹ 20,000 each as lifetime subscription to the clinic. Rajani decided to charge ₹ 10 as onetime registration fee from patients. Apart from above Rajni made following transactions for first year: Rajani informed that during the first year 10,500 patients were registered for treatment and for other services. Taking reference from the above, answer following questions: 1. Not for profit organization prepares : (i) Income and Expenditure account (ii) Trading and Profit and Loss account (iii) Receipt and Payment account (iv) None of the above Options: (1) Only (ii) (2) Only (iii) (3) Both (i) and (ii) (4) Both (i) and (iii) 2. Honorarium paid to Physiotherapist and sports teacher will be posted to : (1) Debit side of Income and Expenditure Account. (2) Debit side of Receipt and Payment Account (3) Debit side of Profit and Loss Account (4) Credit side of Income and Expenditure Account 3. “Donations received by Ms Rajani Mehta from health department should be capitalized.” Consider the statement and chose the correct options: (1) The statement is True. (2) The Statement is False (3) The Statement is Partially True. (4) The statement is incomplete. 4. Lifetime subscription paid by 10 members will be posted in: (1) Expenditure side of Income and Expenditure Account (2) Liability side of closing Balance Sheet (3) Income side of Income and Expenditure Account (4) Assets side of closing Balance Sheet 5.  As Rajini informed that 10,500 patients were registered, so how much money will be recorded as one-time registration fees? (1) ₹1,05,000 (2) ₹1,00,500 (3) ₹1,00,050 (4) ₹1,00,005 II. Based on following passage answer questions from 6-10:  Talent Sports Club is engaged in the activity of identifying and promoting sports talent from rural and tribal areas of the country. Identifying with this noble cause Mr Manohar a renowned industrialist donated ₹ 50,00,000 on 1st July 2020, for the construction of a new hostel and mess for upcoming sportsmen. Besides this Mr Manohar offered the services of his personal chartered accountant, free of charge, to streamline the account of Talent Sports Club. The chartered accountant visited the office of the NPO on 31st March 2021 and found that till date ₹ 35,00,000 had been spent on construction of hostel and mess building. He also noted that the NPO had a capital fund of ₹ 1,20,00,000 in the beginning of the year. Other important points that he noted were that the NPO had 2000 regular members each having an annual subscription of ₹ 2000 per annum. On 1st April 2020, 180 members had not paid

6 Oswaal CUET (UG) Chapterwise Question Bank for subscription of previous year and 20 members had paid for 2020-2021 in advance (out of which 5 had paid in advance of 2021-2022 as well). 31st March 2021, 110 members had outstanding balance (including 50 who had not paid for 201920 as well) and 25 members had paid for 2021-2022 in advance (including all 5 who had paid in advance in 2019-20). Since the accountant of NPO was not clear about how to deal with all the above information he drafted a set of questions for guidance. Considering that you are the Chartered Accountant of Mr. Manohar, answer the following questions based on the information detailed above. 6. The amount of ₹ 50,00,000 received from Mr Manohar towards building and mess should be transferred to: (1) Capital fund (2) General fund (3) Income and Expenditure account (4) Building fund 7. The amount of ₹ 35,00,000 spent on construction of building should be: I. reflected on debit side of income and expenditure account as an expense.

ACCOUNTANCY

II. reflected on asset side of balance sheet. III. reflected as a deduction from Building fund and addition to capital fund. IV. Not be recorded till the building is complete.  On basis of given information choose which of the following stands true: (1) Only IV

(2) Both I and IV

(3) Both II and III

(4) None of these

8. The amount of subscription in arrears on 1st April 2020 is: (1) ₹ 3,60,000 (2) ₹ 3,00,000 (3) ₹ 2,000

(4) ₹ 1,80,000

9.  The amount of subscription in arrears on 31st March 2021 is: (1) ₹ 2,20,000 (2) ₹ 3,60,000 (3) ₹ 3,20,000 (4) ₹ 1,80,000 10.  The amount of subscription in advance on 31st March 2021 is: (1) ₹50,000

(2) ₹60,000

(3) ₹70,000 (4) ₹40,000

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (4)

2. (3)

3. (3)

4. (4)

5. (4)

6. (1)

7. (2)

8. (2)

9. (4)

10. (4)

11. (3)

12. (1)

13. (4)

14. (3)

15. (1)

16. (1)

17. (2)

18. (2)

19. (4)

20. (2)

8. (1)

9. (2)

10. (4)

8. (1)

9. (3)

10. (1)

[B] ASSERTION REASON QUESTIONS 1. (1)

2. (4)

3. (1)

4. (1)

5. (3)

6. (2)

7. (1)

[C] COMPETENCY BASED QUESTIONS 1. (4)

2. (1)

3. (1)

4. (2)

5. (1)

6. (4)

7. (3)

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS 1. Option (4) is correct. Explanation: Specific Donation is the donation received for a particular purpose like building, swimming pool, rest room etc. Life Membership Fees is the fees paid by the members in lump sum pertaining to their lifetime membership. Subscription is the amount paid by the members periodically so that their membership continues. Legacies is the amount received from the family of a deceased member as per the will. 2. Option (3) is correct. Explanation: The sequence where interest on capital has to be provided as per the partnership deed, but available profits are not sufficient to provide the full amount of interest on capital, is as follows: D. Consider the partnership deed and decide whether interest on capital is a charge or an appropriation. A. If it is an appropriation, calculate interest on capital for all partners at the given rate. E. Consider the available profit. C. Calculate the ratio between the capital of partners. B. Divide the available amount in the capital ratio among the partners.

3. Option (3) is correct. Explanation: The excess of expenditure over income is called deficit and the excess of income over expenditure is called surplus in the case of Not-for-profit organization. 4. Option (4) is correct. Explanation: The income and expenditure account only records the revenue item; the capital items are recorded in the balance sheet. Thus, statement B is incorrect. 5. Option (4) is correct. Explanation: Subscription received ₹2,50,000 Less: Outstanding Subscription of 1-04-2019 ₹50,000  ₹2,00,000 Less: Prepaid Subscription as on 31-04-2020 ₹30,000  ₹1,70,000 6. Option (1) is correct. Explanation: In the case of a not-for-profit organisation, the cash book is prepared first. From the cash book the Receipts and Payments account is made, which is as same as cash book but without differentiating the cash and bank columns. The Income and Expenditure Account is then prepared with the help of receipts and payments account with the adjustment of all the outstanding and prepaid income and expenses to find the surplus or deficit that may arise from the financial year. This

7

ACCOUNTING NOT-FOR-PROFIT ORGANISATION

surplus or deficit is added or subtracted from the capital fund in the balance sheet and the balance sheet is prepared at the end to ascertain the financial position of the organisation. 7. Option (2) is correct. Explanation: Wages and salaries are paid to regular employees. Donations are mostly receipts from the not-forprofit organisation. Honorarium is the payment made to an individual who is not a regular employee of the institution but has rendered some service there off. 8. Option (2) is correct. Explanation: Income and Expenditure account records the income and expenditure of only revenue nature. Capital income and expenditure are recorded in the balance sheet. 9. Option (4) is correct. Explanation: The expenses incurred over the raised fund is deducted from the that fund. 10. Option (4) is correct. Explanation: In the case of specific funds, the opening balance of such funds are shown on the liabilities side of the Balance Sheet and the negative balance is shown on the expenditure side of the Income and Expenditure Account. 11. Option (3) is correct. Explanation: Any income received in advance is a liability for the firm during the current year. Subscription received in advance is considered as liability because services are yet to be rendered. 12. Option (1) is correct. Explanation: Accrued Interest = ₹60,000 ×

8 6 × 100 12

= ₹2,400

13. Option (4) is correct. Explanation: Entrance fees is a revenue receipt as it is paid by the members when they become the members. 14. Option (3) is correct. Explanation: The deficit of ₹ 4,300 will be added to the income of ₹16,000. 16. Option (1) is correct. Explanation: As the fund is used for the distribution of prizes, it is a type of Prize Fund. 17. Option (2) is correct. Explanation: Donation received for a specific purpose it to be utilized for the specific activity. This kind of donations are capital receipt. It should be recorded in a separate account and expenses to be reduced from this account only. Balance of the account to be shown as liability in the Balance Sheet. 18. Option (2) is correct. Explanation: Subscription Received

₹40,000

Less: Subscription Outstanding for previous year

₹1,500



38,500

Add: Subscription Outstanding for current year

₹2,000



40,500

Less: Prepaid Subscription for Next year 

₹800 39,700

19. Option (4) is correct. Explanation: The amount of ‘Entrance Fees’ received by a Not-for-Profit organisation (if it is received regularly) is a revenue receipt. It is shown on the credit side of Income and Expenditure Account. 20. Option (2) is correct. Explanation: As ₹27,000 is paid during the current year, the amount of ₹27,000 will only be credited to the Receipts and Payments Account for that year. The outstanding amount will be added and shown only in the Income and Expenditure Account.

[B] ASSERTION REASON QUESTIONS 1. Option (1) is correct. Explanation: Receipts and Payments Accounts record all the cash transactions that is received during the year whether pertaining to the current year, next year or previous year. This is because the subscription received during the year is recorded in the Receipts and Payments Account. 2. Option (4) is correct. Explanation: The Income and Expenditure Account is like the Profit and loss Account of the Business or Profit-Making Firms. In the account all the revenue receipts and payments are recorded that are pertaining to the present year only, to find the surplus and deficit of the present year, that the organisation has had. The cash book of the not-for-profit organisation is the Receipts and Payments Accounts, which records all the cash transactions that happen during the year. 3. Option (1) is correct Explanation: As the amount of ₹3,000 is related to the next year, and is the subscription received in advance, it will be deducted from the total amount received and the balance amount comes in the Income and Expenditure account. 4. Option (1) is correct. Explanation: As endowment fund is a capital receipt, it will be shown directly in the liabilities side of the Balance Sheet. 5. Option (3) is correct. Explanation: Endowment fund is not recorded in the Income side of the Income and Expenditure account as it is not a revenue receipt. It is recorded in the receipts side of Receipts and Payments Account and on the liability side of the Balance Sheet of the not-for-profit organisation. 6. Option (2) is correct. Explanation: Specific donations are the donation received for a specific purpose in this case for the repair of library. This is because specific donations are meant to be only used for the purpose that is it received. 7. Option (1) is correct. Explanation: As the donation received is of small amount and is also not for a specific purpose, it will be recorded in the Income side of the Income and Expenditure account and the receipts side of the Receipts and Payments Accounts. 8. Option (1) is correct. Explanation: Legacy is a one-time amount received as per the will of the deceased member of the not-for-profit organisation. This is treated as a capital receipt and so appears in the receipt side of the receipts and payments accounts and the liability side of the balance sheet.

8 Oswaal CUET (UG) Chapterwise Question Bank 9. Option (2) is correct. Explanation: The opening bank and cash balance and the closing bank and cash balances are recorded in the Receipts and Payments Accounts of a not-for-profit organisation, not because it is prepared at the end of the year, but this is because it is a type of a cash book (prepared for profit making organisation) that is prepared for the not-for-profit organisation. 10. Option (4) is correct. Explanation: The Profit and Loss Account is only made in the case of the profit-making organisation. For a not-for-profit organisation, Receipts and Payments Account is made in place of cash book, Income and Expenditure Account is made in place of Profit and Loss Account and then only the Balance Sheet is made, as a part of the final accounts.

[C] COMPETENCY BASED QUESTIONS 1. Option (4) is correct Explanation: Not for profit organisation prepares Income and Expenditure and Receipts and Payment Account. Trading and Profit and Loss Account is made to calculate the Gross Profit or Loss and Net Profit or Loss by the Sole Proprietorship firm. 2. Option (1) is correct Explanation: The payment made to the persons who are not the organisation’s employee is called honorarium. Honorarium is shown on the Debit side of Income and Expenditure Account. 3. Option (1) is correct. Explanation: The donation received by Ms. Rajani in this case is a specific donation. In such a case it will be capitalised. 4.  Option (2) is correct. Explanation: The fees paid by the members in lump sum pertaining to their lifetime membership. It is shown in the Receipts side of Receipts and Payment A/c and added to the Capital Fund in the Liability side of the Balance Sheet.

ACCOUNTANCY

5. Option (1) is correct. Explanation: 10,500 × ₹10 = ₹1,05,000 II. Based on following passage answer questions from 6-1 6.  Option (4) is correct. Explanation: Donations received for the specific purposes are shown as the name of the purpose for which these have been received. 7.  Option (3) is correct. Explanation: Building is being constructed so the asset is increasing. Hence, it should be shown on the assets side of the balance sheet. The specific fund is available for the construction of building, so the amount spent on such item for which specific donation is available, the amount of spending is shown by deducting from the corresponding specific fund. 8. Option (1) is correct Explanation: Subscription in arrears on 1st April 2020: 180 Members did not pay subscription for the previous year @ 2,000 per member Hence subscription outstanding on 1st April 2020 = 180 × 2,000 = ₹3,60,000 9. Option (3) is correct. Explanation: Amount of subscription in arrears for the year 2020-2021 = 110 members @ 2,000 per member = 110 × 2,000 = ₹2,20,000 Amount of subscription in arrears for the year 2019-2020 on 31st March 2021 = 50 members@ 2,000 per member = 50 × 2,000 = ₹1,00,000 Total amount of subscription in arrears on 31st March 2021 = 2,20,000 + 1,00,000 = ₹3,20,000 10. Option (1) is correct. Explanation: Amount of subscription in advance for the year 2020 – 21 = 25 members @ ₹2,000 = ₹50,000

Study Time

CHAPTER

Max. Time: 1:25 Hours Max. Questions: 40

2

ACCOUNTING FOR PARTNERSHIP

  Revision Notes

 Partnership: Partnership is an association of two or more persons (should not be more than 50) who have agreed to share profits of a business carried on by them.  Features of Partnership

(i) Association of two or more persons



(ii) Does not have a separate legal entity



(iii) Unlimited liability of the partners

Scan to know more about this topic

(iv) Agreement may be oral or written  Partnership Deed: It is an agreement between two or more than two partners for determining their mutual contract relationship and its limitation for better and Partnership Deed effective operation of the business.  Provisions of the Indian Partnership Act, 1932 in the absence of Partnership Deed

(i) Interest on Partner’s/s’ Loan — 6% p.a.



(ii) Interest on Capital — No interest to be paid



(iii) Interest on Drawings — No interest to be charged

(iv) Salary or Commission to Partners — No salary or commission to be paid (v) Profit Sharing Ratio — Profits to be distributed equally  Fixed and Fluctuating Capital Accounts of Partners 1. If Partners’ Capital Accounts are Fixed, two accounts are to be opened namely: (i) Partners’ Capital A/c (ii) Partners’ Current A/c 2. If Partners’ Capital Accounts are fluctuating, only one account is to be opened namely Partners’ Capital A/c. (Note: All the adjustments are to be made in Partner’s Capital A/c, if Capital Accounts of the partners are fluctuating.)  Division of Profits among Partners Profit is distributed among all partners after taking all the adjustments into account like interest on capital, interest on drawing, salary or commission of the partners, etc. After adjusting these items, the remaining amount will be distributed among the partners in their agreed profit sharing ratio .  Guarantee of Profits Guarantee is an assurance given to the partner (s) of the firm that at least a fixed amount will be paid to him.

In this case, first the guaranteed amount of the partner is transferred to the guaranteed partner and remaining amount is distributed among all the remaining partners. If the guaranteed amount is more than that of profit then the shortage amount is borne by the other partner(s) as per the agreement made by them.  Journal Entries regarding Profit and Loss Appropriation Account are as follows: 1. Transfer of balance of Profit and Loss Account: (a) If Profit & Loss Account shows a credit balance (Net Profit): Profit & Loss A/c  Dr. Scan to know more about To Profit & Loss Appropriation this topic A/c (Being transfer of net profit to Profit & Loss Appropriation A/c) (b) If Profit & Loss Account shows Profit and Loss debit balance (Net Loss): Appropriation Account Profit & Loss Appropriation A/c  Dr. To Profit & Loss A/c (Being transfer of net loss to Profit & Loss Appropriation A/c) 2. Interest on Capitals: (a) For crediting interest on capital to Partners’ Capital Accounts: Interest on Capital A/c Dr. To Partners’ Capital/Current A/cs (Being interest on capital at ____% p.a. allowed to partners) (b) For transferring interest on capital to Profit and Loss Appropriation Account: Profit & Loss Appropriation A/c  Dr. To Interest on Capital A/c (Being interest on capital transferred to Profit & Loss Appropriation A/c) 3. Partners’ Salary/Commission: (a) For crediting salary/commission to Partners’ Capital Accounts: Salary/Commission A/c Dr. To Partners’ Capital/Current A/cs (Being ₹____Salary/Commission allowed to _____ partner for _____months)

10 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

11

ACCOUNTING FOR PARTNERSHIP

(b)

For transferring partners’ salary/commission to Profit and Loss Appropriation Account: Profit and Loss Appropriation A/c Dr. To Salary/Commission A/c (Being Salary/Commission transferred to Profit and Loss Appropriation Account)

4. Interest on Drawings: Scan to know (a) For charging interest on drawings: more about Partners’ Capital/Current A/cs Dr. this topic To Interest on Drawings A/c (Being interest on drawings at _____% p.a. charged) Interest on (b) For transferring interest on Drawings Drawings to Profit & Loss Appropriation Account: Interest on Drawings A/c Dr. To Profit & Loss Appropriation A/c (Being interest on drawings transferred to Profit & Loss Appropriation A/c) 5. Transfer of Profit to Reserve: Profit & Loss Appropriation A/c Dr. To Reserve A/c





(Being profit transferred to Reserve A/c)

6. Share in Profit: Profit & Loss Appropriation A/c To Partners’ Capital/Current A/cs (Being distribution of profit among partners)  Interest on Capital Interest on Capital = Capital Invested × Rate of Interest × Period (months) 100 × 12  Interest on Drawings Interest on Drawings =

Dr.

Drawings Amount × Rate of Interest × Average Period 100 × 12  Salary or Commission and Rent paid to a Partner:

1. Before charging commission:





Commission = Net Profit before commission ×

Rate of Commission 100 2. After charging such commission:



Commission = Net Profit before commission ×

Rate of Commission 100 + Rate of Commission

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

(2) There is an agreement between all partners.

1. In which of the following case, claim is valid if the partnership agreement is silent? [CUET 2023]

(3) Equal share of profits and losses

(1) Sanjay is an active partner and wants a salary of ₹1,00,000 per year.

5. Pick the odd one out:

(2) Monika had advanced a loan to the firm and claims interest @10% per annum.

(4) Partnership agreement is for some business. (1) Interest on capital

(2) Interest on drawings

(3) Interest on partner’s loan

(4) Salary to partner

(3) Sanjay and Monika contributed ₹2,00,000 and ₹5,00,000 as capital respectively and Monika wants equal share.

6. Identify the journal entry for transferring the interest on drawings to the Profit and Loss Appropriation A/c.

(4) Monika wants interest on capital to be credited @ 10% per annum.

(1) Partners’ Capital/Current A/cs

2. In a partnership firm, partners share profit and loss in the ratio of 3 : 2. If the firm incurred a loss of ₹10,000 during the year, then calculate the amount of loss to be shared by the partners. [CUET 2023] (1) Equally (2) According to profit sharing ratio. (3) According to gaining ratio. 3. The persons who have entered into a partnership are individually known as: (1) Partners

(2) Firm

(3) Associations

(4) None of these

4. Following are the essential elements of a partnership firm except: (1) At least two persons

To Interest on drawings A/c (Being interest on drawings transferred to Profit & Loss Appropriation A/c) (2) Interest on Drawings A/c

Dr.

To Partners’ Capital/Current A/cs (Being interest on drawings transferred to Profit & Loss Appropriation A/c) (3) Interest on Drawings A/c

(4) According to sacrificing ratio.

Dr.

Dr.

To Profit and Loss Appropriation A/c (Being interest on drawings transferred to Profit & Loss Appropriation A/c) (4) Profit & Loss Appropriation A/c To Interest on Drawings A/c (Being interest on drawings transferred to Profit & Loss Appropriation A/c)

Dr.

12 Oswaal CUET (UG) Chapterwise Question Bank 7.  Which of the following items is not dealt through Profit and Loss Appropriation Account? (1) Interest on partner’s loan (2) Partner’s salary (3) Interest on partner’s drawings (4) Partner’s commission 8.  When is the Profit and Loss Appropriation Account prepared? (1) When there are certain adjustments related to partnership. (2) When the firm is dissolved. (3) When there is an audit to be done. (4) It is never prepared. 9. Pick the odd one out: (1) Rent to Partner (2) Manager’s Commission (3) Interest on Partner’s Loan (4) Interest on Partner’s Capital 10. Mohit and Rohit were partners in a firm with capitals of ₹80,000 and ₹ 40,000 respectively. The firm earned a profit of ₹ 30,000 during the year. Mohit’s share in the profit will be : (1) ₹ 20,000

(2) ₹ 10,000

(3) ₹ 15,000

(4) ₹ 18,000

11. Rahul and Shubham are partners in a partnership. Rahul withdrew ₹ 4,000 during the year as drawings. Interest on drawings is charged @ 15% p.a. The amount of interest on drawings at the end of the year will be: (1) ₹ 300

(2) ₹ 600

(3) ₹ 1,200

(4) ₹ 150

12. Ramesh and Suresh are partners in the ratio of 3 : 2. Before profit distribution, Ramesh is entitled to 5% commission on the net profit (after charging such commission). Before charging commission, firm’s profit was ₹84,000. Suresh’s share in profit will be: (1) ₹ 32,000

(2) ₹ 48,000

(3) ₹ 56,000

(4) ₹ 32,800

13. The minimum number of partners allowed to open a partnership firm: (1) 10

(2) 2

(3) 5

(4) 20

14. In the absence of Partnership Deed, interest on loan of a partner is allowed: (1) at 8% per annum

(2) at 6% per annum

(3) at 12% per annum

(4) no interest is allowed

15. When only Partner‘s Capital Account is maintained, all the adjustments are made in: (1) Partners’ Capital Accounts (2) Partners’ Current Accounts (3) Cash Account (4) None of the above 16. In Fluctuating Capital Method, the capital of a partner ___________. (1) Unchanged (2) Fluctuates from time to time

ACCOUNTANCY

(3) Fluctuates only at the beginning of the year but is fixed at the end (4) Maintained 17. Fluctuating capital account is credited with: (1) Interest on capital (2) Profit of the year (3) Remuneration of partners (4) All of the above 18. The maximum number of partners allowed in a partnership firm are: (1) 50 (2) 100 (3) 200 (4) 400 19. Which of the following statements is not true? (1) All partners share profit and losses equally in the absence of a partnership deed. (2) A minor can be admitted as a partner, only into the benefits of the partnership. (3) A sleeping partner is allowed to sleep during a meeting of the partners. (4) None of the above 20. Guarantee of profit to a partner is given by: (1) Only one partner of the firm (2) Only two partners of the firm (3) All the partners of the firm (4) All of the above

[B] ASSERTION REASON QUESTIONS

Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as: (1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A). (3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): Commission provided to a partner is shown in Profit and Loss Appropriation A/c. Reason (R): Commission provided to a partner is a charge against profits and is to be provided at a fixed rate. 2. Assertion (A): Transfer to reserves is shown in Profit & Loss Appropriation A/c. Reason (R): Reserves are charge against the profits. 3. Assertion (A): Co-ownership of property does not account to partnership. Reason (R): The element of business is present in coownership. 4. Assertion (A): Partners always share profits and losses equally. Reason (R): Partnership is the relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all. 5. Assertion (A): The fixed capital method is better as compared to the fluctuating capital method. Reason (R): The capital of the partners is fixed, and all the transactions are recorded in the current account.

13

ACCOUNTING FOR PARTNERSHIP

6. Assertion (A): If percentage of interest on capital is not mentioned in partnership deed, partners will not receive any interest on capital.

(1) ₹60,000

(2) ₹40,000

(3) ₹20,000

(4) ₹30,000

Reason (R): The interest on capital is charged on the capital invested by the partners.

(1) ₹19,047

(2) ₹18,200

(3) ₹19,200

(4) ₹18,047

7. Assertion (A): Partnership is defined as “Relation between the persons who have agreed to share the profits of a business equally carried on by all or anyone of them acting for all.”

2. How much commission is to be given to Ravi?

3. How much salary is Asif entitled for the full year? (1) ₹24,000

(2) ₹20,000

(3) ₹18,000

(4) ₹21,000

Reason (R): If partnership deed is silent in respect of certain aspects, the relevant provisions of the Indian Partnership Act, 1932 become applicable.

4. How will the rent to be paid to Asif treated?

8. Assertion (A): The interest on drawings is calculated even if it is not mentioned in the partnership deed.

(2)  It will be subtracted from the Net Profit.

Reason (R): Interest on drawing is charged on the drawings done by the partners during the financial year.

(4) It will be deducted from the Capital Account of Ravi.

9. Assertion (A): The distribution of profits among the partners is shown through a Profit and Loss Appropriation Account. Reason (R): Profit and Loss Appropriation Account is merely an extension of the Profit and Loss Account of the firm. 10. Assertion (A): Sandhya and Manoj entered into a partnership in the profit sharing ratio 1:2. Manoj agreed to pay Sandhya if her share of profit falls short of ₹50,000. The profit earned was ₹1,77,000. Sandhya asked him to pay ₹27,000, but Manoj refused to pay anything. Reason (R): Profit is guaranteed only when the minimum amount of profit is not earned by the partner.

[C] COMPETENCY BASED QUESTIONS I. Based on the following passage answer the questions from 1-5: Asif and Ravi are partners in a firm, sharing profits and losses in the ratio of 3 : 2. Their fixed capitals as on 1st April, 2016 were ₹ 6,00,000 and ₹ 4,00,000 respectively. Their partnership deed provides for the following:

(1)  It will be in the debit side of Profit and Loss Appropriation Account. (3) It will be added to the Capital Account of Asif. 5.  What will be the interest on drawings to be shown in the Profit and Loss Appropriation Account for Ravi? (1) ₹1,200

(2) ₹1,100

(3) ₹1,300

(4) ₹2,400

II.  Based on following passage answer questions from 6-10: Sonu and Rajat started a partnership firm on April 1, 2017. They contributed ₹ 8,00,000 and ₹ 6,00,000 respectively as their capitals and decided to share profits and losses in the ratio of 3 : 2. The partnership deed provided that Sonu was to be paid a salary of ₹20,000 per month and Rajat a commission of 5% on turnover. It also provided that interest on capital be allowed @ 8% p.a. Sonu withdrew ₹ 20,000 on 1st December, 2017 and Rajat withdrew ₹ 5,000 at the end of each month. Interest on drawings was charged @ 6% p.a. The net profit as per Profit and Loss Account for the year ended 31st March, 2018 was ₹ 4,89,950. The turnover of the firm for the year ended 31st March, 2018 amounted to ₹ 20,00,000. 6. How much salary will Sonu get at the end of the year? (1) ₹20,000

(2) ₹2,20,000

(i) P  artners are to be allowed interest on their capital @ 10% per annum.

(3) ₹2,40,000

(4) ₹2,00,000

(ii) They are to be charged interest on drawings @ 4% per annum.

(1) ₹2,00,000

(2) ₹1,00,000

(iii) Asif is entitled to a salary of ₹2,000 per month.

(3) ₹50,000

(4) ₹1,50,000

8. The interest on capital of Sonu is:

(iv) Ravi is entitled to a commission of 5% of the net profit of the firm before charging such commission. (v)  Asif is entitled to a rent of ₹ 3,000 per month for the use of his premises by the firm. The net profit of the firm for the year ended 31st March, 2017, before providing for any of the above clauses was ₹ 4,00,000. Both partners withdrew ₹ 5,000 at the beginning of every month for the entire year. 1.  The amount of Interest on Asif’s Capital, shown in the Profit and Loss Appropriation Account is:

7. The commission earned by Rajat is:

(1) ₹64,000

(2) ₹60,000

(3) ₹48,000

(4) ₹32,000

9. The Interest on Capital of Rajat is: (1) ₹64,000

(2) ₹48,000

(3) ₹60,000

(4) ₹32,000

10. What is the amount of interest on Sonu’s Drawings? (1) ₹400

(2) ₹1,200

(3) ₹600

(4) ₹1,600

14 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (2)

3. (1)

4. (3)

5. (3)

6. (3)

7. (1)

8. (1)

9. (4)

10. (3)

11. (1)

12. (1)

13. (2)

14. (2)

15. (1)

16. (2)

17. (4)

18. (1)

19. (3)

20. (4)

8. (4)

9. (2)

10. (1)

8. (1)

9. (2)

10. (1)

[B] ASSERTION REASON QUESTIONS 1. (3)

2. (3)

3. (2)

4. (4)

5. (4)

6. (2)

7. (4)

[C] COMPETENCY BASED QUESTIONS 1. (1)

2. (2)

3. (1)

4. (2)

5. (3)

6. (3)

7. (2)

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS

8. Option (1) is correct.

1. Option (3) is correct.

Explanation: The profit and loss appropriation account is prepared when there are some cortain adjustments to be done with related to the partnership due to the changes that have occurred (appropriation of profits among the partners).

Explanation: In the absence of partnership deed, the partner cannot claim for the salary, interest on loan is charged at 6%, and the interest on capital is also not to be charged. In the absence of deed, the partners need to share profits and losses equally irrespective of the capital contributed by them. 2. Option (2) is correct.

9. Option (4) is correct. Explanation: Interest on capital is the only one which is an appropriation of profit (unitll and unless specified as charge against profit) and all the other items are the charge against profit.

Explanation: It doesn’t matter whether the firm earns profit or loss, They are shared in the agreed profit and loss sharing ratio as specified in a partnership deed.

10. Option (3) is correct.

3. Option (1) is correct.

11. Option (1) is correct.

Explanation: Persons who have agreed to come into an agreement with a common purpose are individually known as partners and collectively known as partnership firm. 4. Option (3) is correct.

Explanation: As there is no partnership deed, the profit will be shared equally, that is ₹15,000 each. Explanation: ₹ 4000 × 15% ×

1 = ₹300 2

12. Option (1) is correct. Explanation: Ramesh’s commission =  ₹84,000 × = ₹4,000

5  105

Explanation: A partnership is an agreement between two or more persons to carry out a business, but they need not necessarily share equal profit or losses unless otherwise provided by the partnership deed or in the absence of partnership deed.

Firm’s Profit after commission = ₹84,000 − ₹4,000 = ₹80,000

5. Option (3) is correct.

Suresh’s share in profit = ₹80,000 ×

Explanation: Interest on partner’s loan is the only one allowed even in the absence of a partnership deed.



6. Option (3) is correct. Explanation: When the interest on drawings is transferred to Profit and loss appropriation account, interest on drawings in debited and profit and loss appropriation account is credited. 7. Option (1) is correct. Explanation: Interest on partner’s loan directly comes in the Profit and Loss Account as it is a charge against profit, and will be allowed even in the case of loss. The partner’s salary, interest on partner’s drawings and partner’s commission are dealt through the Profit and Loss Appropriation Account.

2 5

= ₹ 32,000

13. Option (2) is correct. Explanation: The number of persons required for the formation of a partnership firm are 2 and the membership can go up to 50. Thus, the minimum number of members in a partnership firm are 2. 14. Option (2) is correct. 15. Option (1) is correct. Explanation: When only Partner’s Capital Account is maintained, all the adjustments are made in the Capital account itself and no separate account is opened for such adjustments.

15

ACCOUNTING FOR PARTNERSHIP

16. Option (2) is correct.

7. Option (4) is correct.

Explanation: With every transaction relating to the capital of the partners, the capital keeps on fluctuating, in the fluctuating capital account.

Explanation: Assertion (A) is wrong as in partnership there is no provision that the profits are shared equally. They can be shared as per any agreed ratio.

17. Option (4) is correct. Explanation: In case of the fluctuating capital account, the capital account is credited with all the transactions related to the capital of the partners, as no separate account is opened. 18. Option (1) is correct. Explanation: Section 464 of The Companies Act,2013 restricts the number of partners to 50. 19. Option (3) is correct. Explanation: A sleeping partner only provides the capital and also shares the profits and losses of the business. A sleeping partner does not take an active part in the management of the firm. 20. Option (4) is correct. Explanation: Guarantee of profit to a partner is given by any one or all partners in a particular ratio to one or more partners of the firm. The guaranteed amount is paid even in case of loss.

[B] ASSERTION REASON QUESTIONS 1. Option (3) is correct. Explanation: Commission provided to a partner is an appropriation of profit, hence it is shown in profit and loss appropriation Account.

8. Option (4) is correct. Explanation: As per the Partnership Act, 1932 no interest is charged on drawings if the partnership deed is silent. 9. Option (2) is correct. Explanation: The profit is distributed among the partners in a partnership firm with the help of the Profit and Loss Appropriation Account, after charging the interest on capital, interest on drawings, partner’s salaries, commission etc. It is prepared to distribute the net profit for the year among the partners. 10. Option (1) is correct. Explanation: As the profit share of Sandhya is ₹77,000, which is more than the guaranteed amount, so Manoj need not to pay her. In case the profit of the firm is inadequate then the excess paid to the guaranteed partner is paid by the partner who gives guarantee.

[C] COMPETENCY BASED QUESTIONS 1. Option (1) is correct. Explanation: ₹6,00,000 × 10% = ₹60,000 2. Option (2) is correct. Explanation: Net Profit = ₹4,00,000 – ₹36,000

= ₹3,64,000

2. Option (3) is correct.

Commission = 5% of 3,64,000

Explanation: Reserves are appropriation of profits and not a charge against the profit, hence it is shown in the Profit and Loss Appropriation Account. Hence statement (A) is correct but (R) is wrong.



3. Option (2) is correct. Explanation: In case of partnership, neither does co-ownership of property nor the element of business account to partnership. It is an agreement between the partners to enter into a business.

= ₹18,200

3. Option (1) is correct. Explanation: Salary = ₹2000 × 12

= ₹ 24,000

4. Option (2) is correct. 5. Option (3) is correct. Explanation: Total amount of drawings =  ₹5,000 × 12 

4. Option (4) is correct. Explanation: Partners share profit and loss as per the partnership deed. If deed is silent, then profit and loss are shared equally 5. Option (4) is correct. Explanation: It cannot be determined which method of maintaining capital is better, it depends on the preference of the partners.

= ₹60,000 Interest on drawings = ₹60,000 ×

6.5

×

4

12 100

= ₹1,300

6. Option (3) is correct. Explanation: Salary = ₹20,000 × 12 = ₹2,40,000 7. Option (2) is correct.

6. Option (2) is correct.

Explanation: ₹20,00,000 × 5% = ₹1,00,000

Explanation: The interest on capital is charged in accordance with the partnership deed, and if not mentioned it will not be charged.

8. Option (1) is correct. Explanation: ₹8,00,000 × 8% = ₹64,000

16 Oswaal CUET (UG) Chapterwise Question Bank 9. Option (2) is correct. Explanation: ₹6,00,000 × 8% = ₹48,000

ACCOUNTANCY

10. Option (1) is correct. Explanation: Interest on Drawings  = ₹20,000 × 6% ×

4 = ₹400 12

Study Time

CHAPTER

Max. Time: 1:25 Hours Max. Questions: 40

3

RECONSTITUTION OF PARTNERSHIP

  Revision Notes  Goodwill Goodwill is an intangible asset. It is the capacity of earning more profit over the normal profit. It is earned with the reputation of the business. It is not depreciated.  Methods of Valuation of Goodwill:

1. Average Profit Method:

Goodwill = Average profit × No. of years’ purchase

2. Super Profit Method:

Goodwill = Super profit x No. of years’ purchase

(i) Super profit = Actual profit – Normal profit



(ii) Normal profit



=

Average capital employed × Normal rate of return 100

3. Capitalisation Method:

Goodwill =Super profit ×

100 Normal rate of return

Goodwill =Total Capitalised value of business – Capital Employed  Change in Profit sharing ratio • Reconstitution of partnership

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Reconstitution of Partnership refers to the change in a old agreement on the occasion of admission of a partner, Profit Sharing retirement of a partner or change in profit Ratio and loss sharing ratio among the existing partners. Steps to be followed in a Reconstitution of Partnership are as follows: Step I: Distribute all the reserves, accumulated profit or loss or any other balance of surplus in the old profit-sharing ratio. Step II: Now, find the sacrificing and gaining ratio of the existing partners with the help of the following formulae: Sacrificing ratio = Old ratio − New ratio Gaining ratio = New ratio − Old ratio Step III: Find the goodwill of the firm by any of the methods. Step IV: Revaluate the assets and liabilities (if any). Distribute the profit or loss on revaluation of assets and liabilities (if any) among the all existing partners in their old profit sharing ratio.

Step V: Debit the capital of gaining partner(s) with the proportionate gain amount of goodwill and credit the capital of sacrificing partner(s) with the proportionate sacrifice amount of a goodwill.  Preparation of Revaluation Account Revaluation Account is opened to transfer the revaluated amount of assets and liabilities. 1. Debit the Revaluation Account if assets decrease or liabilities increase. 2. Credit the Revaluation Account if assets increase or liabilities decrease. After this process, transfer the balance of Revaluation Account to the existing Partners’ Capital Accounts.  Balance Sheet After that, the balance sheet is prepared with the help of Adjusted Partners’ Capital Accounts and Revalued Assets and Liabilities.  Admission of a partner In business of partnership, the existing partners may allow a new partner to join the partnership in order to increase the capital of the firm or to increase the reputation of the firm. Various ratios to be computed on the admission of partner(s) are:

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Admission of Partner



(i) Gaining ratio = New ratio – Old ratio



(ii) Sacrificing ratio = Old ratio – New ratio



(iii) New profit sharing ratio of all the partners

Steps to be followed to ascertain the new profit sharing ratio: Step I: First subtract the part of the new partner from the whole part. Step II: Now, divide the remaining part in proportion of the existing partners.

Step III: Compute the ratio of all the partners.

 Treatment of Goodwill

Condition I: A new partner brings his capital in cash.

Step I: Find the gaining and sacrificing ratio of the existing partners. Step II: Now debit the capital of gaining partners and credit the sacrificing partners’ capitals in their gaining and sacrificing ratio respectively.

•

books. Goodwill adjustments can be done : Goodwill Account opened. • Goodwill Account not opened.

• However, not all businesses keep a goodwill account in their

• On the admission of partner, goodwill must be revalued.

as well as the goodwill according to the profit sharing ratio.

• The new partner is required to pay his share of the tangible assets

Accounting Treatment of Goodwill

Revaluation of Assets and Liabilities

Ne w

ro

t Ra

io

Accumulated Profits, Losses and Reserves

First Level

Second Level

Trace the Mind Map Third Level

Reserves, losses and profits should be transferred to Capital / Current Accounts of old partners in their old profit sharing ratio.

Sacrificing Ratio = Old Ratio – New Ratio

Reconstitution tnership F of Parion of a Pairm : rtner iss Ad m

Effect on Change in Profit sharing Ratio

g

f it

ar in

sh

amount of assets and liabilities to Revaluation Account. • Profits or losses arising from revaluation are distributed amongst the old partners in their old profit sharing ratio.



P

New Profit Sharing Ratio = Old Ratio – Sacrificing Ratio



• Transfer the increasing or decreasing



18 Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY

an

Transfer to Partners' Capital Accounts or Current Accounts in old profit-sharing ratio.

sferr

ed to Part ner s' C

First Level

Second Level



Trace the Mind Map

• Amalgamation of two partnership firms

• Death of a partner

• Retirement of an existing partner

• Admission of a partner

Third Level



existing partners'

• Change in profit-sharing ratio among

Circumstances when Reconstitution takes place

Tr en



• • • •

Revaluation of Assets and Liabilities

Reconstitution tnership F of Par ge in Pr irm : ofit Chan g R n a i t r i o a h S

Change in Profit Sharing Ratio

Debit the Revaluation Account if liabilities increase Credit the Revaluation Account if liabilities decrease Debit the Revaluation Account if assets decrease Credit the Revaluation Account if assets increase

Reserves & Accumulated Profits & Losses

unts

Goodwill

Fa

Wh ap

cco lA ita i ct

ng

atio

ati

e

ill dw

on

ur at

o Go

lu va

N

• Efficient management • Favourable location • Longer establishment of Business • Market situations • Risk associated with business

• It is not depreciated.

asset.

• It is an intangible

Sacrificing Ratio= Old Ratio – New Ratio

ing R

atio gR

Sacrifi c

n Gaini

Gaining Ratio= New Ratio – Old Ratio

of on of Goodwill luati f va o ds Average Profit method: ho et Goodwill=Actual Average Profit×Number M of Years’ Purchase Super Profit method: Super Profit=Actual Profit–Normal Profit Goodwill=Super Profit×Number of Years’ Purchase Capitalisation method: Average Profit×100 Capitalisation of Average Profit = Normal rate of return Goodwill=Total Capitalised value of Business – Capital Employed ffe

cto rs a

• Net effect of reserves, accumulated profits and losses is calculated. • Gaining / Sacrificing ratio is calculated. • The share of gaining partner and sacrificing partner in net effect is calculated. • In case of positive Net Effects– Gaining Partner’s Capital A/c Dr. To Sacrificing Partner’s Capital A/c • Reverse entry is made in case of negative Net Effects.

RECONSTITUTION OF PARTNERSHIP

19

• Take total profits of the required number of past years. • Calculate average profit. • Reduce average profit for the period upto the date of death.

• Consider Opening Balance of Capital • Share in Revaluation Account • Share of reserves • Share in goodwill of firm • Share of profit upto the date of retirement

Calculation of Deceased Partner’s Share of Profit

Preparation of Loan Account

Accounting Treatment of Goodwill of Retiring / Deceased Partner N

ew

Ratio

First Level

Second Level

Trace the Mind Map Third Level

• Distribute in old ratio • Profit and Loss A/c General Reserve A/c Workmen Compensation Fund A/c

Dr. Dr. Dr. To All Partners’ Capital/ Current A/cs

Gaining Ratio=New share – Old share

New share= Old share + Acquired share

Accumulated Profits and Reserves

io Gaining Rat

aring t Sh i f o Pr

Effects on Change in Profit Sharing Ratio

stitutio Reconrtnersh n of ip Pa t i r e e R m : Firm f a P ent/ o artner h Deat

Adjustments of Capital Accounts



transferring to Current Account.



• When appears in books, write off in old ratio. • When does not appear, credit to retiring partner’s capital account and debit to continuing partners’ capital accounts in gaining ratio.

• If capital of remaining partner falls short, he/she brings in cash. • If capital of remaining partner has a surplus, he/she withdraws cash. • Surplus or deficit in Capital Account is transferred or adjusted by



20 Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY

21

RECONSTITUTION OF PARTNERSHIP

Condition II: If goodwill is valued and partner does not bring goodwill in cash.

Step I: Find the value of goodwill of the new partner.

Step II: Debit the capital of the new partner and credit the capital of sacrificing partners.  Accumulated Profits Distribute the undistributed reserves and Profit and Loss Appropriation balance among the existing partners in their old profit-sharing ratio.  Adjustment of capital

Adjustment of capital may be done based on two things:



1. As per the new partners’ capital and his share in business.



2. On the basis of the capital of the existing partners.

 Retirement of a partner When a partner leaves the partnership firm due to the certain reasons like on retirement, old agreement of partnership comes to an end and a new agreement comes into an existence.

A partner may retire:



1. On a dispute with other partners,



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Retirement of Partner



2. Interest, salary, bonus, commission, etc. are payable.



3. Share in firm’s goodwill.



4. Share in undistributed profit or loss.

5. Share in profit or loss on revaluation of assets and liabilities.  Methods of Payment

1. Lump-sum payment method.



2. Instalment payment method.

 Note: The amount of retiring partner is shown as loan account in balance sheet until it is not paid to the retiring partner.  Death of a Partner  A partnership comes to an end with the death of a partner, but the firm may continue its business with a new agreement.

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Amount to be paid to a legal executor of the deceased partner consists of the following items:

Death of a Partner



1. Credit balance of Capital and Current A/c.



2. Salary, commission, bonus etc. up to the date of death.

2. Having no interest in business activities,



3. Proportionate part in the goodwill of the firm.

3. Old age,



4. Proportionate share in undistributed profit or loss.



4. Illness, etc.





Determination of amount to be paid to the retiring partner:

5. Share in profit or loss on revaluation of assets and liabilities up to the date of death of the partner.

1. Balance of Capital and Current Account shown in balance sheet.

 Note: If the amount of deceased partner is not paid to the executor, interest is paid @ 6% on the amount.

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

1. O  n R’s retirement, the amount payable to him after all the adjustments, work out to be ₹ 60,000 but the remaining partners P and Q agreed to pay him ₹75,000 in full settlement of his claim. Identify the term which represent ₹ 15,000 extra, that is paid to R. [CUET 2023] (1) Share in Profits (2) Hidden Goodwill (3) Interest on his Capital (4) Compensation for Past work 2. Identify that account to which share of profit of a deceased partner is debited from the date of the last Balance Sheet to the date of his/her death. [CUET 2023] (1) His capital account (2) Profit and loss account (3) Profit and Loss Suspense account (4) Trading account 3. A, B, and C are partners with equal profit sharing ratio. Their fixed capitals are ₹ 30,000, ₹ 25,000 and ₹30,000 respectively. C decided to take retirement. A and B decided to continue the partnership firm and change their profit sharing ratio into the Capital Ratio. What is the gaining ratio of A and B? [CUET 2023] (1) 6 : 5 (2) 1 : 1 (3) 7 : 4 (4) 3 : 2

4. Out of the following when will the need for valuation of goodwill does not arise: [CUET 2023] (1) Admission of a partner (2) Retirement of a partner (3) Dissolution of partnership firm (4) Death of a partners 5. Read the following facts about the admission of a partner. A. A new partner acquires his share from the old partners that reduces the old partner’s share in profits. B. The partner’s capital must be adjusted, so as to be proportionate to their new profit sharing ratio. C. Assets and Liabilities may be revalued and reassessed on admission of a partner. D. Adjustment for Reserves and Accumulated profits/loss is done. E. Profit sharing ratio of the existing partners may change on admission of a new partner. Choose the correct answer from the options given below:  [CUET 2023] (1) A, B, C and D only (2) B, C, D and E only (3) C, D and E only (4) A, C, D and E only 6. From the following, identify the items which are payable to retiring partner, if mentioned in deed: [CUET 2023]

22 Oswaal CUET (UG) Chapterwise Question Bank A. Credit balance of his/her Capital/Current Account B. Share of goodwill C. Goodwill of the firm D. Share in revaluation gain/loss E. Share in accumulated profits (Reserves) Choose the correct answer from the options given below: (1) A, B only (2) A, B, D, E only (3) B, C, D, E only (4) A, C, D, E only 7. Match List I with List II: List -I

List -II

(A) Loss on Revaluation

(I) Credited to old partners in old ratio

(B) Profit on Revaluation

(II) Debited to Profit and Loss Suspense A/c

(C) Premium brought by new partner

(III) Credited to old partners in sacrificing ratio

(D) On the death of a (IV) Debited to old partner, profit till the partners in the old date of death is ratio ₹ 2,000 Choose the correct answer from the options given below:  [CUET 2023] (1) (A)-(I), (B)-(IV), (C)-(III), (D)-(II) (2) (A)-(IV), (B)-(I), (C)-(III), (D)-(II) (3) (A)-(II), (B)-(II, (C)-(IV), (D)-(III) (4) (A)-(III), (B)-(II), (C)-(IV), (D)-(I) 8. Identify the correct sequence, where the new partner is to bring proportionate capital. A. Calculation of Capital Balance of old partners B. Preparation of Revaluation A/c C. Determination of Revaluation gain/loss D. Presentation of Treatment of Goodwill E. Calculation of Capital to be brought in by the new partner Choose the correct answer from the options given below:  [CUET 2023] (1) C, B, D, A, E (2) D, B, C, E, A (3) D, C, B, A, E (4) B, C, D, A, E 9. Which of the following will be shown on the credit side of Deceased Partner’s Capital A/c? A. Revaluation Gain Share B. Goodwill written off C. Share of profit till the date of death D. Drawings till the date of death E. Interest on capital till the date of death Choose the correct answer from the options given below:  [CUET 2023] (1) A and C only (2) B, D and E only (3) A, B and D only (4) A, C and E only 10. Match List I with List II: [CUET 2023] List -I

List -II

(A) Interest on capital

(I) Admission of a partner

(B) Gaining Ratio

(II) Profit and Loss in the old profit sharing ratio

(C) Sacrificing ratio

ACCOUNTANCY

(III) Continuing partners

(D) Revaluation of Assets (IV) When partnership and Liabilities deed specifically provides for it Choose the correct answer from the options given below:  [CUET 2023] (1) (A)-(I), (B)-(II), (C)-(III), (D)-(IV) (2) (A)-(III), (B)-(IV), (C)-(I), (D)-(II) (3) (A)-(II), (B)-(III), (C)-(IV), (D)-(I) (4) (A)-(IV), (B)-(III), (C)-(I), (D)-(II) 11. Bishan and Sudha were partners in a firm sharing profits and losses in the ratio of 5 : 3. Alena was admitted as a new partner. It was decided that the new profit-sharing ratio of Bishan, Sudha and Alena will be 10 : 6 : 5. The sacrificing ratio of Bishan and Sudha will be: (1) 5 : 3 (2) 25 : 78 (3) 6 : 5 (4) 2 : 1 12. Saurabh, Shirin and Somesh are partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Somesh retires and the new profit sharing ratio between Saurabh and Shirin is decided as 3 : 2. The gaining ratio between Saurabh and Shirin will be: (1) 3 : 2 (2) 3 : 1 (3) 1 : 1 (4) 2 : 1 13. Which of the following statements is not true? (1) When the partner is admitted it leads to a reconstitution of the firm. (2) When the partner dies it is considered as a reconstitution of the firm. (3) When the partners change their profit-sharing ratio it is said to be as a reconstitution of the firm. (4) When the partner buys an asset it is considered as a reconstruction of the firm. 14. When the incoming partner brings his share of premium for goodwill in cash, it is adjusted by crediting to: (1) His Capital Account (2) Premium for Goodwill Account (3) Sacrificing Partners’ Capital Accounts (4) None of the above 15. Z is admitted in a firm for 1/4th share in the profits for which he brings ₹ 10,000 towards premium for goodwill. It will be taken by the old partners in: (1) Old Profit-Sharing Ratio (2) New Profit-Sharing Ratio (3) Sacrificing Ratio (4) None of the above 16. If the incoming partner is to bring Premium for Goodwill in cash and a balance exists in Goodwill Account, then this Goodwill Account is written off among old partners in: (1) New Profit-Sharing Ratio (2) Old Profit-Sharing Ratio (3) Sacrificing Ratio (4) None of the above 17. According to the Partnership Act, 1932, the interest payable to the deceased partner on the amount left by him will be: (1) 6% p.a. (2) 10% p.a. (3) 12% p.a. (4) 16% p.a.

23

RECONSTITUTION OF PARTNERSHIP

18. The old profit-sharing ratio among Rajendra, Satish and Tejpal were 2 : 2 : 1. The new profit-sharing ratio after Satish’s retirement is 3 : 2. The gaining ratio is: (1) 3 : 2 (2) 2 : 1 (3) 1 : 1 (4) 2 : 2 19. A, B and C are partners. C expired on 18th December, 2019 and as per agreement surviving partners A and B directed the accountant to prepare financial statement as on 18th December, 2019 and accordingly the share of profits of C (deceased partner) was calculated as ₹12,00,000. Which account will be debited to transfer C’s share of profit: (1) Profit and Loss Suspense Account (2) Profit and Loss Appropriation Account (3) Profit and Loss Account (4) None of the above 20. In case of retirement, if full or part of the amount payable to the retiring partner still remains to be paid, and there is no agreement among the partners, then retiring partner will get: (I) Interest @ 6% p.a. on the balance amount. (II) Share of profit earned proportionate to his amount outstanding to total capital of the firm. (III) Interest @ 9% p.a. on the balance amount. Which out of the following is correct ? (1) (I) (2) (II) (3) (III) (4) Have a choice to get either (I) or (II)

[B] ASSERTION REASON QUESTIONS Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as: (1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A). (3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): A new partner can be admitted into a partnership firm with the consent of all the existing partners. Reason (R): According to Section 31 of the Indian Partnership Act, 1932, a new partner shall not be introduced into a firm without the consent of all the existing partners, unless it is agreed otherwise by the partners in the partnership deed. 2. Assertion (A): New Profit-Sharing Ratio is the ratio in which old partners including the new partner, share the profits or losses of the firm. Reason (R): When a new partner is admitted to the firm, it is necessary to calculate the new profit-sharing ratio with the help of the share agreed to forgo by the old partners. 3. Assertion (A): On retirement of a partner, the old partnership agreement comes to an end and a new partnership agreement comes into an existence between the remaining partners. Reason (R): Retirement of the partner leads to the reconstitution of the firm. 4. Assertion (A): Retirement of a partner is a legal when done at will and with the consent of the other partners.

Reason (R): According to the Section 32 (1) of the Indian Partnership Act, 1932, “A partner may retire from the firm with the consent of all the partners or at his will, by giving written notice to all the other partners of his intention to retire.” 5. Assertion (A): Partnership comes to an end with the death of a partner but the firm may continue its business with the new partnership agreement. Reason (R): Death of a partner leads to the restructuring of the firm and not to the dissolution of the partnership firm. 6. Assertion (A): At the time of admission of a partner, if there is any General Reserve, Reserve Fund or the Balance of Profit & Loss Account appearing in the balance sheet, it should be transferred to old partners’ capital/current accounts in their old profit-sharing ratio. Reason (R): The General Reserve, Reserve Fund or the Balance of Profit and Loss Account are the result of the past profits when the new partner was not admitted. 7. Assertion (A): Goodwill is an intangible asset. Reason (R): It is the value of the reputation of a firm in respect of the profits expected in future over and above the normal profits. 8. Assertion (A): At the time of change in profit sharing ratio, it is important to determine the sacrificing ratio and gaining ratio of partners. Reason (R): The gaining partners compensate the sacrificing partners by paying them appropriate amount of goodwill. 9. Assertion (A): The gaining partner transfers the amount of goodwill to the sacrificing partners in proportion. Reason (R): The gaining ratio is the share of profit gained by a partner when there is a change in the profit-sharing ratio. 10. Assertion (A): Ram, Rahim and Ron share profits in the ratio 2 : 3 : 5. Ram decides to retire. The new profit sharing ratio is 3 : 5. If the profit earned was ₹ 1,50,000 before retirement. Rahim’s share is ₹ 45,000. Reason (R): In case of retirement of a partner, profits are shared in the new profit sharing ratio among the existing partners.

[C] COMPETENCY BASED QUESTIONS I. Based on following passage answer questions from 1-5. Alia, Karan and Shilpa were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Goodwill appeared in their books at the value of ₹ 60,000. Karan decided to retire from the firm. On the date of his retirement, goodwill of the firm was valued at ₹ 2,40,000. The new profit-sharing ratio decided among Alia and Shilpa was 2 : 3. Give the answers to the questions given below: 1.  How much will be transferred to Karan’s Capital Account of the existing goodwill? (1) ₹18,000 (2) ₹30,000 (3) ₹12,000 (4) ₹72,000 2. What is Alia’s gaining or sacrificing ratio: (1)

1 gain 10

(2)

1 Sacrifice 10

(3)

4 Gain 10

(4)

4 Sacrifice 10

24 Oswaal CUET (UG) Chapterwise Question Bank 3. What is Shilpa’s gaining or sacrificing ratio: (1)

1 gain 10

(2)

1 Sacrifice 10

(3)

4 Gain 10

(4)

4 Sacrifice 10

was asked to introduce ₹1,30,000 for capital and ₹70,000 for premium for goodwill. Besides this, Sundram was required to provide ₹1,00,000 as loan for two years. Sundram readily accepted the offer. The terms of the offer were duly executed, and he was admitted as a partner.

4.  What amount of goodwill will be transferred to Karan’s Capital account? (1) ₹ 96,000

(2) ₹ 72,000

(3) ₹ 24,000

(4) ₹ 18,000

ACCOUNTANCY

5.  What will be the amount of goodwill compensated by the gaining partner to the sacrificing partner? (1) ₹28,800 by Alia and ₹43,200 by Shilpa

6.  Remuneration will be transferred to ________ of Amit and Mahesh at the end of the accounting period. (1) Capital account

(2) Loan account

(3) Current account

(4) None of the above

7.  Upon the admission of Sundram, the sacrifice for providing his share of profits would be done: (1) by Amit only (2) by Mahesh only (3) by Amit and Mahesh equally

(2) ₹43,200 by Alia and ₹28,800 by Shilpa

(4) by Amit and Mahesh in the ratio of 3:2.

(3) ₹96,000 by Shilpa (4) ₹96,000 by Alia II. Based on the following passage answer questions from 6-10: Amit and Mahesh were partners in a fast-food corner sharing profits and losses in ratio 3:2. They sold fast food items across the counter and did home delivery too. Their initial fixed capital contribution was ₹1,20,000 and ₹80,000 respectively. At the end of the first year their profit was ₹ 1,20,000 before allowing the remuneration of ₹3,000 per quarter to Amit and ₹2,000 per half year to Ranju. Such a promising performance for the first year was encouraging, therefore, they decided to expand the area of operations. For this purpose, they needed a delivery van, a few Scotties and an additional person to support. Six months into the accounting year they decided to admit Sundram as a new partner and offered him 20% as share of profits along with monthly remuneration of ₹2,500. Sundram

8.  Sundram will be entitled to a remuneration of _______ at the end of the year. (1) ₹ 15,000

(2) ₹ 27,000

(3) ₹ 30,000

(4) ₹ 45,000

9.  While taking up the accounting procedure for this reconstitution the accountant of the firm Mr. Suraj Marwah faced a difficulty. For the amount of loan that Sundram has agreed to provide, he is entitled to interest there on at the rate of____________. (1) 12%

(2) 6%

(3) 5%

(4) 10%

10. What will be the new profit-sharing ratio of the partners? (1) 4: 6 : 3

(2) 10 : 5 : 2

(3) 12 : 8 : 1

(4) 12: 8 : 5

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (2)

2. (3)

3. (3)

4. (3)

5. (4)

6. (2)

7. (2)

8. (4)

9. (4)

11. (1)

12. (1)

13. (4)

14. (3)

15. (3)

16. (2)

17. (1)

18. (3)

19. (2)

20. (4)

10. (4)

8. (1)

9. (2)

10. (3)

8. (1)

9. (2)

10. (4)

[B] ASSERTION REASON QUESTIONS 1. (1)

2. (2)

3. (1)

4. (1)

5. (1)

6. (1)

7. (1)

[C] COMPETENCY BASED QUESTIONS 1. (1)

2. (2)

3. (3)

4. (2)

5. (3)

6. (3)

7. (4)

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS 1. Option (2) is correct. Explanation: Hidden Goodwill is an intangible asset that is not recorded in the books of the partnership but is recognised when there is an agreement among the remaining partners to pay more than the calculated amount in full settlement of a retiring partner’s claim. In this case, the extra ₹ 15,000 paid to R is over and above his calculated claim of ₹ 60,000, which

indicates the presence of hidden goodwill in the partnership. 2. Option (3) is correct. Explanation: The share of profit of a deceased partner until the date of his/her death is debited to the Profit and Loss Suspense Account. This adjustment is made to keep the partner’s share of profit separate until it is distributed among the legal heirs or beneficiaries according to the terms of the partnership agreement or the deceased partner’s will.

25

RECONSTITUTION OF PARTNERSHIP

3. Option (3) is correct. Explanation: New Ratio of A : B = 30,000 : 25,000 = 6 : 5 Old Ratio of A : B : C = 1 : 1 : 1 Gaining Ratio = New Ratio – Old Ratio For A :

6 1 18  11 7    11 3 33 33

For B :

5 1 15  11 4    11 3 33 33

Gaining Ratio of A : B = 7 : 4 4. Option (3) is correct. Explanation: In the event of dissolution, the need for valuation of goodwill does not arise because there is no business to carry forward and no goodwill to be transferred to any continuing entity. Goodwill is typically realised and distributed among the partners when a partnership is continuing, such as in the case of admission, retirement, or death of a partner. 5. Option (4) is correct. Explanation: Statement B is wrong as it is not necessary for the partners to adjust their capital in a proportion to their new profit-sharing ratio. 6. Option (2) is correct. Explanation: The Goodwill of the firm is not payable to the retiring partner, only the share of the retiring partner as per his/ her profit-sharing ratio is given to the partner. 7. Option (2) is correct. Explanation: Loss of revaluation is debited to an old partner’s capital account in the old profit-sharing ratio. Profit on revaluation is credited to the old partner’s capital account in their old profit-sharing ratio. Premium for goodwill brought by the new partner is shared by the old partner in the sacrificing ratio and it is transferred to the old partner’s capital accounts by crediting it. On the death of a partner profit till the date of death is to be debited to the profit and loss suspense account. 8. Option (4) is correct. Explanation: In the case of admission of a new partner, the first step is to check for any change in the valuation of assets and liabilities,or unrecorded assets or liabilities. That is the revaluation account needs to be prepared first. This helps in determining the loss or gain in revaluation, which is transferred to the old partners in the old profit-sharing ratio. There after, the goodwill of the firm is treated or calculated. Finally, the capital of the old partner are ascertained and then the share of a capital of the new partner is to be calculated. 9. Option (4) is correct. Explanation: The following items are shown in the credit side of the deceased partner’s account: (1) Credit balance of capital and current account. (2) Salary, commission, interest, etc. up to the date of death. (3) Proportionate share in profit of firm till the date of death. (4) Proportionate share in goodwill of the firm. (5) Proportionate share in undistributed profits and reserves of the firm as shown in the balance sheet. (6) Proportionate share in the profit on revaluation of assets and liabilities.



The following items will be shown on the debit side of the deceased partner’s account: (1) Debit capital balance of a deceased partner. (2) Drawings of a deceased partner and interest on drawings. (3) Share of Goodwill written off. (4) Share in the loss on revaluation of assets and liabilities. (5) Share in undistributed loss. 10. Option (4) is correct. Explanation: Only when the partnership deed provides for the interest on capital, it can be charged in the partnership firm. In case of retirement/death of a partner, the continuing or remaining partners share the goodwill share of the retiring or deceased partner in the gaining ratio. Sacrificing ratio is calculated during the admission of a partner as the old partners sacrifice a part of their share to the new partner. The profit or loss on the revaluation of assets and liabilities is shared by the old or remaining partners in the old profitsharing ratio. 11. Option (1) is correct. Explanation: Bishan’s Sacrificing ratio 



=

5 10 105 80 25     8 21 168 168 168

Sudha’s Sacrificing Ratio =

3 6 63 48 15     8 21 168 168 168

Sacrificing Ratio = 25:15 = 5:3 12. Option (1) is correct. Explanation: Gaining ratio = New ratio – Old ratio Saurabh’s gain = Shirin’s gain =

3 3 3   5 6 30

2 2 2   5 6 30

Gaining ratio = 3 : 2 13. Option (4) is correct. Explanation: When the partner buys an asset it is considered as increase in the assets of the firm. 14. Option (3) is correct. Explanation: When the incoming partner brings his share of a premium for goodwill in cash, it is adjusted by crediting to sacrificing partners’ capital account. His capital account is debited and premium for Goodwill account is credited when the new partner doesn’t bring the goodwill in cash. 15. Option (3) is correct. Explanation: The amount of goodwill brought by the new partner is shared by the sacrificing partners in their sacrificing ratio. The old profit-sharing ratio and new profit-sharing ratio help in the calculation of the sacrificing ratio. The Accumulated profits and revaluation profit or loss are also shared in the old profit-sharing ratio. 16. Option (2) is correct. Explanation: The goodwill shown in the balance sheet is shared among the partners in the old profit-sharing ratio. Sacrificing ratio is used to share the goodwill to be brought in by the new partner. New profit-sharing ratio is used to reconstitute the

26 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

capital of the firm if it is decided by the partners to make it proportionate to their profit-sharing ratio. 17. Option (1) is correct. Explanation: The Partnership Act, 1932 states that the interest payable to the deceased partner needs to be a 6% p.a.

9. Option (2) is correct.

18. Option (3) is correct.

10. Option (3) is correct.

Explanation: Gaining Ratio = New Ratio -Old Ratio

Explanation: Rahim will get ₹45,000 as his share of profit but the profits are shared in the old profit sharing ratio among the existing partners.

Rajendra’s Gain = 3/ 2 – 2/5 = 1/5 Tejpal’s Gain = 2/5 – 1/5 = 1/5 Gaining Ratio = 1:1 19. Option (2) is correct. Explanation: When a partner dies or retires, the profit is appropriated to them as well in the profit and loss appropriation account. 20. Option (4) is correct. Explanation: In case of no agreement the retiring partner will either get @ 6% p.a. interest rate on the remaining amount or share of profit earned proportionate to the amount outstanding to the total capital of the firm.

[B] ASSERTION REASON QUESTIONS 1. Option (1) is correct. Explanation: As per the Section 31 of the Indian Partnership Act, 1932, all partners need to give the consent for the introduction of a new partner into the firm. 2. Option (2) is correct. Explanation: New Profit Sharing Ratio is the ratio in which old partners including the new partner, share the profits or losses of the firm, calculated as agreed by the partners, as the future profit and loss need to be shared differently as a new partner is added to the firm. 3. Option (1) is correct. Explanation: When a partner retires, the old partnership agreement comes to an end and a new partnership agreement comes into existence as the partnership is reconstituted. 4. Option (1) is correct. 5. Option (1) is correct. Explanation: Partners need to make a new agreement when there is a death of a partner as the partnership ceases to exist but the firm still goes on and can continue with a new agreement. 6. Option (1) is correct. Explanation: All accumulated profits, reserves need to be distributed among old partners in the case of reconstitution of the partnership. 7. Option (1) is correct. Explanation: Goodwill is an intangible asset as it cannot be touched and is calculated as the value of the reputation of the firm with respect to the profits earned. 8. Option (1) is correct. Explanation: At the time of change in profit sharing ratio, it is important to determine the sacrificing ratio and gaining ratio of partners, as the gaining partners need to compensate the sacrificing partners.

Explanation: The gaining partner transfers the amount of goodwill to the sacrificing partners in proportion in order to compensate for the sacrificed goodwill as per the gaining ratio.

[C] COMPETENCY BASED QUESTIONS 1. Option (1) is correct. Explanation: The existing goodwill will be transferred in the old profit sharing ratio. Karan’s share = ₹60,000 × 2. Option (2) is correct. Explanation:

3 = ₹18,000 10

5 2 5 4 1 (Sacrifice)     10 5 10 10 10

3. Option (3) is correct. Explanation:

2 3 2 6 4     (Gain) 10 5 10 10 10

4. Option (2) is correct. Explanation: Goodwill share will be determined as per the share of the retiring partner in the firm. 3 = ₹72,000 10

Karan’s Share = ₹2,40,000 ×

5. Option (3) is correct. Explanation: Amount to be compensated to Alia  = ₹2,40,000 ×

1 = ₹24,000 10

Total amount to be bought by Shilpa =  ₹24,000 + ₹72,000 = ₹96,000 6. Option (3) is correct. Explanation: As the partners are following fixed capital method, the remuneration and other adjustments apart from the additional capital brought in will be transferred to the Current Account and not to the Capital Account. 7. Option (4) is correct. Explanation: As the new ratio is not given, the old partners will sacrifice their profits in the old profit-sharing ratio. Thus, the sacrifice ratio will be same as their old profit-sharing ratio. 8. Option (1) is correct. Explanation: Amit’s Remuneration: ₹2,500 monthly ₹2,500 × 6 = ₹15,000 9. Option (2) is correct. Explanation: If partnership deed is absent, then the partner is eligible for a 6% interest on loan to the firm. 10. Option (4) is correct. Explanation: Sundaram’s Share = 20% =

1 5 = 5 25

27

RECONSTITUTION OF PARTNERSHIP

Share left for Amit and Mahesh = 1 − Amit’s New Share =

3 4 12 of = 5 5 25

1 4 = 5 5

Mahesh’s New Share =

2 4 8 of = 5 5 25

Amit : Mahesh : Sundaram = 12 : 8 : 5

Study Time

CHAPTER

Max. Time: 1:25 Hours Max. Questions: 40

4

DISSOLUTION OF PARTNERSHIP FIRM

  Revision Notes  Meaning of Dissolution of Partnership: Dissolution of partnership means reconstitution of the Scan to know firm due to change in the profit-sharing more about ratio among existing partners, admission of this topic a new partner, retirement of a partner, death of a partner, insolvency of a partner and the firm continues as before. However, the dissolution of partnership does not lead to Dissolution of Partnership the dissolution of firm. Firm

 Meaning of Dissolution of Partnership Firm: Dissolution of partnership firm means that the firm closes down its business and comes to an end. On the dissolution of partnership firm, assets of the firm are sold, liabilities are paid off and out of the remaining amount the accounts of the partners are settled.  Modes of Dissolution of a Partnership Firm: Modes of dissolution of a firm have been described in Sections 40 to 44 of Indian Partnership Act, 1932, and they are as under:  Dissolution by Agreement (Section 40): When all the partners agree to dissolve the firm or if there is any such agreement in partnership deed or amongst the partners regarding dissolution of firm.  Compulsory Dissolution or Dissolution by the Operation of Law (Section 41): In the following circumstances, the firm will be dissolved compulsorily:  When any such event happens which makes the operation of business of the firm unlawful.  When all partners or all partners except one are declared as insolvent by the court.  Dissolution on the Happening of an Unexpected Event (Section 42): In this, a firm will be dissolved in the following conditions:  When partnership is formed for a particular period, then on the expiry of that period.  When formation of partnership was for some objectives, then on the fulfilment of those objectives.

 When any partner is declared as insolvent.



 When any partner dies.

 Dissolution by Court (Section 44): On filing of a suit by a partner, the court may pass orders for dissolution in the following conditions:

 Dissolution by Notice of Partnership at will (Section 43): If partnership is at will, then any partner may notify other partners about his will in writing and then the firm may be dissolved.



 When any partner becomes of unsound mind.

 When any partner becomes permanently incapable of executing his duties as a partner.  When any partner is guilty of any such conduct which may bring loss to the business.  When any partner knowingly violates the terms of agreement again and again.  When any partner transfers or assigns all his interests to a third person.

 When it is not possible to run the business without loss.

 When dissolution of firm is just and equitable in the opinion of the court.  Settlement of Accounts: Section 48 of The Indian Partnership Act, 1932, provides the following rules for the settlement of accounts between the partners:  Payment of Losses: Losses shall be paid first out of profits, next out of capital and lastly, if necessary, by the partners individually in their profit-sharing ratio.

 Distribution of Assets: Assets of the firm are first to be applied in paying the debts of the firm to the third parties; next in paying to each partner rateably what is due to him from the firm for advances as distinguished from capital; in paying to each partner rateably what is due to him on account of capital, and the residue to be divided among the partners in the proportion in which they were entitled to share profits.

 Realisation Account: Realisation Account is opened on dissolution of firm to close down the books of accounts of the firm. This account is a nominal account. The purpose of this account is to show the profit or loss on realisation of assets and payment of liabilities.



Preparation of Realisation Account

Scan to know more about this topic

Realisation Account

Step I: Transfer all the assets to the debit side of Realisation Account. Step II: Transfer all the liabilities to the credit side of the Realisation Account. Step III: Credit the Realisation Account by the amount realised by selling the assets.

Step IV: Debit the Realisation Account by the amount

/ Bank Account

A/cs

Pa

• Transfer the Current Account balance (if any) to Capital Account. • Transfer the Undistributed Profits, Reserves or Losses to Capital Account. • Transfer the Realisation Loss or Gain to Capital Account. • Make Final Settlement.

• Loan will be shown on the credit side of partner’s loan account. • Loan will be paid after outside liabilities. • Paid off by passing following entry : Partner’s Loan A/c Dr. To Cash / Bank A/c

Format

–

–

Accounts Prepared

By Partners Capital

for Assets

By Cash received

Nature & O b j e ctiv e

D

hip ers n t r

es

• First, out of profits • Next, out of capital • At last, by the partners individually in their profit sharing ratio.

First Level

Second Level

Trace the Mind Map Third Level

• First, in paying outside debts of the firm. • Next, in paying to each partner ratealy what is due to him on account of loan. • Next, in paying to each partner ratealy what is due to him on account of capital. • Residue to be divided in profit sharing ratio.

ution of Assets

to fL oss

rib Dist

• Dissolution by Agreement (Section 40) • Compulsory Dissolution (Section 41) • Dissolution upon Contingency, if the partnership deed so provides (Section 42) • Dissolution by Notice (Section 43) • Dissolution by Order of Court (Section 44).

Firm

Dissolution of partnership among all the partners in a firm and the business of the firm is closed down.

Change in economic relationship among the partners but the firm continues its business.

Dissolution es of Typ

ut ol iss

Pa of n io

p

i

Settlement of Accounts

Dissolution

lutio Disso rshi n of tne p Firm Par

Realisation Account

Dis

–

A nominal account prepared on dissolution of firm to close down the books of accounts.

on of

By All Liabilities

Amount received from sale of assets is debited and payment of liabilities and realisation expenses are credited to this account.

Cash

–

– –

L

r t n er 's

nt

Acc ou o an

To All Assets To Cash paid for Liabilities and Expenses To Partners Capital A/cs

tal Account

solu ti

Amount

C a pi Par tne r's

sh Pa r tn er

Particulars



Amount



y Pa



Particulars

DISSOLUTION OF PARTNERSHIP

29

en m

30 Oswaal CUET (UG) Chapterwise Question Bank paid for liabilities and expenses. Step V: Transfer the balance amount to partners’ capital Accounts.

Treatment of Reserves and Accumulated Profits:

The undistributed profits and losses and reserves are always transferred to partners’ capital accounts in their profitsharing ratio and not to the realisation account.

For distribution of reserves or accumulated profits:



General Reserve

Dr.



Reserve Fund

Dr.



Profit & Loss A/c

Dr.



To Partners’ Capital A/cs (in profit sharing ratio)

(Being undistributed profits and reserves transferred to partners’ capital accounts)

For distribution of accumulated losses:



Partners’ Capital A/cs



Dr.

To Profit & Loss A/c

(Being undistributed losses transferred to partners’ capital accounts) Partner’s Loan Account: If a partner has given any loan to the firm, first, it will be shown on the credit side of partner’s loan account. When all the outside liabilities are paid in full, afterwards this loan will be paid. Thus, partner’s loan account is prepared separately and paid off by passing the following entry:

Partner’s Loan A/c



Dr.

To Cash/Bank A/c

Note: Partner’s loan account is prepared before partners’ capital accounts because at the time of dissolution, capitals are paid off, only if, any balance is left after payment of partner’s loan. Treatment of Goodwill: In case of dissolution of a firm, goodwill should be treated just like other assets and is transferred to realisation account and in case nothing is mentioned about the realisation of goodwill, it can be assumed that the goodwill is valueless and as such, nothing is received or realised from it. Cash or Bank Account: All the receipts are recorded on the debit side and all the payments are recorded on the credit side of cash account. At the time of dissolution, this account is closed at last and total of both the sides (Dr.and Cr.) must be equal. It means all accounts are closed. Thus, this account also helps in the verification of the arithmetical accuracy of all the accounts at the time of dissolution. If both cash and bank balances are given in the balance sheet, only one account, either cash account or bank account is prepared. If cash account is prepared, an entry is made for withdrawing the bank balance and if bank account is prepared, an entry is passed for depositing the cash balance into bank which are as follows:

(i) For cash deposited into bank:



Bank A/c



Dr.

To Cash A/c



(ii) For cash withdrawn from bank:



Cash A/c



(Being partner’s loan paid off)

ACCOUNTANCY

Dr.

To Bank A/c

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS 1.  Arrange following in a sequence in which amount realised from assets will be utilised to pay. A. Partner’s Loan B. Partner’s Capital C. Secured debts of the firm D. Unsecured debts of the firm E. Residue to partners Choose the correct answer from the options given below:  [CUET 2023] (1) C, D, E, A, B (2) C, D, E, A, B (3) C, D, A, B, E (4) C, D, A, E, B 2. Match List I with List II: List -I

List -II

(A) Transfer of accumulated profits

(I) Realisation Account

(B) Unrecorded asset sold on dissolution of firm

(II) Profit and Loss Account

(C) Manager’s commission

(III) Profit and Loss Appropriation Account

(D) Partner’s commission

(IV) Partner’s Capital Account



 hoose the correct answer from the options given below: C  [CUET 2023] (1) (A)-(IV), (B)-(I), (C)-(III), (D)-(II) (2) (A)-(IV), (B)-(I), (C)-(II), (D)-(III) (3) (A)-(IV), (B)-(II), (C)-(III), (D)-(I) (4) (A)-(IV), (B)-(III), (C)-(II), (D)-(I) 3.  Aman and Mohan, partners of a firm decide to dissolve the business on 31-03-22. The firm decided to pay realisation expenses of ₹1,000 on behalf of Mohan. ₹1,000 will be debited to [CUET 2022] (1) Realisation A/c (2) Mohan’s Capital A/c (3) Bank A/c (4) Aman’s Capital A/c 4.  On the basis of the following data, how much final payment will be made to a partner on firm’s dissolution? Credit balance of capital account of the partner was ₹50,000. Share of loss on realisation amounted to ₹ 10,000. Firm’s liability taken over by him was for ₹ 8,000. (1) ₹ 32,000 (2) ₹ 48,000 (3) ₹ 40,000 (4) ₹ 52,000 5.  If in case of dissolution of partnership, there was no Workmen Compensation Fund and firm had to pay ₹3,000 as compensation to workers where will this ₹3,000 be recorded in the books of accounts?

31

DISSOLUTION OF PARTNERSHIP

(1) Debit side of Realisation Account (2) Credit side of Realisation Account (3) Debit side of Partner’s Capital Account (4) Credit side of Partner’s Capital Account. 6.  Vibhuti, Tiwari and Happu were partners in a partnership firm sharing profits and losses in the ratio of 1 : 2 : 3. On 31ST March 2020, they decided to dissolve the partnership firm. The following information is given to you on the dissolution of the firm: The firm had total assets of ₹ 12,00,000 that realized ₹10,80,000. The creditors were settled at 90% by paying them ₹ 54,000. There was an unrecorded asset in the books of the firm which was taken by Vibhuti for ₹ 12,000. Realisation expenses amounted to ₹ 2,000 and were paid by Tiwari on behalf of the firm. There was general reserve in the books of the company of ₹ 21,000. The capitals of the partners were in the proportion of their profit sharing ratio. Their balance sheet also showed a cash balance of ₹ 81,000. What was the loss on realization? (1) ₹ 2,00,000

(2) ₹ 1,47,000

(3) ₹ 1,37,000 (4) ₹ 1,04,000 7.  What Journal Entry will be passed on dissolution of partnership firm, when creditors of ₹ 40,000accepted investments of ₹ 50,000 (Book value)? (1) Creditors A/c To Realisation A/c (2) Realisation A/c To Creditors A/c (3) Creditors A/c To Investments A/c (4) No Entry

Dr.

40,000

Dr.

40,000

Dr.

50,000

40,000 40,000 50,000

8.  What Journal Entry will be passed on dissolution of a partnership firm when a partner agreed to bear the dissolution expenses for ₹ 10,000? Actual expenses paid by partner were ₹ 15,000. (1) Realisation A/c Dr. 15,000 To Partner’s Capital A/c 15,000 (2) Realisation A/c Dr. 10,000 To Partner’s Capital A/c 10,000 (3) Realisation A/c Dr. 5,000 Dissolution Exp. A/c Dr. 10,000 To Bank A/c 15,000 (4) No Entry 9.  Unrecorded liability when paid on dissolution of a firm is transferred to: (1) Realisation Account (2) Partners’ Capital Accounts (3) Liability Account (4) None of the above 10. At the time of dissolution, all assets are transferred to Realisation Account at their: (1) Realised value (2) Market value (3) Book value (4) Cost or market price whichever is less. 11. Vaibhav, Tina and Naina were partners in a partnership firm sharing profits and losses in the ratio of 1 : 2 : 3. On 31st





March 2023, they decided to dissolve the partnership firm. The following information is given to you on the dissolution of the firm: The firm had total assets of ₹ 12,00,000 that realized ₹10,80,000. The creditors were settled at 90% by paying them ₹ 54,000. There was an unrecorded asset in the books of the firm which was taken by Vaibhav for ₹ 12,000. Realisation expenses amounted to ₹ 2,000 and were paid by Tina on behalf of the firm. There was general reserve in the books of the company of ₹ 21,000. The capitals of the partners were in the proportion of their profit sharing ratio. Their balance sheet also showed a cash balance of ₹ 81,000. Calculate the final amount to be paid to Naina.

(1) ₹6,00,000

(2) ₹52,000

(3) ₹5,58,500 (4) ₹6,00,000 12. At the time of dissolution of a firm, Creditors are ₹ 70,000; Firm’s Capital is ₹ 1,20,000; Cash Balance is ₹ 10,000.Other assets realised ₹1,50,000. Gain/Loss in the realisation account will be: (1) ₹ 30,000 (Gain)

(2) ₹ 40,000 (Gain)

(3) ₹ 40,000 (Loss) (4) ₹ 30,000 (Loss) 13. In the event of dissolution of a partnership firm, the provision for doubtful debts is transferred to: (1) Realisation Account (2) Partner’s Capital Accounts (3) Sundry Debtors Account (4) None of these 14. On dissolution of the firm, ______ will be debited to the Realisation Account. (1) Realisation expenses paid by the partner (2) Balance of Reserve Fund (3) Amount of Unrecorded Asset (4) Creditor’s balance shown in the Balance Sheet 15. A partnership firm is compulsorily dissolved: (1) When the business of the firm is declared illegal. (2) When a partner of the firm dies. (3) When a partner of the firm becomes insolvent. (4) When a partner transfers his share to some other person without the consent of other partners. 16. On dissolution of a firm, a partner paid ₹700 for the firm’s realisation expenses. Which account will be debited? (1) Cash Account (2) Realisation Account (3) Capital Account of the Partner (4) Profit & Loss Account 17. On dissolution of the firm, loss calculated in Realisation Account is debited/credited to which account? (1) Cash Account (Credit) (2) Partners’ Capital Account (Debit) (3) Partners’Capital Account (Credit) (4) Realisation Account (Debit) 18. On taking responsibility for payment of a liability of ₹50,000 by a partner, the account credited will be: (1) Realisation Account (2) Cash Account (3) Capital Account of the Partner (4) Liability Account

32 Oswaal CUET (UG) Chapterwise Question Bank 19. In the event of dissolution of the firm, the partner’s assets are first used for payment of the following: (1) Firm’s liabilities (2) Partner’s personal liabilities (3) None of the two (4) Any of the two 20. At the time of dissolution of partnership firm, the amount of ‘Bills Payable’ shown in the Liabilities Side of the Balance Sheet is transferred to: (1) Capital Accounts of Partners (2) Realisation Account (3) Cash Account (4) Loan Account of Partners

[B] ASSERTION REASON QUESTIONS Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as: (1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A). (3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): Dissolution of partnership is different from the dissolution of the partnership firm. Reason (R): Dissolution of partnership does not mean the dissolution of the firm compulsorily but in case of dissolution, the business of the firm is compulsorily come to an end. 2. Assertion (A): Realisation Account is prepared at the time of dissolution of the partnership firm. Reason (R): Dissolution of partnership firm involves the partners selling the assets and settling the liabilities. Thus, various amounts are recovered to settle the liabilities of the firm by selling the assets of the firm. 3. Assertion (A): Rajiv and Vinod, who share profits and losses in the ratio 2:3, are dissolving the firm. There is general reserve balance of ₹60,000 in the balance sheet. The accountant transferred ₹24,000 in Rajiv’s Capital and ₹ 36,000 in Vinod’s Capital Accounts. Reason (R): The undistributed profits and losses and reserves are always transferred to partners’ capital accounts in their profit-sharing ratio and not to the realisation account. 4. Assertion (A): Dissolution of a partnership firm automatically leads to dissolution of partnership agreement. Reason (R): Internal liabilities are paid first on dissolution of partnership firm. 5. Assertion (A): Goodwill is distributed among all the partners in the profit-sharing ratio during dissolution of the partnership firm. Reason (R): Goodwill is an intangible asset and so amount can be received or not by selling it. 6. Assertion (A): Partners are paid the full amount of capital that they have invested in the firm. Reason (R): All the liabilities paid by the partner on behalf of the firm are transferred to their respective capital accounts.

ACCOUNTANCY

7. Assertion (A): All the assets are transferred to the debit side of the Realisation Account. Reason (R): All the liabilities are transferred to the credit side of the Realisation Account. 8. Assertion (A): The liabilities taken over by a partner, is debited to the realisation account and credited to the Partner’s Capital Account. Reason (R): This helps in the proper preparation of the Balance Sheet of the firm at the time of dissolution. 9. Assertion (A): Revaluation Account is to be prepared at the time of dissolution of the firm. Reason (R): It is very important to ascertain the profit or loss during realisation of assets and payment of liabilities at the time of dissolution. 10. Assertion (A): Partnership firm cannot be dissolved in any case if, any one of the partners becomes insolvent. Reason (R): There is a compulsory dissolution of the firm, when all except one partner become insolvent.

[C] COMPETENCY BASED QUESTIONS I. Based on following passage answer the questions from 1-5. [CUET 2023] Meena and Tina are partners in a firm and sharing profits as 3 : 2. They decided to dissolve their firm on March 31, 2017 when their Balance Sheet was as follows: Balance Sheet Meena and Tina as on March 31, 2017 Liabilities

Amount (₹)

Capital: Meena

90,000

Tina

80,000 1,70,000

Assets

Amount (₹)

Machinery

70,000

Investments

50,000

Stock

Sundry creditors

60,000

Sundry Debtors

Bills payable

20,000

Cash at bank

2,50,000

22,000 1,03,000 5,000 2,50,000

The assets and liabilities were disposed off as follows: a.  Machinery were given to creditors in full settlement of their account and stock was given against the bills payable in full settlement. b.  Investments were took over by Tina at book value. Sundry debtors of book value ₹50,000 took over by Meena at 10% less and remaining debtors realised ₹51,000. c. Realisation expenses amounted to ₹ 2,000. 1.  When a creditor accepts an asset whose value is more than the amount due to him, he will........the excess amount which will be credited to.....Account. (1) Pay, Bank (2) Not pay, Creditors (3) Pay, Realisation (4) Not pay, Realisation 2. Which mode of dissolution is highlighted in the above case? (1) Compulsory dissolution (2) Dissolution by agreement (3) Dissolution by court (4) Dissolution on happening of contingencies

33

DISSOLUTION OF PARTNERSHIP

3.  Identify the amount realised in cash from Sundry Debtors. (1) ₹ 96,000 (2) ₹ 1,03,000 (3) ₹ 1,00,000 (4) ₹ 51,000 4.  State the Journal entry for the payment of realisation expenses by the firm. (1) Realisation Expenses A/c Dr. ₹ 2,000 To Realisation A/c

₹ 2,000

(2) Realisation A/c

Dr. ₹ 2,000

To Realisation Expenses A/c (3) Realisation A/c

₹ 2,000

Dr. ₹ 2,000

To Bank A/c

₹ 2,000

(4) Bank A/c

Dr. ₹ 2,000

To Realisation A/c

₹ 2,000

5. State Journal entry for realisation of investment. (1) Tina’s Capital A/c

Dr.

₹ 50,000

To Realisation A/c (2) Tina’s Capital A/c

₹ 50,000 Dr.

₹ 30,000

Meena’s Capital A/c Dr.

₹ 20.000

To Realisation A/c (3) Realisation A/c

₹ 50,000 Dr.

₹ 50,000

To Tina’s Capital A/c (4) Realisation A/c

₹ 50.000

Dr.

₹ 50,000

To Tina’s Capital A/c

₹ 30,000

To Meena’s Capital A/c

₹ 20,000

II. Based on following passage answer questions from 6-10:  [CUET 2022] A and B were partners in a partnership firm. Due to some ill health of B they decided to dissolve the firm. The position of Assets and Liabilities on the date of dissolution was: Balance Sheet Liabilities Loan by B

₹ 20,000

Assets

₹

Goodwill

30,000

Capitals

Furniture

40,000

A

Building

90,000

1,00,000

B

1,40,000

2,40,000

Debtors

50,000

Cash

50,000

2,60,000

2,60,000

It was agreed that following transactions will take place: A. A wanted to start the business in sole proprietorship, so he took Building and Furniture at 10% less than book value. B. All the debtors proved good except a person C who did not pay ₹10,000 6.  Due to ill health of B, they decided to dissolve the firm. It comes under _______ form of dissolution. 1. Dissolution by Notice 2. On the happening of certain contingencies 3. Dissolution by court 4. Dissolution by Agreement. 7. The amount recovered from the debtors is: 1. ₹1,00,000 2. ₹40,000 3. ₹50,000 4. ₹60,000 8. Following items appear on the Debit side of Realisation A/c except: A. Transfer of Assets B. Payment of Liabilities C. Provisions D. Realisation expenses E. Asset taken over by partner.  Choose the correct answer from the option given below: (1) A, C, E only (2) C, D, E only (3) D, E only (4) C, E only 9.  The treatment of Goodwill appearing in the balance sheet will be: 1. Transferred to Debit of Realisation A/c. 2. Written off among partners in old ratio. 3. Transferred to credit of Realisation A/c. 4. Raised and written off. 10. The accumulated profits and reserves are transferred to: 1. Revaluation A/c 2. Realisation A/c 3. Partner’s Capital A/c 4. Cash/Bank A/c

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (2)

3. (2)

4. (2)

5. (2)

6. (4)

7. (4)

8. (2)

9. (1)

10. (3)

11. (3)

12. (4)

13. (1)

14. (1)

15. (1)

16. (2)

17. (2)

18. (3)

19. (2)

20. (2)

8. (3)

9. (4)

10. (4)

8. (4)

9. (1)

10. (3)

[B] ASSERTION REASON QUESTIONS 1. (1)

2. (1)

3. (1)

4. (3)

5. (4)

6. (4)

7. (2)

[C] COMPETENCY BASED QUESTIONS 1. (3)

2. (2)

3. (4)

4. (3)

5. (1)

6. (4)

7. (2)

34 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS 1. Option (3) is correct. Explanation: In case of dissolution of a partnership firm, first, all the secured debts are paid and then the unsecured debts. When it comes to partners, the loan is paid first, then from the remaining amount, capital due is paid and if anything is left after that, the residue is paid to the partner. 2. Option (2) is correct. Explanation: When accumulated profits are distributed among the partners, it increases their respective capital accounts. The unrecorded asset’s sale during the dissolution of the firm is accounted for in the Realisation account, helping to determine the total gain or loss. The manager’s commission is treated as an expense and debited to the Profit and Loss Account, reducing the firm’s profit. Partner’s commission is an appropriation 6. Option (4) is correct. Explanation: Dr.

of profit and is credited to the Profit and Loss Appropriation Account, showing its allocation among the partners. 3. Option (2) is correct. Explanation: ₹1,000 will be debited to the Mohan’s Capital Account and Bank A/c will be credited. 4. Option (2) is correct. Explanation: Final Payment made to Partner = Capital + Liabilities of firm taken over – Share of loss on Realisation = ₹ 50,000 + ₹ 8,000 – ₹ 10,000 = ₹ 48,000 5. Option (2) is correct. Explanation: The workmen compensation fund not being mentioned when being paid can be treated as an unrecorded liability. Thus, it will be recorded in the credit side of the realisation account when it is paid.

Realisation Account Particulars

To Sundry Assets To Cash A/c (payment to creditors) To Tiwari’s capital A/c (Realisation expenses)

Amount (₹) 12,00,000

Cr.

Particulars

Amount (₹)

By Creditors A/c

60,000

54,000

By Cash A/c (assets sold)

2,000

By Vibhuti’s Capital A/c By Partners’ Capital A/c: Vibhuti Tiwari Happu

10,80,000 12,000

17,333 34,667 52,000

1,04,000

12,56,000 7. Option (4) is correct. Explanation: When a liability is settled with the help of an asset, no entry is passed in the books during dissolution as nothing is recovered or paid in term of cash and bank. 8. Option (2) is correct. Explanation: When the partner agrees to bear the dissolution expenses, the partner’s capital account will be credited by the realisation account with the agreed amount of ₹10,000 9. Option (1) is correct. Explanation: The unrecorded liabilities are not shown in the book, yet they still need to be discharged off at the time of dissolution and hence are debited to the Realisation Account. 10. Option (3) is correct. Explanation: At the time of dissolution of the firm, the assets that appear in the books are transferred at book value to the realisation account.

12,56,000 11. Option (3) is correct. Explanation: Amount paid to Naina : Capital + Share in general reserve – Loss on realisation = ₹ 6,00,000 + ₹ 10,500 – ₹ 52,000 = ₹ 5,58,500 12. Option (4) is correct. Explanation: Memorandum Balance Sheet Liabilities Creditors Capital A/c

Amount (₹)

Assets

Amount (₹)

70,000 Cash in Hand

10,000

1,20,000 Sundry Assets (Balancing figure)

1,80,000

1,90,000

1,90,000

Realisation A/c Particulars

To Sundry Assets To Cash A/c (Paid Creditors)

Amount (₹)

1,80,000 70,000

2,50,000

Particulars

By Creditors A/c By Cash A/c (Assets Realised) By Loss on realisation (Balancing figure)

Amount (₹)

70,000 1,50,000 30,000 2,50,000

35

DISSOLUTION OF PARTNERSHIP

13. Option (1) is correct. Explanation: In the event of the dissolution of a partnership firm, the provision for doubtful debts is transferred to the realisation account along with liabilities 14. Option (1) is correct. Explanation: On dissolution of the firm, realisation expenses paid by the partner are debited to the realisation account. 15. Option (1) is correct. Explanation: A partnership firm is compulsorily dissolved when the business of the firm is declared illegal. In the case of the death of a partner or insolvency of a partner, it is dissolved on the happening of an unexpected event. Transfer of shares to another person by the partner without the consent of other partners, can be the ground for dissolution only if the other partner/s take the matter to the court and the court dissolves the partnership by the action of law. 16. Option (2) is correct. Explanation: Realisation Account will be debited, and Partner’s Capital Account will be credited, when a partner paid for the firm’s realisation expenses. 17. Option (2) is correct. Explanation: On dissolution of the firm, loss calculated in Realisation Account is debited to Partner’s Capital Account. There will be no effect on the Cash Account and Partner’s Capital Account is credited during the profit of realisation. 18. Option (3) is correct. Explanation: On taking responsibility for payment of a liability by a partner, the account credited will be Capital Account of the Partner and Realisation Account will be debited. It will not affect the Cash Account. 19. Option (2) is correct. Explanation: In the event of dissolution of the firm, the partner’s assets are first used for payment of his personal liabilities. 20. Option (2) is correct. Explanation: At the time of dissolution of partnership firm, the amount of ‘Bills Payable’ is shown in the liabilities side of Balance Sheet is transferred to credit side of realisation account.

[B] ASSERTION REASON QUESTIONS

1. Option (1) is correct. Explanation: Dissolution of partnership means reconstitution of the firm due to change in the profit-sharing ratio among existing partners, admission of a new partner, retirement of a partner, death of a partner, insolvency of a partner and the firm continues as before. However, dissolution of the partnership firm means the end of the business of the firm compulsorily. 2. Option (1) is correct. Explanation: At the time of dissolution of the partnership firm, realisation account is prepared as the liabilities are to be settled as against the assets of the firm and to find the surplus that the partners get or the deficit, they need to bring in order for the process of dissolution. 3. Option (1) is correct. Explanation: General reserve is a type of undistributed profit which needs to be distributed by the partners in their profit

sharing ratio at the time of dissolution of the firm in their profitsharing ratio. 4. Option (3) is correct. Explanation: On dissolution of partnership firm, the external liabilities are paid first. The internal liabilities are settled through the capital account itself if any money is left for the payment. 5. Option (4) is correct. Explanation: In case of dissolution of a firm, goodwill should be treated just like other assets if nothing is mentioned about the realisation of goodwill, it can be assumed that the goodwill is valueless and as such, nothing is received or realised from it. 6. Option (4) is correct. Explanation: Partners are paid the amount of the capital adjusted with the profit or loss on realisation, other assets or liabilities taken over by the partner etc. Then only if there is any amount left after payment of all the external liabilities are paid to the partners in the form of their capitals. 7. Option (2) is correct. Explanation: It is completely true that the assets are transferred to the debit side of the realisation account and liabilities are transferred to the credit side of the realisation account. This is done in order to ascertain the profit or loss that the firm earns while realising the assets and payment to the external liabilities of the firm at the time of dissolution. 8. Option (3) is correct. Explanation: At the time of dissolution the Balance Sheet is not prepared as the business of the firm comes to an end. 9. Option (4) is correct. Explanation: Realisation Account is prepared at the time of dissolution and not Revaluation Account, which is made during admission, retirement or death of the partnership firm. 10. Option (4) is correct. Explanation: If any of the partners becomes insolvent, the firm can be dissolved as per Section 42 of the Partnership Act of 1932, that is through the happening of an unexpected event.

[C] COMPETENCY BASED QUESTIONS 1. Option (3) is correct. Explanation: When the asset taken over by a creditor which has more value than the payment to be made to the creditor, the excess amount is paid by the creditor to the firm. 2. Option (2) is correct. Explanation: As it is clearly mentioned in the case study that Meena and Tina decided to dissolve the firm, it is a case of Dissolution by agreement. 3. Option (4) is correct. Explanation: As Meena did not give cash for the debtors taken over by her, only ₹ 51,000 were realized in cash from Sundry Debtors. 4. Option (3) is correct. Explanation: Realisation expenses are debited to the realisation account. 5. Option (1) is correct. Explanation: As Tina took over the investment, her capital account will be debited and realisation account will be credited with the amount of investment taken over by her.

36 Oswaal CUET (UG) Chapterwise Question Bank 6. Option (4) is correct. Explanation: As per Section 40 of the Partnership Act, 1932,when all the partners agree to dissolve the firm or if there is any such agreement in partnership deed or amongst the partners regarding dissolution of firm. In this case as well the partners agreed to dissolve the partnership firm. 7. Option (2) is correct. Explanation: Amount collected from debtors = ₹50,000 − ₹10,000 = ₹40,000 8. Option (4) is correct. Explanation: Provisions are transferred to the credit side and as they cannot be realised so never on the debit side. Assets

ACCOUNTANCY

taken over by partner are taken as the realised value of assets so these are shown on the credit side of the realisation account. 9. Option (1) is correct. Explanation: In case of dissolution of a firm, goodwill should be treated just like other assets if nothing is mentioned about the realisation of goodwill, it can be assumed that the goodwill is valueless and as such, nothing is received or realised from it. 10. Option (3) is correct. Explanation: In case of dissolution of the partnership firm, the accumulated profits and reserve are transferred to the partner’s capital account in their profit sharing ratio.

Company Accounts and Financial Statement Analysis Study Time

CHAPTER

Max. Time: 1:25 Hours Max. Questions: 40

5

ACCOUNTING FOR SHARE AND DEBENTURE CAPITAL

  Revision Notes

 Accounting for Share capital  Shares: It refers to the units into which the total share capital of a company is divided. Thus, a share is a fractional part of the share capital and forms the basis of ownership interest in a company.  Share capital: Share capital means the capital raised by the company by the issue of shares.

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Types of Companies

 Types of Share capital:



Authorised or registered or Nominal capital.





Issued capital and Unissued capital.





Subscribed capital and Unsubscribed capital.





Called up capital and Uncalled capital.





Paid up capital.





Reserve capital.

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 Procedure for Issue of Shares:



Issue of prospectus,





Receiving the application form,

 Preparing allotment,



for

application

and

Allotment of shares.



Issue of share at par.





Issue of share at premium.

 Forfeiture of Shares: When a member fails to pay allotment or calls of the issue price of his shares within a stipulated time then the company has power to cease his membership and forfeit his shares.  Reissue of Forfeited Shares: Forfeited shares may be re-issued at par, premium or discount or cancelled as per the provisions of the Articles of Association of the company. Normally the total amount is collected on discount. The amount of discount on re-issue should not exceed the amount already credited to Shares Forfeiture Account. Such discount shall be debited to Shares Forfeiture Account in place of Discount on Shares Account. Any balance in Forfeiture Shares Account, after reissue shall be transferred to Capital Reserve Account. If all forfeited shares are not re-issued, proportionate amount shall be left in Share Forfeiture Account and the balance shall be transferred to Capital Reserve Account  Share Capital in the Balance Sheet of the Company

 Ways to Issue Shares:

Employee stock option plan: It is a scheme under which whole time directors, officers and employees of the company are given right to purchase securities of company at a predetermined rate.

Issue of Shares: Calls in advance, calls in arrears, forfeiture of shares, re-issue of forfeited shares, prorata allotment.

 Calls in Arrears and Calls in Advance: When any of the due amount is not received on the number of shares, it is called Calls in arrear whereas, when a person Scan to know pays the amount of calls before the due more about date, it is called Calls in Advance. this topic  Issue of Shares for Consideration other than Cash: Sometimes, a company may issue shares to promoters or vendors, etc. for acquiring some assets for running business or for paying their services to company. This is termed as issue of shares for consideration other than cash.

Issue of Shares – Intro with Journal entries

Private placement of shares: It means any offer of securities or invitation to subscribe securities to a small number of selected group of persons.

Balance Sheet

Particulars

Note Current year Previous year no. (₹) (₹)

1. Equity and liabilities 2. Shareholders’ funds (a) Share capital (b) Reserves and surplus (c) Money received against share warrants  Accounting for Debentures:  Debentures: When company needs funds for extension and development purpose without increasing its share capital, it can borrow from the general public by issuing a loan certificate for a fixed period at a fixed rate of interest. This loan certificate is called debenture.  Features of Debentures:



Debenture holders are the creditors of the company.





Fixed rate of interest is paid.





Fixed maturity date.





Do not have voting right.

38 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

39

ACCOUNTING FOR SHARE AND DEBENTURE CAPITAL

 Different Types of Debentures:



Ordinary debentures,





Mortgage debentures,





Non-convertible debentures,





Partly convertible debentures,





Fully convertible debentures,





Registered debentures,





Unregistered debentures.

 Ways to Issue Debentures:



Issue at par: Face value = Issued value.





Issue at premium: Face value < Issued value.





Issue at discount: Face value > Issued value.

 Issue of Debenture as Collateral Security: When company wants loan from bank or any other financial Scan to know institution and the security is not sufficient more about this topic with the company, in this case, company may issue its own debentures as a security against the loan. This is termed as issue of debentures as collateral security. Note: No interest is to be paid on debentures issued as collateral security

Issue of debentures other than cash consideration

 Interest on Debentures: Interest on debentures is a charge against profit, so it has to be paid at a fixed rate whether company earns profit or not(except issued as collateral security).  Redemption of Debentures: Discharging the liability of debentures issued by paying back the Scan to know debenture holders is called redemption of more about this topic debentures. Redemption is made on the due date or earlier as per the terms of issue.  Redemption of Debentures out of Profits: Redemption out of Profits means Redemption of that an amount equal to debentures issued Debentures (i.e., 100% of the amount of debentures) is transferred from Surplus in Statement of Profit and Loss to a newly opened account named Debenture Redemption Reserve. This is called Redemption out of Profits.  Redemption of Debentures out of Capital: Listed Company can redeem its 100% debentures out of capital while an unlisted company can redeem maximum 90% of its debentures out of capital.  Methods of Redemption of Debentures 1) Out of Proceeds of Fresh issue: When a company issues new debentures to the public, the funds raised from this fresh issue can be used to redeem the existing debentures. This is a common method of raising funds for redemption as it does not put a strain on the company’s existing resources. 2) Accumulated Profits: A company may use its

accumulated profits to redeem debentures. This is a common practice, as it utilizes the company’s retained earnings, which have been generated over time. 3) Sinking Fund Method: The sinking fund method involves the systematic creation of a Sinking Fund or Debenture Redemption Fund, funded through annual profits, with the amount determined using a Sinking Fund Table. This dedicated fund is used to retire long-term debts, such as debentures. The accumulated funds are invested in external securities and allowed to grow with compound interest. It’s worth noting that while the face value and market price of the securities may differ, the interest is always calculated based on the face value of these securities.  Lump-Sum Method: Under this method, the company redeems whole of its debentures in lump-sum at the expiry of a specified period. Such redemption can be made at par or premium according to the terms of issue. It is necessary for an unlisted company to transfer an amount equal to 10% of the face value of debentures outstanding to Debenture Redemption Reserve from Surplus in Statement of Profit & Loss. When all debentures are redeemed in lump-sum, the Debenture Redemption Reserve balance is transferred to General Reserve.  Draw of lots Method: According to this method, the debentures are redeemed in annual instalments. The serial number of debentures which should be redeemed each year are selected by lottery. This procedure is known as ‘Drawing of Lots’. In this case, 10% amount of outstanding debentures (for unlisted company) is transferred to DRR before redemption begins. Proportionate amount of Debenture Redemption Reserve is transferred to General Reserve in case of redemption in instalments.  Creation of Debenture Redemption Reserve: According to Section 71(4) of the Companies Act, 2013, the companies are required to set aside an amount out of profit for redemption of debentures to a separate account. This account is known as Debenture Redemption Reserve.  Redemption of Debentures by Purchase of own Debentures in the Open Market: When a company purchases its own debentures from the open market for immediate cancellation or for investment, it is called redemption of debentures by purchase of own debentures in the open market. Here open market refers purchasing of own debentures from the stock market. After purchasing the own debentures, a company can use the following two options: (i) A company can immediately cancel its debentures but it is done only after passing the resolution by the board of directors of the company. (ii) Company can keep the debentures for the future as an investment.

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS 1.  A company 

can

buy

its

own

shares when: [CUET 2023]

(1) The debt-equity ratio is not more than 1:1 after the buy back. (2) The amount of buy back shares in any financial year not exceeding 20% of the paid-up capital and free reserves.

40 Oswaal CUET (UG) Chapterwise Question Bank (3) Partly paid up shares are considered buy back. (4) Article of Association must authorise and special resolution has been passed for the buyback of shares. 2. Identify those debentures on which no interest will be paid/ provided. [CUET 2023] (1) Debentures issued to underwriters (2) Debentures issued for cash (3) Debentures issued to vendor (4) Debentures issued as collateral security 3. On 1st July’ 22, Centaur Ltd. issued ₹ 25,00,000 8% debentures of ₹ 100 each as collateral security to First Level Bank against loan dues of ₹ 20,00,000. How much amount will be shown in the Balance sheet?  [CUET 2023] (1) ₹ 25,00,000 (2) ₹ 45,00,000 (3) ₹ 20,00,000 (4) ₹ 70,00,000 4.  When a company issues shares in open market and the amount is payable in instalments. What is the sequence of amount demanded by the company? A. Money received on calls B. Money due on calls C. Allotment money received D.  Application money transferred to Share Capital A/c E. Allotment money due  Choose the correct answer from the options given below:  [CUET 2023] (1) D, C, B, A, E (2) D, E, C, B, A (3) D, C, A, B, E (4) D, E, C, A, B 5. What is the correct sequence of allotment of shares? A. Allotment money received. B. Inviting application from investors. C. Allotment Due D. Application money received. E. Share call money due. Choose the correct answer from the options given below:  [CUET 2022] (1) E, C, A, B, D (2) A, B, C, D, E (3) B, D, C, A, E (4) C, A, E, D, B 6.  Romi Ltd. Purchased building worth ₹1,50,000 machinery worth ₹1,40,000 and furniture worth ₹10,000 from xyz co. and took over its liabilities of ₹20,000 for a purchase consideration of ₹3,15,000. They paid the purchase consideration by issuing 12% debentures of ₹100 each at a premium of 5%. What will be the number of debentures issued by Romi Ltd. [CUET 2022] (1) 4,000 (2) 3,500 (3) 3,000 (4) 2,000 7.  Securities premium reserve can be utilised _________  [CUET 2022] A. To return excess money received on application B. To write off preliminary expenses C. To issue partly paid bonus shares

ACCOUNTANCY

D.  For premium on Redemption of Debentures or Preference Shares E. For buy back of shares Choose the correct answer from the options given below: (1) A, B, C only (2) B, C, E only (3) C, D, E only (4) B, D, E only 8. What are different types of debentures from the view point of registration? A. Convertible B. Bearer C. Redeemable D. Secured E. Registered  Choose the correct answer from the options given below: [CUET 2022] (1) A & E only (2) B & C only (3) B & E only (4) C & D only 9.  When debentures are issued at premium with the term of redeeming them at par. The amount of premium received at the time of issue will be:  [CUET 2022] (1) Debited to premium on Redemption of Debenture A/c (2) Credited to Premium on Redemption of Debentures A/c (3) Debited to Securities Premium Reserve A/c (4) Credited to Securities Premium Reserve A/c 10. A company issued 10,000 equity shares @ ₹10 each to public. Applications were received for 20,000 Shares. 5,000 applications were returned with letter of regret and the remaining applicants were allotted proportionals shares. Ravi was allotted 6,500 shares. For how many shares did he apply for? (a) 250 shares (b) 1,000 shares (c) 750 shares (d) None of these 11. The first stage of incorporating a company is: (1) Registration (2) Promotion (3) Commencement of business (4) None of the above 12. Those preference shares which do not carry the right to receive arrears of dividend: (1) Non-participating Preference Shares (2) Irredeemable Preference Shares (3) Non-convertible Preference Shares (4) Non-cumulative Preference Shares 13. Subscription of shares should not be less than_________ % of the issued shares. (1) 85% (2) 90% (3) 95% (4) 100% 14. Balance in Share Forfeiture Account is shown in the balance sheet under the head of: (1) Reserves and Surplus (2) Long-term Borrowings (3) Share Capital (4) Other Current Liabilities

41

ACCOUNTING FOR SHARE AND DEBENTURE CAPITAL

15. The Journal Entry to acquire an asset from vendor will be : Date (1)

Particulars Sundry Assets A/c

L.F.

Amount Dr. (₹)

Amount Cr. (₹)

Dr.

To Vendor’s A/c (2)

Vendor’s A/c

Dr.

To Sundry Assets A/c (3)

Sundry Assets A/c

Dr.

To Cash A/c (4)

Cash A/c

Dr.

To Vendor’s A/c 16. HR Limited issued 10,000 equity shares @ ₹ 10each at 17. At the time of issue of debentures, Debentures Account is: 10% premium. All shares were subscribed and amount was (1) Credited by the amount received. received. Identity the amount to be transferred to Securities (2) Credited by issues price of debentures. Premium Reserve Account. (3) Credited by the nominal (face) value of the debentures. (1) ₹ 10,000 (2) ₹ 1,000 (4) None of the above (3) ₹ 1,00,000 (4) ₹ 9,000 18. What journal entry will be passed when purchase consideration is equal to net assets while purchasing business from vendor: Date (1)

Particulars

L.F.

Sundry Assets A/c

Dr.

Goodwill A/c

Dr.

Amount Dr. (₹)

Amount Cr. (₹)

To Vendor’s A/c (2)

Sundry Assets A/c

Dr.

To Capital Reserve A/c To Vendor’s A/c (3)

Sundry Assets A/c

Dr.

To Sundry Liabilities A/c To Vendor’s A/c (4)

Capital Reserve A/c

Dr.

To Vendor’s A/c 19. A company forfeited 4,000 shares of ₹ 10 each on which application money of ₹ 3 has been paid. Out of these 2,000 shares were reissued as fully paid up and ₹ 4,000 has been transferred to capital reserve. Calculate the rate at which these shares were reissued: (1) ₹ 10 per share (2) ₹ 9 per share (3) ₹ 11 per share (4) ₹ 8 per share 20. Vanya Ltd. forfeited 20,000 equity shares of ₹ 100 each for non-payment of first and final call of ₹ 40 per share. The maximum amount of discount at which these share can be re-issued will be: (1) ₹ 8,00,000 (2) ₹ 12,00,000 (3) ₹ 20,00,000 (4) ₹ 20,000

[B] ASSERTION REASON QUESTIONS Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as: (1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A).

(3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): Issue of debenture does not result in dilution of interest of equity shareholders.

Reason (R): Debenture holders have voting rights.

2. Assertion (A): Debentures save income tax. Reason (R): Interest on debenture is a tax deductible expenditure. 3. Assertion (A): The equity shareholders are paid dividend on the shares held by them. Reason (R): As the equity shareholders are the owners and dividend form their earning. 4. Assertion (A): A share is a fractional part of the share capital and forms the basis of ownership interest in a company. Reason (R): Shares refer to the units into which the total share capital of company is divided. 5. Assertion (A): Preference shareholders are given a fixed rate of dividend even if the company earns no profit. Reason (R): The preference shares have preferential right of dividend to be paid as fixed amount or an amount

42 Oswaal CUET (UG) Chapterwise Question Bank calculated at a fixed rate, which may either be free of or subject to income tax. 6. Assertion (A): Authorised share capital is not issued to the public at once. Reason (R): Companies do not exhaust their authorised capital in the beginning but only a part of the authorised capital is issued for public subscription. Rest of the authorised capital is raised by the company in a phased manner depending on the need for funds.  7. Assertion (A): Sarita Pvt. Ltd. issued 15% 10,000 debentures at par @ ₹100 per debenture. The company suffered a loss but still the directors of the company paid interest on debentures. Reason (R): Interest on debenture is a charge against profits and therefore, its payment is not subject to the earning of profit. 8. Assertion (A): Debenture holders are the creditors of the company carrying a fixed rate of interest. Reason (R): Debentures are short-term loan taken from the public. 9. Assertion (A): The ‘discount on debentures’ issuance is charged to ‘Securities Premium Account’ and is reflected as an asset. Reason (R): The ‘discount on debentures’ issuance is noted as a capital loss in the asset side as a fictitious assets. Hence, has to be written off during the year of its issue. 10. Assertion (A): The securities premium amount can be used to issue partially paid-up bonus shares. Reason (R): According to Section 52(2) of the Companies Act, 2013, the amount of Securities Premium Reserve can be used only for some specific purposes.

[C] COMPETENCY BASED QUESTIONS I. Based on following passage answer questions from 1-5.  [CUET 2023] A Ltd. with an Authorised Capital of ₹ 10,00,000 is divided into shares of ₹ 10 each, issued 50,000 shares at a premium of ₹ 2 per share payable as follows: on Application ₹ 3 per share on Allotment ₹ 5 per share(including premium) on First and Final call Balance amount Applications were received for 60,000 shares and the directors allotted shares to all on proportionate basis. All money received except first and final call from Hari who had applied for 1200 shares. His shares were forfeited and later half of his forfeited shares were reissued at ₹ 8 per share as fully paid up. 1.  Identify the number of shares with which A Ltd. Is registered. (1) 1,00,000 Shares (2) 50,000 Shares (3) 60,000 Shares (4) 10,00,000 Shares 2. Select the amount received at the time of allotment: (1) ₹ 2,50,000 (2) ₹ 50,000 (3) ₹ 2,20,000 (4) ₹ 3,00,000 3.  Select the amount that is received from Hari’s reissued shares:

(1) ₹ 4,800 (3) ₹ 8,000

ACCOUNTANCY

(2) ₹ 4,000 (4) ₹ 9,600

4.  Identify the account to which the discount allowed on reissue of forfeited shares should be debited. (1) Bank Account (2) Forfeited Share Account (3) Capital Reserve Account (4) Securities Premium Reserve Account 5.  The balance, if any, left in the share forfeited account relating to reissued shares, should be transferred to: (1) Forfeited Share Account (2) Share Capital Account (3) Reserve Capital Account (4) Capital Reserve Account II.  Based on following passage answer questions from 6-10:  [CUET 2022] XYZ Ltd is registered with an authorised capital of ₹20 Lakh divided into 2 Lakh equity shares of ₹10 each. The company is in manufacturing of pickles and spices. Due to the increase in demand of packed food in the market they decided to diversify its operation. For this purpose they decided to issue 1 lakh equity share of ₹10 each. The company issued 20,000 equity shares to a vendor to supply the machinery required to manufacture the packed food. Rest of the equity shares were issued to general public for subscription. The applications were received for 46,000 equity shares. Due to under subscription of equity shares the shares were not issued to public. 6.  The company issued 20,000 equity shares of ₹10 each to vendor. After issuing them the shares the vendor will be considered as: (1) Creditors (2) Owners (3) Customers (4) Lenders 7.  In order to raise money by issuing the shares in the market the company must get application of at least ________. (1) 1,00,000 shares (2) 80,000 shares (3) 72,000 shares (4) 20,000 shares 8.  The process of issuing shares to a vendor in exchange of any asset is known as: (1) Issue of share for cash (2) Issue of share at discount (3) Issue of share at premium (4) Issue of share for consideration other than cash 9.  If the company is unable to get minimum subscription, the shares cannot be issued and the amount must be refunded within 8 days from the date of closure. If not, company shall be liable to pay ____ % interest p.a. (1) 10% (2) 15% (3) 6% (4) 5% 10. The following refers to the maximum amount of share capital issued by a company in its lifetime except: (1) Subscribed Capital (2) Authorised Capital (3) Nominal Capital (4) Registered Capital

43

ACCOUNTING FOR SHARE AND DEBENTURE CAPITAL

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (4)

2. (4)

3. (3)

4. (2)

5. (3)

6. (3)

7. (4)

8. (3)

9. (4)

11. (2)

12. (4)

13. (2)

14. (3)

15. (1)

16. (1)

17. (3)

18. (3)

19. (2)

20. (2)

10. (3)

8. (3)

9. (1)

10. (4)

8. (4)

9. (2)

10. (1)

[B] ASSERTION REASON QUESTIONS 1. (3)

2. (1)

3. (1)

4. (2)

5. (4)

6. (1)

7. (1)

[C] COMPETENCY BASED QUESTIONS 1. (1)

2. (3)

3. (2)

4. (2)

5. (4)

6. (2)

7. (3)

ANSWERS WITH EXPLANATION

[A] MULTIPLE CHOICE QUESTIONS 1. Option (4) is correct.

Explanation: A company can buy its own shares only when it is authorized to do so by its Articles of Association. Additionally, a special resolution must be passed by the shareholders approving the buyback of shares. The other options listed (1, 2, and 3) are not directly related to the conditions required for a company to buy back its own shares.

allotment is done on pro-rata basis. Thereafter, allotment money is due and then the allotment money is received. The share calls are due and they are then subsequently received. 6. Option (3) is correct. Explanation: Price of each 12% Debentures = ₹100 + 5% of ₹100 = ₹100 + ₹5 = ₹105 Number of debentures =

Purchase Consideration Price of each debentures

2. Option (4) is correct. Explanation: The term ‘collateral security’ implies additional security given for a loan. Where a company obtains a loan from a banker insurance company and the security offered to the company is not sufficient, the company may issue its own debentures to the lender as collateral security against the loan. In such a case, the lender has the absolute right over the debentures until and unless the loan is repaid. On repayment of the loan, however, the lender is legally bound to release the debentures forthwith. But in case, the loan is not repaid by the company on the due date or in the event of any other breach of agreement, the lender has the right to retain these debentures and to realize them. The lender is entitled to interest only on the amount of loan, but not on the debentures issued as collateral security. 3. Option (3) is correct. Explanation: As the debentures are issued as collateral security for the bank loans, the amount to be shown will be ₹ 20,00,000 as the debentures will be retained by the bank unless and until the loans are repaid back. 4. Option (2) is correct. Explanation: The sequence of amount demanded by the company is: 1. Application money received 2. Application money transferred to share capital 3. Allotment money due 4. Allotment money received 5. Money due on calls 6. Money received on calls 5. Option (3) is correct. Explanation: When the shares are allotted to the Public, first the application is invited, then the money of application is received which is then transferred to Share Capital. In case of over subscription, the excess money is either refunded or



=

`3, 15, 000 = 3000 105

7. Option (4) is correct.

Explanation: Statement A is wrong as the application money is returned from the bank account where the application money was transferred. Statement C is wrong as the securities premium is used to issue fully paid-up bonus shares. Plus, the securities premium amount cannot be used to issue partly paid up bonus shares to shareholders, as the shares are partly paid up. It can only be used for: (i) To issue fully paid-up bonus shares to the shareholders. (ii) To write off preliminary expenses of the companies. (iii) To write off the commission paid or expenses on issue of shares/debentures. (iv) To pay premium on the redemption of preference shares or debentures of the company. (v) Buy-back of equity shares and other securities as per Section 68. 8. Option (3) is correct. Explanation: From the viewpoint of security debentures are classified as Secured and Unsecured. From the viewpoint of redemption, debentures can be either redeemable or irredeemable. From the viewpoint of registration, debentures can be either registered or bearers. From the viewpoint of convertibility, debentures can be either convertible or nonconvertible. 9. Option (4) is correct. Explanation: When the debentures are issued at premium, irrespective of being redeemed at a premium, par or discount, the amount received as premium will be credited to the Securities Premium Reserve Account.

44 Oswaal CUET (UG) Chapterwise Question Bank 10. Option (3) is correct. Explanation: Total applications received = 20,000 shares Return applications = 5,000 shares. Remaining applications = 15,000 (20,000 – 5,000) shares Ravi was allotted 500 shares No. of shares he applied for: 11. Option (2) is correct.

15, 000 10 , 000  750 Shares 500 

ACCOUNTANCY

to the capital reserve account. Thus, ₹ 2,000 was the discount given, making the discount ₹ 1 per share. Thus, the share was issued at ₹ 9 per share. 20. Option (2) is correct. Explanation: Amount forfeited at the time of forfeiture of shares = ₹ 20,000 × 60 = ₹ 12,00,000 [Maximum amount of discount to be allowed]

[B] ASSERTION REASON QUESTIONS 1. Option (3) is correct.

Explanation: The incorporation of a company as per the Companies Act, 2013 begins with its promotion.

Explanation: Issue of debenture does not result in dilution of interest of equity shareholders as they do not have right either to vote or to take part in the management of the company.

12. Option (4) is correct.

2. Option (1) is correct.

Explanation: The non-cumulative preference shares are the shares which do not carry the right to receive arrears of dividend.

Explanation: The debenture holders are paid a fixed rate of interest either annually or semi-annually as decided by the management of the company. Debentures as a source of finance leads to the company saving Income Tax as the interest that is paid on the debentures are a charge against profit and so the taxable income of the company reduces.

Non-participating Preference Shares are the shares which do not have a share in surplus profits and on which only a fixed rate of dividend is paid. Non-convertible Preference Shares are the preference shares which don’t have the right to be converted into equity shares. Preference shares which don’t have any maturity date are called irredeemable preference shares. 13. Option (2) is correct. Explanation: As per the Companies Act, the subscription should not be less than 90% of the issued shares or else the subscription money must be refunded. 14. Option (3) is correct. Explanation: As the share forfeiture form the share capital it is shown in the share capital head of the Balance Sheet. 15. Option (1) is correct. Explanation: When the asset is acquired from the vendor, the sundry asset account is debited and vendor’s account is credited with that amount. 16. Option (1) is correct. Explanation: Total value of shares =  10,000 ×₹ 10  = ₹ 1,00,000 Premium = 10% of 1,00,000 = ₹ 10,000 Thus, ₹ 10,000 will be transferred to the securities premium account. 17. Option (3) is correct. Explanation: At the time of issue of debentures the debenture account is credited with the nominal or face value of the debentures. If the debentures are issued at discount, discount at the issue of debentures is debited and if it is issued at a premium, the Securities premium account is credited with the premium amount. 18. Option (3) is correct. Explanation: When the purchase consideration is equal to net assets while purchasing business from vender, the Asset Account is debited and vendor account is credited. 19. Option (2) is correct. Explanation: As the amount in the forfeiture share account is ₹ 6,000 (for 2,000 debentures) and ₹ 4,000 were transferred

3. Option (1) is correct. Explanation: The equity shareholders are given dividend as per the shares hold by them from the profit earned by the company as they get the ownership of the company to the extent of shares hold by them. 4. Option (2) is correct. Explanation: Shares are the fractional part or the unit of share capital forming the basis of ownership of company because buying a share by a person makes him/her a shareholder and thus the owner to the extent of the shares purchased. 5. Option (4) is correct. Explanation: If the company does not earn profit, the preference shareholders are not given dividend as dividend cannot be declared in case of no profit even if they have preferential rights. 6. Option (1) is correct. Explanation: Authorised Capital is the lifetime capital of the company beyond which it cannot issue the shares as mentioned in the capital clause of the memorandum of association of the company. The companies in order to not exhaust the authorised capital do not issue the entire authorised share capital to the public but issue them in a phased manner as and when they require the fund. 7. Option (1) is correct. Explanation: The interest on debentures has to be paid by the company even in the case of loss as it is a charge against the profit and has to be paid irrespective of the profit or loss earned by the company. This is the reason why the directors of Sarita Pvt. Ltd had to pay the interest on debentures even when the company suffered loss. 8. Option (3) is correct. Explanation: If a company needs funds for extension and development purposes without increasing its share capital, it can borrow from the general public by issuing certificates called debentures for a fixed period of time and at a fixed rate of interest. Debenture is a long-term debt instruments.

45

ACCOUNTING FOR SHARE AND DEBENTURE CAPITAL

9. Option (1) is correct. Explanation: The ‘discount on debentures’ issuance is noted as a capital loss and is charged to ‘Securities Premium Account’ and is reflected in the assets side as fictitious asset. Hence, has to be written off during the year of its issue. 10. Option (4) is correct. Explanation: According to Section 52(2) of the Companies Act, 2013, the amount of Securities Premium Reserve can be used only for the following purposes: (i) To issue fully paid-up bonus shares to the shareholders. (ii) To write off preliminary expenses of thecompanies.

(iii) To write off the commission paid or expenses on issue of shares/debentures. (iv) To pay premium on the redemption of preference shares or debentures of the company. (v) Buy-back of equity shares and other securities as per Section 68.

[C] COMPETENCY BASED QUESTIONS 1. Option (1) is correct. Explanation: The Authorised Capital = ₹ 10,00,000 Value of each share = ₹ 10 Number of shares =

2. Option (3) is correct.

10 , 00 , 000 = 1,00,000 10

Explanation: Money to be received on Share Allotment

=

50,000 × ₹ 5

=

₹ 2,50,000

Money already received on application

=

10,000 × ₹ 3

=

₹ 30,000

Money to be received

=

₹ 2,50,000 - ₹ 30,000

=

₹ 2,20,000

3. Option (2) is correct.

50 , 000

7. Option (3) is correct.

Explanation: Shares allotted to Hari =  1,200 ×  60 , 000 = 1,000

Explanation: 90% of 80,000 shares = 72,000 shares

Number of shares reissued = 500

Explanation: As the issue of shares to the vendor is in exchange of the asset, here it is the machinery required to manufacture packed food, it is termed as Issue of share for consideration other than cash. It is called issue of shares at discount when the shares are issued at a price below the face value. It is called issue of shares at premium when the shares are issued at a price above the face value.

Amount received on the reissued shares =  500× ₹ 8  = ₹ 4,000 4. Option (2) is correct. Explanation: The discount allowed on the reissue of forfeited shares should be debited to the “Forfeited Share Account.” This account is used to record the reissue of forfeited shares at a price lower than the original subscription price. The discount allowed is a reduction in the reissue price and is accounted for in the Forfeited Share Account. 5. Option (4) is correct. Explanation: The balance amount of the forfeited shares is transferred to capital reserve account as it is a charge against capital. 6. Option (2) is correct. Explanation: As the vendors now have equity shares, so they will enjoy all the rights of the equity shareholders that includes being the owners of the company.

8. Option (4) is correct.

9. Option (2) is correct. Explanation: As per the Section 73(2) of the companies Act, 2013, if the company fails to refund the application money if minimum subscription is not received with 8 days, then it has to pay an interest of 15% per annum. 10. Option (1) is correct.

Study Time

CHAPTER

6

  Revision Notes

Max. Time: 1:25 Hours Max. Questions: 40

ANALYSIS OF FINANCIAL STATEMENTS

 Financial Statements of a Company : These are the end products of any business organisation. They reveal the financial position and financial result of that organisation on a particular date. They work as the magnifier to the management for decision making. It includes the following statements: 1. Statement of Profit and Loss: It Scan to know reveals the financial result of the company. more about this topic 2. Balance Sheet: It reveals the financial position of the company.  Major Headings used in Balance Sheet Balance Sheet I. EQUITY AND LIABILITIES as per Schedule III 1. Shareholders’ Funds: a. Share Capital b. Reserves and Surplus c. Money received against share warrants 2. Share application money pending allotment 3. Non-Current Liabilities: a. Long-term Borrowings b. Deferred Tax Liabilities (Net) c. Long-term Provisions d. Other Long-term Liabilities 4. Current Liabilities: a. Short-term Borrowings b. Trade Payables c. Other Current Liabilities d. Short-term Provisions II. ASSETS 1. Non-current Assets: a. Fixed Assets: (i) Tangible Assets (ii) Intangible Assets (iii) Capital Work-in-progress (iv) Intangible Assets under development b. Non-current Investments c. Deferred Tax Assets (net) d. Long-term Loans and Advances e. Other Non-current Assets 2. Current Assets: a. Current Investments

b. Inventories c. Trade Receivables d. Cash and Cash Equivalents e. Short-term Loans and Advances f. Other Current Assets  Analysis of Financial Statements : Analysis of financial statements implies or means a thorough, Scan to know systematic,comprehensive and critical more about this topic examination of the information contained in the financial statements in order to understand them better and take decision on them after drawing meaningful conclusions, take planned steps towards Financial Statement development and secure the future of the Analysis organisation.  Objectives of Financial Statements Analysis : 1. Financial Statements Analysis presents financial data in a simplified and understandable form, so that meaningful conclusions can be drawn from it. 2. Financial analysis helps in assessing the profitability positions and operational efficiency of the firm as well as of its various departments so as to judge the financial health of the organisation. 3. Financial analysis helps in ascertaining the relative importance of different components of financial position(such as assets, liabilities, owners’ equity etc.) of the firm. 4. It helps in making intra-firm and inter-firm comparisons. 5. It helps in identifying the causes for change in profitability of financial positions of the firm. 6. Financial Statements Analysis helps in assessing future trends and thus, helps in Forecasting and Preparation of budgets.  Limitations of Financial Statements Analysis : 1. Financial statements analysis ignores the qualitative information like quality of management, labour force,public relation, etc. 2. The analysis of financial statements does not disclose the current worth of the business. The financial statements of the company are prepared on cost principle. 3. In many situations, accountant has to make a choice out of various alternatives available. He may choose that alternative which may be beneficial to the company. In such case, the financial statements are not free from bias.

ANALYSIS OF FINANCIAL STATEMENTS

47

Portability Ratio

Comparative Statement

Current Ratio Liquidity Ratio

Debt to equity Total assets to debt Proprietary ratio

• Gross profit • Operating ratio • Net profit ratio • Return on Investment • Earning per Share • Dividend per Share • Profit earning ratio

Solvency Ratio

Types

Liquidity Ratio

Tools used in Financial Analysis

Common Size Statement

lance Sheet

• Inventory turnover • Debtors turnover • Payables turnover • Working capital turnover • Fixed assets turnover • Current assets turnover

e Ba

Activity Ratio

m m Siz

Each item is shown as percentage to revenue from operations.

Each item of assets is converted into percentages to total assets (e.g., 100) and each item of equity and liabilities is converted into percentages to total equity and liabilities (e.g., 100).

Co

Presents side-by-side information about an entity’s assets, liabilities and shareholders’ fund as of multiple points in time.

Financial Statement Analysis

• • • •

Im

•

•

•

•

tiv es

Presents side-by-side information about operating activities of the business for two or more accounting period.

on j Ob

ec

Historical Analysis Does not reflect future Ignores the Price Level Changes Not free from Bias

ns

Second Level

Trace the Mind Map First Level

Third Level

To present financial data in a simplified and understandable form To help in assessing financial health of the organisation To help in ascertaining the relative importance of different components of financial position of the firm To help in making intra-firm and interfirm comparisons.

To make comparisons To sustain the position of Business To take financial decisions To get help for future planning



io itat nce rta 

Lim po 

• • • •

48 Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY

49

ANALYSIS OF FINANCIAL STATEMENTS

4. Different firms may follow different accounting policies. This may create difficulty in comparing the results of two companies.  Tools for Analysis of Financial Statements: 1. Comparative Statements (Horizontal Scan to know Analysis) more about this topic 2. Common Size Statements (Vertical Analysis) 3. Ratio Analysis 4. Cash Flow Statements. Comparative  Comparative Statements: Statements and Common-Size showing financial data for two or more Statements. years, placed side by side to facilitate comparison are called Comparative Financial Statements. A. Comparative Balance Sheet: The Comparative Balance Sheet shows increase and decrease in absolute terms as well as in percentages various assets, liabilities and capital and thus, provides information regarding the progress of the business firm. B. Comparative Statement of Profit & Loss or Comparative Income Statement: Comparative Statement of Profit and Loss is the income statement which is prepared in such a form to reflect the operating activities of the business for two or more accounting periods. Common-Size Statements : According to Kohler. ‘’Common-Size Statements are accounting statements expressed in percentages of same base rather than rupees.” A. Common-Size Balance Sheet : In a Common-Size Balance Sheet, each item of assets is converted into the percentage to total assets (i.e., 100) and each item of equity and liabilities is converted into the percentage to total equity and liabilities (i.e., 100). Thus, the Balance Sheet is converted into percentage form and the converted Balance Sheet is called as ‘Common Size Balance Sheet’. B. Common-Size Income Statement : A common-size income statement is a statement in which the figure of net sales is assumed to be equal to 100 and all other figures are expressed as percentage of net sales. Ratio Analysis : Ratio analysis of financial statements is a study of relationship among various financial factors in a

business as disclosed by a single set of statements and a study of trends of these factors, shown in a series of statement. Objectives 1. To identify the problematic area, 2. To measure profitability, 3. To simplify accounting figures, 4. To facilitate comparative analysis, 5. To ascertain operational efficiency, 6. To assess business solvency, 7. To gauge financial position. Classification of Ratios: 1. Liquidity ratio: To measure the Scan to know firm’s efficiency to pay its short-term debts. more about this topic It contains following ratios: i. Current ratio ii. Quick ratio 2. Activity ratio: To represent Financial the amount of assets and liabilities that a Ratios company replaces in relation to its sales. It contains following ratios: i. Inventory turnover ratio ii. Trade receivables turnover ratio iii. Trade payables turnover ratio iv. Working capital turnover ratio 3. Profitability ratio: To measure a company’s operating performance. It contains following ratios: i. Gross profit ratio ii. Operating ratio iii. Operating profit ratio iv. Net profit ratio v. Return on Investment 4. Solvency ratio: To measure the ability of a company to meet its long-term debts. It contains following ratios: i. Debt- equity ratio ii. Total assets to debt ratio iii. Proprietary ratio iv. Interest coverage ratio.

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS 1.  Identify the ratio which is not computed for evaluating solvency of the business. [CUET 2023] (1) Debt-Equity Ratio (2) Proprietary Ratio (3) Operating Ratio (4) Interest Coverage Ratio 2. Match List I with List II: List -I

List - II

(A)

Current Maturities of long term Debt

(I)

Other Non-Current Liabilities

(B)

Securities Premium

(II)

Short term Borrowing

(C)

Outstanding salaries

(III)

Other Current Liabilities

(D)

Premium on Redemption (IV) Reserves and of Debentures Surplus Choose the correct answer from the options given below:  [CUET 2023] (1) (A)-(III), (B)-(IV), (C)-(II), (D)-(I) (2) (A)-(II), (B)-(I), (C)-(III), (D)-(IV) (3) (A)-(II), (B)-(IV), (C)-(III), (D)-(I) (4) (A)-(III), (B)-(II), (C)-(I), (D)-(IV) 3.  What is the correct sequence to prepare company’s Balance Sheet as per the standard format given according to Schedule III of Companies Act 2013? A.  Non-Current Liability B.  Non-Current Assets C.  Shareholder’s Funds D.  Current Assets E.  Current Liability

50 Oswaal CUET (UG) Chapterwise Question Bank

 hoose the correct answer from the options given below: C  [CUET 2023] (1) C, A, B, E, D (2) A, B, C, D, E (3) C, A, E, B, D (4) A, C, E, B, D 4.  Trade payables to be settled beyond 12 months from the date of Balance sheet or beyond the operating cycle are classified under: [CUET 2023] (1) Long term provisions (2) Other long term liabilities (3) Deferred tax liabilities (4) Long term Borrowing 5.  Every company analyses its earning capacity of the business which is outcome of utilisation of resources employed in the business. To analyse profitability company can use: [CUET 2023] A. Dividend Payout Ratio B. Return on Net Worth C. Gross Profit Ratio D. Quick Ratio E. Inventory Turnover Ratio Choose the choose answer from the option given below: (1) C and E only (2) C, D and E only (3) A, B and C only (4) A, C and E only 6. Match List I with List II: List -I

List - II

(A) Interest charges

(I) Employees Benefit Expenses

(B) Sale of services

(II) Other incomes

(C) Salary

(III) Revenue from Operations

(D) Dividend Income (IV) Finance cost  hoose the correct answer from the options given below: C  [CUET 2023] (1) (A)-(IV), (B)-(III), (C)-(I), (D)-(II) (2) (A)-(IV), (B)-(II), (C)-(I), (D)-(III) (3) (A)-(II), (B)-(I), (C)-(III), (D)-(IV) (4) (A)-(II), (B)-(IV), (C)-(I), (D)-(III) 7.  Select the sub-head under which loose tools will be shown in the Balance Sheet of a company :  [CUET 2023] (1) Current Assets (2) Trade Receivables (3) Inventories (4) Other current Assets 8. Match List I with List II:

LIST I: Major Head

LIST II: Sub Head

A. Fixed Assets

I.

Short term provisions

B. Current Assets

II. Money received against share warrants

C. Current Liabilities

III. Non current investment

D. Shareholder’s Funds IV. Inventories Choose the correct answer from the options given below:  [CUET 2022] (1) A – IV, B – I, C – II, D – III (2) A – III, B – IV, C – I, D – II (3) A – I, B – IV, C – II, D – III (4) A – II, B – I, C – IV, D – III 9.  What is the correct sequence of types of capital in company’s Balance Sheet while preparing notes to accounts.

ACCOUNTANCY

A. Issued Capital B. Subscribed and fully paid up capital C. Share Forfeited Balance D. Authorised Capital E. Subscribed but not fully paid up capital Choose the correct answer from the options given below:  [CUET 2022] (1) C, B, D, E, A (2) D, A, B, E, C (3) A, B, C, D, E (4) B, A, D, E, C 10. Identify the correct sequence to find out profit after tax while preparing comparative income statement. A. Deduct expenses B. Find out total revenue by adding other incomes to revenue from operations C. Find out profit after tax D. Deduct tax E. Calculate profit before tax Choose the correct answer from the options given below:  [CUET 2022] (1) E, B, A, D, C (2) B, A, E, D, C (3) B, E, A, C, D (4) E, C, B, A, D 11. Common Size Analysis is also known as: [CUET 2022] (1) Horizontal Analysis (2) Vertical Analysis (3) Cash Flow Analysis (4) Ratio Analysis 12. Identify the limitations of financial statements: A. Can be biased B. Report on stewardship C. Aggregate information D. Only interim reports E. Basis of fiscal policies Choose the correct answer from the option given below: (1) A, C, B only (2) A, C, D only (3) E, A, D only (4) B, A, C only 13. What are the different types of liquidity ratios A. Interest coverage Ratio B. Current Ratio C. Inventory Turnover Ratio D. Gross Profit Ratio E. Acid Test Ratio Choose the correct answer from the options given below:  [CUET 2022] (1) A & B only (2) B & E only (3) B & D only (4) D & E only 14. Identify the component of equity: A. Money received against share warrants B. Working Capital C. Share Capital D. Reserve & Surplus E. Cash Revenue from Operations. Choose the correct answer from the options given below:  [CUET 2022] (1) A, C & E only (2) B, C & D only (3) A, B & C only (4) A, C & D only 15. Identify the correct sequence of current assets in company’s Balance Sheet? A. Bills Receivables B. Cash & Cash Equivalents C. Short term loans & advances D. Inventories E. Current Investments

51

ANALYSIS OF FINANCIAL STATEMENTS

Choose the correct answer from the options given below:  [CUET 2022] (1) C, A, B, E, D (2) D, C, E, A, B (3) B, D, E, C, A (4) E, D, A, B, C 16. While preparing common-size Balance sheet, each item of Balance sheet is expressed as % of: [CUET 2022] (1) Non-current assets (2) Current assets (3) Non-current liabilities (4) Total assets or total liabilities 17. As per Schedule III, Part I of the Companies Act, 2013 ‘calls-in-arrears’ will be presented under which of the following head/sub-head, in the Balance Sheet of a company? (1) Reserves and Surplus (2) Current Liabilities (3) Contingent Liabilities (4) Shareholders’ Funds 18. The following information are given: Trade Receivables Turnover Ratio 4 times Current Liabilities ₹5,000 Average Debtors ₹1,80,000 Working Capital Turnover Ratio 8 times Cash Revenue from Operations 25% of Revenue from Operations 1 Gross Profit Ratio 33 % 3 What is the revenue from operations? (1) ₹9,60,000 (2) ₹6,40,000 (3) ₹1,80,000 (4) ₹7,20,000 19. Match the items given in Column I with the headings/ sub-headings of Column II under which these are shown according to Schedule III Part 1 of the Companies Act, 2013: Column I

Column II

(i) Securities Premium Reserve (a) Non-current Liabilities (ii) Patents

(b) Current Liabilities

(iii) Short Term Loans and Advances

(c) Current Assets

(iv) Trade Payables

(d) Intangible Assets

(v) Long Term Borrowings

(e) Reserves and Surplus

Choose the correct alternative: (1) (i)-(e), (ii)-(d), (iii)-(c), (iv)-(b), (v)-(a) (2) (i)-(a), (ii)-(b), (iii)-(c), (iv)-(d). (v)-(e) (3) (i)-(b), (ii)-(c), (iii)-(a), (iv)-(d), (v)-(e) (4) (i)-(a), (ii)-(b), (iii)-(e), (iv)-(d), (v)-(c) 20. Gross Profit Ratio of a Company is 25%. Cost of revenue from operations are

3 th of revenue from operations. If 4

revenue from operations is ₹60,00,000, the Gross Profit of the Company will be: (1) ₹ 25,00.000 (2) ₹ 45,00,000 (3) ₹ 15,00,000 (4) ₹ 11,25,000 [B] ASSERTION REASON QUESTIONS Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as:

(1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A). (3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): Financial statements are the end products of accounting process which reveal the financial results of a specified period and financial position as on a particular date. Reason (R): The basic objective of these statements is to provide information required for decision making by the management as well as other outsiders who are interested in the affairs of the undertaking, as per Section 129 Schedule III to the Companies Act, 2013 every year. 2. Assertion (A): Debt to Equity Ratio of 2 : 1 is considered satisfactory. Generally a Low Ratio is considered favourable. Reason (R): This ratio indicates the proportionate claims of owners and outsiders on firm’s assets. High Ratio shows claims of outsiders are greater but Low Ratio shows outsiders claims are less. 3. Assertion (A): The balance sheet of the company needs to show the complete detail of the share capital of the company. Reason (R): As per Schedule III of Companies Act, 2013, the Balance Sheet must disclose authorized capital, issued capital and subscribed capital for each class of share capital (i.e. for both Equity and Preference Shares) besides the called-up amount made by the company and paid-up amount made by the shareholders. 4. Assertion (A): Accounts Payables are recorded in the heading of Current Liabilities in the Balance Sheet of the company. Reason (R): Accounts Payable is the money the company currently owes to its suppliers, partners,and employees. 5. Assertion (A): All contingent liabilities are shown in the non-current liabilities section of the balance sheet. Reason (R): A contingent liability refers to the claim which is uncertain to arise/which may or maynot rise/which is dependent on a happening in future. 6. Assertion: Comparative statements are more useful for analysing financial performance over time than stand alone statements. Reason: Comparative statements show changes in financial data over a period of time, making it easier to evaluate trends and identify significant changes. 7. Assertion: Common size financial statements are useful for comparing the financial structure and performance of different businesses.  Reason: Common size statements express different financial items as a percentage of total sales or revenue, making it easier to compare the financial structure of businesses in different industries. 8. Assertion: Comparative statements are useful for evaluating a company’s financial performance against industry benchmarks.

52 Oswaal CUET (UG) Chapterwise Question Bank Reason: Comparative statements allow for an assessment of how a company is performing compared to industry benchmarks, which can provide helpful insights for making strategic decisions. 9. Assertion (A): Operating ratio is = 100 – operating profit ratio. Reason (R): Operating ratio is computed to reveal the operating margin on products sold. 10. Assertion (A): Profitability ratios are calculated to analyse the combining capacity of the business. Reason (R): Profitability ratios are calculated to determine the ability of the business to service its debt in the long run. 

(3) 1.55 times

(4) 1.92 times

4.  Cost of Revenue from Operations for the year 2020 would be ______________. (1) ₹ 21,12,000 (2) ₹ 21,13,000 (3) ₹ 21,15,000 (4) ₹ 21,17,000 5.  What will be Inventory Turnover Ratio for the year 2019? (1) 1.42 times (2) 1.41 times (3) 1.39 times (4) 1.38 times II Consider the following data and answer the questions 6 – 10 that follows: Particulars

Amount ₹

Revenue From Operations

12,00,000

[C] COMPETENCY BASED QUESTIONS

Cost of Revenue from Operations

I. Read the following information and answer the questions 1 to 5:

Inventory

Year Amount Outstanding Expenses Prepaid Expenses

2020

2019

2018

(In ₹)

(In ₹)

(In ₹)

50,000

40,000

25,000

3,00,000

2,50,000

3,50,000

Trade Payables

18,00,000 16,00,000 14,00,000

Inventory

12,00,000 10,00,000 11,00,000

Trade Receivables

11,00,000

Cash in hand

17,00,000 12,00,000 15,00,000

8,00,000 10,00,000

Revenue from operations 24,00,000 18,00,000 20,00,000 Gross Profit Ratio

12%

15%

18%

1.  Current Ratio for the year 2020 will be_____.(Choose the correct alternative) (1) 2 : 1 (2) 1.8 : 1 (3) 2.32 : 1 (4) 2.4 : 1 2.  Quick Ratio for the year 2018 will be__________. (Choose the correct alternative) (1) 1.75 : 1 (2) 1.8 : 1 (3) 0.94 : 1 (4) 1.25 : 1 3.  Inventory turnover ratio for the year 2020 will be______. (Choose the correct alternative) (1) 1.62 times (2) 1.82 times

ACCOUNTANCY

9,00,000

Operating Expenses

15,000 20,000

Other Current Assets

2,00,000

Current Liabilities

75,000

Paid up Share Capital

4,00,000

Statement of Profit & Loss (Dr.)

47,500

Total Debt

2,50,000

6. What is the Operating ratio? (1) 75.62% (3) 76.25%

(2) 75% (4) 76%

7. What is the quick ratio? (1) 2.67:1 (3) 2:1

(2) 2.17:1 (4) 3:1

8. What is the Debt to Equity Ratio? (1) 0.75:1 (2) 1:2 (3) 2:1 (4) 0.63:1 9. What is working capital turnover ratio? (1) 8 times (2) 8.28 times (3) 7.28 times (4) 8.78 times 10. What is the current ratio? (1) 2.93:1 (3) 2.89:1

(2) 2.99:1 (4) 2.02:1

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (3)

3. (3)

4. (2)

5. (3)

6. (1)

7. (3)

8. (2)

9. (2)

10. (2)

11. (2)

12. (2)

13. (2)

14. (3)

15. (4)

16. (4)

17. (4)

18. (1)

19. (1)

20. (3)

8. (1)

9. (3)

10. (3)

8. (4)

9. (2)

10. (1)

[B] ASSERTION REASON QUESTIONS 1. (2)

2. (1)

3. (1)

4. (1)

5. (4)

6. (1)

7. (1)

[C] COMPETENCY BASED QUESTIONS 1. (3)

2. (1)

3. (4)

4. (1)

5. (2)

6. (3)

7. (1)

53

ANALYSIS OF FINANCIAL STATEMENTS

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS 1. Option (3) is correct. Explanation: Operating Ratio is a measure of operational efficiency and is used to assess the company’s ability to manage its operating expenses in relation to its net sales. 2. Option (3) is correct. Explanation: Current Maturities of long term debt will be shown as a short term borrowings; Securities Premium will be shown in the Reserves and Surplus; Outstanding Salaries are shown in Other Current Liabilities and Premium on redemption of debentures will be shown under the Other NonCurrent Liabilities. 3. Option (3) is correct. Explanation: This order ensures that the Balance Sheet presents a systematic and organized view of the company’s financial position, withthe owner’s equity and long-term liabilities first, followed by short-term liabilities and the company’s long-term and short-term assets. 4. Option (2) is correct. Explanation: Trade payables that are to be settled beyond 12 months from the date of the balance sheet or beyond the operating cycle are classified as other long-term liabilities in the financial statements of a company. These liabilities represent obligations that are not due for settlement in the short term and are typically considered as part of the long-term financing of the company. 5. Option (3) is correct. Explanation: The profitability of the company is analyed with the help of the profitability ratios. In the list, only Dividend payout ratio,Return on Net Worth and Gross Profit Ratio are the profitability Ratio. Quick Ratio is a liquidity ratio and Inventory Turnover Ratio is a performance ratio. 6. Option (1) is correct. Explanation: Interest charged is a finance cost and so is shown as an expense in the statement of profit and loss. Sale of services is a type of revenue from operations as it is done as a normal day to day functioning of the business. Salary is a part of Employee benefit scheme as it is the remuneration paid to employees for the services that they have rendered. Dividend Income forms the part of other incomes, as it is not the actual way for a company to earn income. 7. Option (3) is correct. Explanation: Loose tools are considered part of the inventories category in the Balance Sheet of a company. Inventories include various items that a company holds for production, trading, or provision of services. Loose tools fall under this category as they are essential for day-to-day operations and are not intended for resale. 8. Option (2) is correct. Explanation: Non-current investment is not a current asset, so is shown in the head of Fixed Assets. Inventories is the stock that is in hand, so it is a current asset. When we talk about the short-term provisions, it is a type of Current Liabilities, so

is shown in that head. Finally, Money received against share warrant is the charge on share capital, so it will be shown under the Shareholder’s Fund in the balance sheet. 9. Option (2) is correct. Explanation: While making the notes to accounts for the Shareholders Fund in the Balance Sheet, it always starts with Authorised Capital. Thereafter the Issued Capital is mentioned. For the amount to be mentioned in the Balance Sheet, the Subscribed and fully paid up capital and the subscribed but not fully paid up capital is added. Finally, the Share Forfeited Balance is shown in the notes to Accounts. 10. Option (2) is correct. Explanation: While making the comparative Income Statement, the Revenue from operations is found out. To this, the other incomes are added to find the total income of the company. Then the expenses that has been incurred during that particular year is subtracted to find out the Profit before Tax. Then the tax is deducted and finally the profit after tax is what is remaining. 11. Option(2) is correct. Explanation: Horizontal Analysis is the other name for Comparative Statement Analysis. Vertical Analysis is the other name for Common Size Analysis. In Cash Flow Analysis a Cash Flow Statement is made and for analyzing Ratios, various formulae are used. 12. Option (2) is correct. Explanation: Report on stewardship and Basis of fiscal policies are the advantages or importance of financial statements. 13. Option (2) is correct. Explanation: Current Ratio and Acid Test or Liquid or Quick Ratio are Liquidity Ratio. Debt to equity ratio, Total Asset to Debt Ratio, Proprietary Ratio, Interest Coverage Ratio and Debt to Capital Employed Ratio are Solvency Ratios. Inventory turnover Ratio,Trade Receivables Turnover Ratio, Trade Payable Turnover Ratio, Working Capital Turnover Ratio, Net Assets or Capital Employed Turnover Ratio and Fixed Asset Turnover Ratios are Performance or Activity or Turnover Ratio. Gross Profit Ratio, Net Profit Ratio, Operating ratio, Return on Capital Employed or Investment, Operating Profit Ratio are called Profitability Ratios. 14. Option (3) is correct. Explanation: Working Capital is the difference between Current Assets and Current Liabilities. Cash Revenue from Operations is used to calculate the Profit or loss earned during the particular year. 15. Option (4) is correct. Explanation: The sequence as per the Company’s Act 2013 is: (2) Current Assets: (a) Current Investments (b) Inventories (c) Trade Receivables (d) Cash and Cash Equivalents (e) Short-term Loans and Advances (f) Other Current Assets

54 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

16. Option (4) is correct.

4. Option (1) is correct.

17. Option (4) is correct.

Explanation: Accounts Payables include Sundry Creditors, Bills Payables and other liabilities of the company that it owes to the suppliers, partners and employees. Thus, it is a Current Liability. Hence, it is shown in the heading of Current Liabilities in the Balance Sheet of the company.

Explanation: The amount which is not paid by defaulter shareholders is called ‘Calls-in-arrears’.This shows a debit balance. It is shown under Shareholders’ Fund as deduction from called up capital. 18. Option (1) is correct. Explanation: Trade R  eceivables Turnover ratio  Credit Revenue from Operations = Average Trade Receivers Credit Revenue from Operations 4= ₹1,80,000 Credit Revenue from Operations =  ₹1,80,000× 4 = ₹7,20,000 Credit Revenue from Operations = 75% of Revenue from Operations ₹7,20,000 = 75% of Revenue from Operations Revenue from Operations = ₹9,60,000 19. Option (1) is correct. Explanation: Securities Premium is a type of reserve, so is shown under Reserves and Surplus. Patents is an Intangible Fixed Asset, that is it cannot be seen or touched. Short Term Loans and Advances will be redeemed by the company in the short run so it is a current asset. Trade Payables include Sundry Creditors and Bills Payable, which are Current Liabilities. Finally, Long Term Borrowings are the loans taken for a very long term like Debentures, Bank Loans etc, so it forms the Noncurrent Liabilities. 20. Option (3) is correct. Explanation:

Revenue from Operaations × Gross Profit Ratio 100 Revenue from Operaations × Gross Profit Ratio 100

Gross Profit = 

₹60,00,000 × 25 100 = ₹15,00,000 =

[B] ASSERTION REASON QUESTIONS 1. Option (2) is correct. Explanation: Financial statements are the end products of the accounting process which are prepared with the objective to provide information required for decision making by the management as well as other outsiders who are interested in the affairs of the undertaking. 2. Option (1) is correct. Explanation: Debt to Equity Ratio being 2:1, is not considered good as the company has twice as much as debt as it has its capital. The company could have an issue when they are about to wind up. 3. Option (1) is correct. Explanation: The Balance Sheet of the company needs to show complete details of the share capital of the company. All the authorised share, issued share, subscribed share, unpaid subscribed share are all shown in the notes to account section of the Balance Sheet, as per Schedule III of the Companies Act, 2013.

5. Option (4) is correct. Explanation: All contingent liabilities are shown as a footnote to the balance sheet and not inside the Balance Sheet. 6. Option (1) is correct. Explanation: Comparative statements allow for easier comparison of financial data from multiple periods, which can help analysts identify trends and changes in financial data. This makes it simpler to assess the financial performance of a company over time. 7. Option (1) is correct. Explanation: Common size financial statements are useful for comparing the financial structure of different firms in different industries. The ability to express items as a percentage of total sales or revenue eliminates differences in scale, providing a basis for meaningful comparisons that are useful for benchmarking. 8. Option (1) is correct. Explanation: Comparative statements are an effective way to analyse a company’s performance against industry benchmarks. By comparing a company’s financial data to the industry average, an analyst canidentify areas where the company is under performing or outperforming. 9. Option (3) is correct. Explanation: Operating Ratio + Operating Profit Ratio = 100 Operating Ratio is computed to find the efficiency of the management to generate revenue. 10. Option (3) is correct. Explanation: Solvency Ratio and not the Profitability ratios are calculated to determine the ability of the business to service its debt in the long run. [C] COMPETENCY BASED QUESTIONS 1. Option (3) is correct. Explanation: Current Assets = Prepaid Expenses + Inventory + Trade Receivables + Cash in hand = ₹3,00,000 + ₹12,00,000 + ₹11,00,000 + ₹17,00,000 = ₹43,00,000 Current Liabilities = Outstanding expenses + Trade Payables

= ₹50,000 + ₹18,00,000 = ₹18,50,000 ₹43,00,000 Current Assets Current Ratio =  =  Current Liabilities ₹18,50,000 = 2.32:1 2. Option (1) is correct. Explanation: Quick Assets = Trade Receivables + Cash in Hand

= ₹10,00,000 + ₹15,00,000



= ₹25,00,000

Current Liabilities = Outstanding Expenses + Trade Payables

55

ANALYSIS OF FINANCIAL STATEMENTS



= ₹25,000 + ₹14,00,000



= ₹14,25,000 ₹25,00,000 Current Assets Quick Ratio = = = 1.75 : 1 Current Liabilities ₹14,25,000 3. Option (4) is correct. Explanation:

₹12,00,000 + ₹10,00,000 Average Inventory =  2 = ₹11,00,000 Cost of revenue from operations =  ₹24,00,000 - ₹2,88,000 = ₹21,12,000 Inventory Turnover Ratio = Cost of revenue from operation Average Inventory ₹21,12,000 = = 1.92 times ₹11,00,000 4. Option (1) is correct. Explanation: Cost of revenue from operations = `24,00,000 ₹2,88,000 = ₹21,12,000 5. Option (2) is correct. Explanation:

₹10,00,000 + ₹11,00,000 Average Inventory =  2 = ₹10,50,000 Cost of revenue from operations = ₹18,00,000 –18% of ₹18,00,000 = ₹18,00,000 – ₹3,24,000 = ₹14,76,000 Inventory Turnover Ratio Cost of revenue from operation = Average Inventory



=

₹14,76,000

₹10,50,000 6. Option (3) is correct.

= 1.41 times

Explanation: Operating Ratio = Cost of Revenue from Operations + Expenses × 100 Revenue from Operations ₹9,00,000 + ₹15,000 = × 100 = 76.25% ₹12,00,000 7. Option (1) is correct. Explanation:

Liquid Assets ₹2,00,000 = = 2.67 : 1 Current Liabilities ₹75,000 8. Option (4) is correct. Quick Ratio = Explanation:

Total Debt  Shareholder's Fund ₹2,50,000 = = 0.63 : 1 ₹4,00,000 9. Option (2) is correct. Debt to equity Ratio = 

Explanation: Working Capital Turnover Ratio Revenue from Operations = Working Capital ₹12,00,000 = = 8.28 times ₹1,45,000 10. Option (1) is correct. Explanation: Current Assets = ₹20,000 + ₹2,00,000 = ₹2,20,000 Current Assets ₹2,20,000 Current Ratio = = = 2.93 : 1 Current Liabilities ₹75,000

Study Time

CHAPTER

Max. Time: 1:25 Hours Max. Questions: 40

7

STATEMENT OF CHANGES IN FINANCIAL POSITION

  Revision Notes Cash Flow Statement: Cash flow statement is a statement that shows the flow of cash and cash equivalents during a given period of time. Cash Flow Statement shows the net increase or net decrease of cash and cash equivalents under each activity, i.e., Operating, Investing, Financing and collectively as well.

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Basics of Cash Flow Statement

Objectives of Preparing Cash Flow Statement: A Cash Flow Statement has the following objectives: 1. To depict inflows and outflows of cash, i.e., sources and uses of cash. 2. To facilitate formulation of financial policies such as dividend policy, etc. 3. To ascertain the liquidity of the enterprise. 4. To ascertain the net change in cash and cash equivalents.

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Cash Flow Statement Preparation

5. To study the trend of cash receipts and cash payments.

Benefits of Cash Flow Statement

• Cash Flow Statement is useful in knowing the exact figure of cash inflows and outflows from various operations of the business. It helps in assessing future requirements of the cash by comparing the cash budgets of past assessments with the present. It gives the accurate information about the cash-based transactions in the business. • Cash flow statement helps in knowing the periodical requirement of cash in the business as it is used in preparing the cash budget for future needs. • A cash flow statement when used along with other financial statements reveals the key changes required for the financial positioning of the business and priorities important activities to the management. • Cash flow statement also provides the information about various investing and financing cash transactions prefix that place during the year and helps in evaluating

the financial structure of the business. Cash Flow statement helps in identifying the profitability of the business when compared with the ratio analysis, keeping in response to changing condition.

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Cash Flow from Operating, Investing and Financing Activities

Operating Activities: Operating Activities are the main revenue generating activities of a business firm. Operating activities are those transactions and events whose cash flows affect the net profit or loss of a business firm. Cash Inflows: Cash Sales, Cash received from trade receivables, Cash received as commission, Cash received as Commission, Cash received as Fees, Cash Received as Royalty. Cash Outflows: Cash Purchases, Payments to Trade Payables, Cash Operating Expenses, Payment of wages, salaries, Income Tax Paid. Investing Activities: Investing Activities are those activities which are related to acquisition and disposal of long-term assets and other investments not included in the cash equivalents. Cash Inflows: Sale of fixed Assets, Sale of Investment (Noncurrent and current, other than marketable securities), Interest received on Investments, Dividend received. Cash Outflow: Purchase of Fixed Assets, Purchase of Investments (Non-current and current other than marketable securities) Financing Activities: Financing Activities are those activities that result in the changes in size and composition of the owners’ capital (including Preference Share Capital in case of a company and borrowings of the business firm). Cash Inflow: Issue of Shares in Cash, Issue of Debentures for Cash, Proceeds from Long-term Loans, Proceeds from Bank Overdraft or Cash Credit Cash Outflow: Payment of Loans, Payment of Interest, Payment of Dividend, Buy-back of Equity Shares, Redemption of Preference Shares, Redemption of Longterm Loans, Repayment of Bank Overdraft and Cash Credit.

nf lo

Ou tfl

Operating Activities

• To ascertain the sources of cash and cash equivalents • To ascertain applications of cash and cash equivalents • To ascertain net change in cash and cash equivalents

Objectives

s Cash Outflow

Cas hI

s

• Cash Purchase • Payment to Creditors • Cash Operating Expenses • Payment of Wages • Income Tax

• Cash Sales • Cash received from Debtors • Cash received as Commission • Cash received as Fees • Cash received as Royalty

Ca sh

o

• Proceeds from Bank Overdraft

• Proceeds from Long-term Loans

• Issue of Debentures in Cash

• Issue of Shares in Cash

w

Financing Activities

Format

Investing Activities Ca sh Inf l ows

sh Ca

ws tflo u O

Net Increase or Decrease in Cash and Cash Equivalents Add : Cash and Cash Equivalents at the beginning of the period Cash and Cash Equivalents at the end of the period

(C) Net Cash flow from Investing Activities

(B) Net Cash Flow from Financing Activities

(A) Net Cash Flow from Operating Activities

Particulars

Second Level

Third Level

• Sales of Fixed Assets • Sales of Investment • Interest Received • Dividend Received

• Purchase of Fixed Assets • Purchase of Investment

_

_

_

Amount

Trace the Mind Map

_

_

_

Amount

First Level 

w



s Cash Inflow



• Payment of Loans • Payment of Interest • Payment of Dividend • Buy back of Equity Shares • Redemption of Preference Shares • Repayment of Long-term Loans • Repayment of Bank Overdraft

STATEMENT OF CHANGES IN FINANCIAL POSITION

57

s

58 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

1.  Find out cash flow from financing Activities from the following information. [CUET 2023] Issue of Equity Shares

₹ 80,000

Redemption of Preference Shares

₹ 30,000

Interim Dividend Paid

₹ 25,000

Interest on Debentures

₹ 15,000

Issue of Debentures ₹ 30,000 (1) Inflow ₹ 80,000 (2) Outflow ₹ 80,000 (3) Inflow ₹ 40,000 (4) Outflow ₹ 40,000 2. W Ltd. has given you following information: Machinery (opening balance)

₹ 50,000

Machinery (closing balance)

₹ 60,000

Accumulated Depreciation (opening balance) ₹ 25,000 Accumulated Depreciation (closing balance) ₹ 15,000 During the year, a machine costing ₹ 25,000 with accumulated depreciation of ₹ 15,000 was sold for ₹ 13,000. Calculate Cash Flow from Investing Activity: [CUET 2023] (1) 22,000 (2) (22,000) (3) (35,000) (4) 13,000 3.  Which of the following will be added to operating profit before working capital changes, while preparing Cash Flow statement from indirect method? [CUET 2023] (1) Increase in Trade Receivable by ₹ 80,000 (2) Decrease in Inventory by ₹ 50,000 (3) Increase in Prepaid Expenses by ₹ 30,000 (4) Decrease in Trade Payable by ₹ 20,000 4.  C Ltd. made a profit of ₹ 10,000 after charging depreciation of ₹ 2,000 on Assets, transfer to General Reserve ₹ 3,000. Written off Goodwill ₹ 700, Profit on sale of Asset ₹ 300, increase in Debtors ₹ 300, increase in creditors ₹ 600, increase in prepaid expenses ₹ 20 and decrease in outstanding expenses ₹ 200. What will be the cash from operating activities? [CUET 2023] (1) ₹ 15,500

(2) ₹ 15,480

(3) ₹ 5,000 (4) ₹ 16,000 5.  A part of fixed assets costing ₹ 2,00,000 (Book value 1,50,000) was sold at a gain of ₹ 10,000. How will it affect the cash flow statement? [CUET 2023] (1) Inflow ₹ 1,60,000 in Investing Activities and Add ₹ 10,000 in Operating Activities (2) Inflow ₹ 1,60,000 in Investing Activities and less ₹ 10,000 in Operating Activities (3) Inflow ₹ 2,10,000 in Investing Activities Add ₹10,000 in Operating Activities (4) Inflow ₹2,10,000 in Investing Activities and Less ₹10,000 in Operating Activities 6.  Separate disclosure of cash flow arising from Financial Activities is important because [CUET 2023] (1) It helps in identifying the investment activities. (2) It helps in gaining in investing activities.

(3) It helps in making investing decision. (4) It is useful in predicting claims on future cash flow by providers of funds to the enterprise. 7.  Capital gain tax paid on sale of fixed assets should be classified as...... (1) Cash inflow from Operating Activities (2) Cash outflow from Operating Activities (3) Cash inflow from Investing Activities (4) Cash outflow from Investing Activities 8. Match List I with List II LIST I

LIST II

A. Cash Equivalents

I.

Interim Dividend Paid

B. Financing Activities

II.

Selling and Distribution expenses paid

C. Operating Activities

III.

Marketable Securities

D. Investing Activities

IV.

Dividend received on Shares held as investment Choose the correct answer from the options given below:  [CUET 2022] (1) A – IV, B – I, C – II, D – III (2) A – III, B – I, C – II, D – IV (3) A – III, B – IV, C – II, D – I (4) A – III, B – IV, C – I, D – II 9.  If debentures are converted into equity shares, it is a/an ______ : (1) Inflow of cash (2) No flow of cash (3) Outflow of cash (4) Cash and Cash Equivalents 10. If net profit made during the year are ₹50,000 and bills receivables have decreased by ₹10,000 during the year then the cash flow from operating activities will be:   [CUET 2022] (1) ₹40,000

(2) ₹60,000

(3) ₹30,000 (4) ₹20,000 11. If the net profit earned during the year is ₹1,00,000 and the amount of Bills Receivables in the beginning and the end of the year is ₹20,000 and ₹40,000 respectively, then cash flow from operating activities will be: [CUET 2022] (1) ₹60,000

(2) ₹1,00,000

(3) ₹80,000 (4) ₹1,20,000 12. Sale of Copy rights are considered as a part of:   [CUET 2022] (1) Investing activities (2) Financing Activities (3) Operating Activities (4) Financing and Operating Activities 13. Match List I with List II in context of Cash flow Statement: LIST I

LIST II

A. Sale of fixed Asset

I.

Outflow in operating activities

B. Purchase of Goodwill

II.

Inflow in Investing Activities

59

STATEMENT OF CHANGES IN FINANCIAL POSITION

C. Tax Paid

III.

Outflow in Investing Activities

D. Dividend Paid

IV.

Outflow in Financing Activities

(1) ₹ 1,20,000

(3) ₹ 80,000 (4) ₹ 40,000 18. From the following information, find out Cash Outflow from Financing Activities.



 hoose the correct answer from the options given below: C  [CUET 2022] (1) A – II, B – I, C – IV, D – III (2) A – II, B – III, C = I, D – IV (3) A – II, B – I, C – III, D – IV (4) A – III,B – II, C – IV, D – I 14.

Balance Sheet (Extract) 31-03-2018 (₹)

31-03-2017 (₹)

23,80,000

17,50,000

Liabilities Fixed Assets

Additional Information: Depreciation on fixed assets was ₹ 2,00,000 for the year. How much amount for ‘Purchase of fixed assets’ will be shown in investing activity for cash flow statement prepared on 31st March, 2018?

(1) Outflow ₹ 8,30,000

(2) Inflow ₹ 42,600

(3) Outflow ₹ 6,30,000 (4) None of these 15. Balance Sheet (Extract) Liabilities

31-03-2019 (₹)

31-03-2020 (₹)

12% debentures 2,00,000 1,60,000 Additional Information:  Interest on debentures is paid on half yearly basis on 30th September and 31st March each year. Debentures were redeemed on 30th September,2019. How much amount (related to above information)will be shown in Financing Activity for Cash Flow Statement prepared on 31st March, 2020? (1) Outflow ₹ 40,000

(2) Inflow ₹ 42,600

(3) Outflow ₹ 61,600 (4) Outflow ₹ 64,000 16. If 12% Preference share capital of ₹ 20,00,000 were redeemed at a premium of 5%, while preparing Cash Flow Statement, Cash Flow will be: (1) Cash used in Financing Activities ₹ 22,40,000 (2) Cash used in Financing Activities ₹ 23,40,000 (3) Cash used in Financing Activities ₹ 20,00,000 (4) Cash used in Financing Activities ₹ 21,00,000 17. From the following information, find out the inflow of cash:  Plant and Machinery Account



31st March, 2015

31st March, 2014

₹ 6,00,000

₹ 4,50,000

Accumulated ₹ 1,60,000 ₹ 1,00,000 Depreciation Additional Information: Depreciation for the year 2014-2015 is ₹ 80,000. During the year Machinery was purchased for₹ 2,50,000 and a part of asset was sold at a profit of₹ 40,000.

(2) ₹ 1,00,000

Proposed Dividend

Year I

Year II

₹ 1,20,000

₹ 1,50,000

12% debentures ₹ 4,00,000 ₹ 5,00,000 Additional Information: Additional Debentures were issued at the end of the year. Interim Dividend paid ₹ 50,000 Preference Share Capital Issued ₹ 2,00,000

(1) ₹ 82,000

(2) ₹ 2,08,000

(3) ₹ 2,38,000 (4) ₹ 2,48,000 19. From the following Information, find out the Cash Flow from Financing Activities. Proposed Dividend



31st March, 2013

₹ 20,000

31st March, 2014 Additional Information:

₹ 15,000

Equity Share Capital raised

₹ 3,00,000

10% Debentures Redeemed

₹ 1,00,000

Preference Share Capital Redeemed,

₹ 50,000

Interim Dividend paid during the year ₹ 20,000 (1) ₹ 1,25,000 (2) ₹ 1,00,000 (3) ₹ 1,50,000 (4) ₹ 1,30,000 20. Which of the following transactions will not result into flow of cash? (1) Issue of equity shares of ₹ 1,00,000 (2) Purchase of machinery of ₹ 1,75,000 (3) Redemption of 9% debentures ₹ 3,50,000 (4) Cash deposited into bank ₹ 15,000

[B] ASSERTION REASON QUESTIONS Directions: In the following questions, a statement of assertion (A) is followed by a statement of reason (R). Mark the correct choice as: (1) Both assertion (A) and reason (R) are true, and reason (R) is the correct explanation of assertion (A). (2) Both assertion (A) and reason (R) are true, but reason (R) is not the correct explanation of assertion (A). (3) Assertion (A) is true, but reason (R) is false. (4) Assertion (A) is false, but reason (R) is true. 1. Assertion (A): Depreciation is added to the net profit before tax. Reason (R): Depreciation is a non-cash item which is an expense. 2. Assertion (A): Buy-back of equity shares comes under financing activities. Reason (R): Financing activities are the activities which result in change in size composition of owner’s capital and borrow of the enterprise from other sources.  3. Assertion (A): Sale of a fixed asset is shown under the investing activities. Reason (R): Sale of fixed asset leads to inflow of cash.

60 Oswaal CUET (UG) Chapterwise Question Bank 4. Assertion (A): Proceeds from issue of shares and debentures are recorded in financing activity. Reason (R): Issue of shares and debentures are the cash inflow made to finance the company. 5. Assertion (A): A Cash flow statement shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period. Reason (R): The primary objective of cash flow statement is to provide useful information about cash flows (inflows and outflows) of an enterprise during a particular period under various heads, i.e., operating activities, investing activities and financing activities. 6. Assertion (A): ‘Cash Flows’ implies movement of cash in and out due to some non-cash items. Reason (R): Receipt of cash from a non-cash item is termed as cash inflow while cash payment in respect of such items as cash outflow. 7. Assertion (A): Cash flow statement is prepared based on accrual concept. Reason (R): Cash flow statement is one of the tools of financial statement analysis. 8. Assertion (A): Depreciation charged is subtracted from the Net Profit. Reason (R): Depreciation is a non-cash item, which has been charged to the profit of the company. 9. Assertion (A): When goodwill is purchased it is subtracted from the cash flow from investing activities. Reason (R): Goodwill when written off is added to the cash flow from investing activities. 10. Assertion (A): Payment of dividend is a financing activity. Reason (R): Dividend is paid to the shareholders.

1. How will goodwill written off be adjusted in the cash flow statement? (1) Added to the Net Profit Before Tax (2) Subtracted the Net Profit before Tax (3) Not recorded in the Cash Flow (4) None of these 2.  What will be the amount of Trade payables added to get the Cash flow from operations? (1) ₹51,000 (2) ₹30,000 (3) ₹21,000 (4) ₹ 31,000 3.  What amount of Trade Receivables will be subtracted from the Cash flow Statement to get Cash flow from operations? (1) ₹78,800 (2) ₹52,000 (3) ₹3,000 (4) ₹26,800 4.  Which of the following items will be adjusted to Net Profit before Tax? (1) Trade Receivables (2) Prepaid Expenses (3) Loss on sale of Fixed Asset (4) Expenses Payable 5. What will be the cash flow from operations? (1) ₹5,85,000 (2) ₹5,77,500 (3) ₹5,98,500 (4) ₹5,56,700 II.  Read the following hypothetical text and answer the given questions 6 - 10: Krishika, an alumni of IIM Ahemdabad initiated her startup Krishika Ltd. in 2018. The profits of Krishika Ltd. in the year 2019-20 after all appropriations were ₹ 31,25,000. This profit was arrived after taking into consideration the following items:  S.No.

[C] COMPETENCY BASED QUESTIONS I.  Read the following information and answer the given questions 1 – 5: X Ltd. made a profit of ₹ 5,00,000 after consideration of the following items : ₹ (i)

Goodwill written off

(ii)

Depreciation on Fixed Tangible Assets

(iii)

5,000 50,000

Loss on Sale of Fixed Tangible Assets (Machinery)

20,000

(iv)

Provision for Doubtful Debts

10,000

(v)

Gain on Sale of Fixed Tangible Assets (Land)

7,500

ACCOUNTANCY



Particulars

Amount (in ₹)

1.

Gain on sale of fixed tangible assets

12,50,000

2.

Goodwill written off

7,80,000

3.

Transfer to General Reserve

8,75,000

4.

Provision for taxation

4,37,500

Additional information: Particulars Prepaid Expenses

31.3.2020 (₹ )

31.3.2019 (₹ )

7,50,000

5,00,000

10,50,000

8,20,000

Trade Payable

4,50,000

3,50,000

Trade Receivables

6,20,000

5,90,000

Inventory

6. Net Profit before Tax will be ____________.

31.3.2019 (₹)

31.3.2018 (₹)

(1) ₹22,50,000 (2) 35,62,500 (3) 39,67,500 (4) 44,37,500 7.  What will be amount of Prepaid Expenses to be added/ subtracted to the Operating Profit before working capital changes?

Trade Receivables

78,800

52,000

(1) ₹2,50,000 add

Prepaid Expenses

3,000

2,000

Trade Payables

51,000

30,000

Expenses Payable

20,000

34,000

(3) ₹7,50,000 add (4) ₹5,00,000 sub 8.  Operating profit before working capital changes will be _______.

Additional information : Particulars

(2) ₹2,50,000 sub

61

STATEMENT OF CHANGES IN FINANCIAL POSITION

(1) ₹52,17,500

10. Cash flow from Operating Activities will be___________.

(2) ₹64,67,500



(3) ₹39,67,500 (4) ₹39,69,500 9.  Cash from operating activities before be__________. (1) ₹35,57,500

(2) ₹40,67,500

(3) ₹37,87,500

(4) ₹35,67,300



tax

will

(1) ₹39,95,000

(2) ₹31,20,000

(3) ₹40,67,500

(4) ₹31,00,000

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (2)

3. (2)

4. (2)

5. (2)

6. (4)

7. (4)

8. (2)

9. (2)

10. (2)

11. (3)

12. (1)

13. (2)

14. (1)

15. (3)

16. (4)

17. (1)

18. (1)

19. (2)

20. (4)

8. (4)

9. (3)

10. (2)

9. (1)

10. (2)

[B] ASSERTION REASON QUESTIONS 1. (1)

2. (1)

3. (2)

4. (1)

5. (1)

6. (2)

7. (4)

[C] COMPETENCY BASED QUESTIONS 1. (1)

2. (3)

3. (4)

4. (3)

5. (4)

6. (4)

7. (2)

8. (3)

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS 1. Option (3) is correct. Explanation: Cash Flow Statement (Extract) Particulars

Amount (₹)

Amount (₹)

III. Cash flow from Financing Activities: Proceeds from the Issue of Shares

Proceeds from the Issue of Debentures

30,000

Redemption of Preference Shares

(30,000)

Interim Dividend paid

(25,000)

Interest on Debentures

(15,000)

Cash Inflow from Financing Activities

40,000

80,000

2. Option (2) is correct. Explanation: In the books of W Ltd. Dr. Date

Machinery Account Particulars To Balance b/d To Profit on sale of Machinery A/c To Bank A/c (Purchase of machinery Balancing Figure)

J.F.

Amount (₹) 50,000 3,000 35,000

88,000

Date

Cr. Particulars

J.F.

Amount (₹)

By Bank A/c

13,000

By Accumulated Depreciation A/c

15,000

By Balance c/d

60,000

88,000

 ash Flow from Investing Activities = C  ₹13,000 − ₹35,000 = − ₹22,000 3. Option (2) is correct. 5. Option (2) is correct. Explanation: Increase in trade receivables, increase in prepaid Explanation: The asset is sold at a profit of₹ 10,000, so the expenses and decrease in trade payables will be subtracted as sale of fixed asset is ₹1,60,000(₹ 1,50,000 + ₹10,000). all involve outflow of cash. This amount will be an inflow of cash in the investing activities. 4. Option (2) is correct. Thereafter, ₹ 10,000 being a profit on sale of fixed asset is to be Explanation: Cash from operating activity = ₹ 10,000 + subtracted while finding the cash flow from operating activities. ₹3,000 + ₹ 2,000 + ₹ 700 – ₹ 300 –₹ 300 + ₹ 600 – ₹ 20 – ₹200 = ₹ 15,480

62 Oswaal CUET (UG) Chapterwise Question Bank 6. Option (4) is correct. Explanation: Financing activity will be helpful for the investors to see how the company uses the finances of the company, so that they can predict the future cash flows. 7. Option (4) is correct. Explanation: As the sale of fixed assets forms apart of Investing Activities, so the capital gains tax paid on the sale of fixed assets should be classified as the cash outflow from Investing Activities. 8. Option (2) is correct. Explanation: Marketable Securities are Cash Equivalents as they can be easily converted into cash. Interim dividends are paid on shares, so it forms the part of Financing Activities. Operating Activities deals with the normal operations of the business; thus, it will include the selling and distribution expenses. Finally, as dividend is received on investment, thus the investment is a non-current investment, making it a part of investing activities. 9. Option (2) is correct. Explanation: As the debentures are converted to equity shares, it means that there was no cash involved in such a transaction. In such a transaction, there is no flow of cash in any form, only new certificates of issue of shares are done to cancel out the debentures. 10. Option (2) is correct. Explanation: Cash flow from operating activities = ₹50,000 + ₹10,000 = ₹60,000 11. Option (3) is correct. Explanation: Net Profit before tax

₹1,00,000

Less: Increase in Bills Receivable

₹20,000

Cash flow from operating activities

₹80,000

cash. As fixed asset is an investment, so sale of fixed asset is an inflow of cash in investing activities. Purchase of Goodwill leads to decrease in cash, that is, outflow of cash. As Goodwill is an intangible fixed asset, so purchase of goodwill will be an outflow of cash in investing activities. Tax is paid due to the operation in business and as it leads to the outflow of cash, it is an outflow of cash in operating activities. Finally, Dividends are paid to the shareholders. Shares whether equity or preference form a part of sources of finance for the business. Thus, payment of dividend will be the outflow of cash in financing activities. 14. Option (1) is correct. Explanation: Cash Outflow = Value of Fixed Assets on 31/3/2018 - Value of Fixed asset on 31/03/2017 + Depreciation = ₹ 23,80,000 - ₹ 17,50,000 + ₹ 2,00,000 = ₹ 8,30,000 15. Option (3) is correct. Explanation: Cash Flow from financing Activities Redemption of debentures

= ₹40,000

Interest on Debentures

= ₹21,000 ₹61,600

Interest on Debentures = ₹1,60,000 ×  ×

Explanation: When the fixed asset is sold, it leads to inflow of 17. Option (1) is correct. Explanation:

= ₹19,200 + ₹2,400



= ₹21,600

Explanation: Issue and Redemption of Shares is a financing activity. Redemption of shares is outflow of cash from financing activity. Cash used in Financing Activity = 12% Preference Share Capital + Premium on Redemption of Debentures = ₹ 20,00,000 + (5% of ₹ 20,00,000) = ₹ 20,00,000 + ₹ 1,00,000 = ₹ 21,00,000

Amount (₹)

Particulars

To Balance b/d

4,50,000

By Bank A/c (Sale)

To Bank A/c (Purchases)

2,50,000

(Balancing Figure)

To Statement of Profit and Loss

12 6 × 100 12



Plant and Machinery Account Particulars

12 + ₹40,000 100

16. Option (4) is correct.

12. Option (1) is correct. Explanation: Copyright is a type of intangible fixed assets. Sale of copyrights will not be affecting the operations of the business and neither does it finance the business. It will just lead to the increase in cash due to some investing activity. 13. Option (2) is correct.

Dr.

ACCOUNTANCY

40,000

(Profit on Sale)

By Accumulated Depreciation A/c By Balance c/d

7,40,000

Cr. Amount (₹) 1,20,000 20,000 6,00,000 7,40,000

63

STATEMENT OF CHANGES IN FINANCIAL POSITION

Dr.

Accumulated Depreciation Account Particulars

Amount (₹)

Particulars

To Plant and Machinery A/c

By Balance b/d

(Depreciation on Plant & Machine sold)

By Depreciation A/c (Statement of Profit & Loss)

(Balancing Figure)

18. Option (1) is correct. Explanation:

1,80,000 disposal of long-term assets and other investments not included in cash equivalents.

₹

Proposed Dividend Paid

(1,20,000)

12% Debentures Issued

1,00,000

Interest Paid on Debentures

(48,000)

Interim Dividend Paid

(50,000)

Preference Share Capital Issued

2,00,000 82,000

19. Option (2) is correct. Explanation: Calculation of Net Cash Flow from Financing Activities:

80,000

1,60,000 1,80,000

Net Cash Used in Financing Activities

1,00,000

20,000

To Balance c/d

Calculation of Net Cash Flow from Financing Activities:

Cr. Amount (₹)

₹

Equity Share Capital raised

3,00,000

10% Debentures Redeemed

(1,00,000)

Preference Share Capital Redeemed

(50,000)

Interim Dividend paid

(20,000)

Proposed Dividend paid

(20,000)

Interest Paid on Debentures

(10,000)

Cash Flow from Financing Activities

1,00,000

20. Option (4) is correct. Explanation: Cash deposited into bank is simply the movement between items of cash and cash equivalents.

[B] ASSERTION REASON QUESTIONS 1. Option (1) is correct. Explanation: Depreciation is just an amount kept aside for the wear and tear of the fixed asset, so that it can be repurchased. It is a non-cash charge against the profit. Thus, in case of calculation of cash flow, the non-cash items needs to be added back before finding the operating profit. 2. Option (1) is correct. Explanation: Buying back of equity shares leads to the cash outflow. Plus as it affects the finances of the company that is the composition of the owner’s capital and borrowing of an enterprise, it is an outflow of cash in financing activity. 3. Option (2) is correct. Explanation: Investing activities means the acquisition and

4. Option (1) is correct. Explanation: A company issues shares, debentures, takes loans etc, in order to raise finances in the company. Thus, these are recorded in the financing activity while preparing a cash flow statement. 5. Option (1) is correct. 6. Option (2) is correct. Explanation: Cash Flows implies movement of cash in and out with the daily transactions that occur in the business. It includes all the activities that is operating, financing and investing activities. 7. Option (4) is correct. Explanation: cash flow statement is prepared based on cash concept. 8. Option (4) is correct. Explanation: Depreciation is added back to the profit and not subtracted from it as it is a non-cash item, which was subtracted from the gross profit to reach to the net profit of the company. 9. Option (3) is correct. Explanation: Goodwill written off is added to the net profit before tax, as it is a non-operating activity which has been charged to the profit. 10. Option (2) is correct. Explanation: Payment of dividend is a financing activity as it is financial in nature and it is the return the shareholders get for the shares held by them in the company.

[C] COMPETENCY BASED QUESTIONS 1. Option (1) is correct. Explanation: It is a non-cash item, in cash flow statement it shall be added back to net profit so as to come out at the cash flow from operating activities. 2. Option (3) is correct. Explanation: ₹51,000 − ₹30,000 = ₹21,000 3. Option (4) is correct. Explanation: ₹78,800 − ₹52,000 = ₹26,800 4. Option (3) is correct. Explanation: Loss on sale of Fixed Assets is a non-operating item. Rest all Trade Receivables and Prepaid expenses are current assets and Expenses Payable is a current liability, so will be added/subtracted to the Operating Profit before working capital changes to get the cash flow from operations.

64 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

5. Option (4) is correct. Explanation: Cashflow Statement (Extract) Particulars

Amount (₹)

Amount (₹)

Amount (₹)

A. Cashflow from operating Activities Net Profit before Tax

5,00,000

Adjustment for non-cash and non-operating items Add: Goodwill written off

5,000

Add: Depreciation of Fixed Tangible Assets

50,000

Add: Loss on the sale of Fixed Tangible Asset (Machinery)

20,000

Add: Provision for doubtful debt

10,000

85,000 5,85,000

Less: Gain on Sale of Fixed Tangible Asset (Land)

(7,500)

Operating Profit before working capital changes

(7,500) 5,77,500

Add: Increase in Current Liabilities or Decrease in Current Assets Increase in Trade Payables

21,000 5,98,500

Less: Decrease in Current Liabilities or Increase in Current Assets Increase in Trade Receivables

(26,800)

Increase in Prepaid Expenses

(1,000)

Decrease in Expenses Payable

(14,000)

Cash flow from operating Activities 6. Option (4) is correct. Explanation: Net Profit before Tax = Profit after all Appropriations + Provision for Taxation + Transfer to General Reserve = ₹ 31,25,000 + ₹ 4,37,500 + ₹ 8,75,000 = ₹ 44,37,500 7. Option (2) is correct. Explanation: As prepaid expenses is a current asset for the company, increase in it will be subtracted. Increase = ₹7,50,000 - ₹5,00,000 = ₹2,50,000 8. Option (3) is correct. Explanation: Operating Profit before Working Capital Changes = Net Profit before Tax – Gain on sale of Fixed Tangible Assets

(41,800) 5,56,700

+ Goodwill Written off = ₹ 44,37,500 – ₹ 12,50,000 + ₹ 7,80,000 = ₹ 39,67,500 9. Option (1) is correct. Explanation: Cash from Operating Activities before Tax = Operating Profit before Working Capital changes – Increase in Current Assets + Increase in Current liabilities = ₹ 39,67,500 – ₹ 2,50,000 – ₹ 2,30,000 – ₹ 30,000 + ₹1,00,000 = ₹ 35,57,500 10. Option (2) is correct. Explanation: Cash flow from Operating Activities = Cash from Operating Activities before tax – Tax paid = ₹35,57,500 – ₹ 4,37,500 = ₹ 31,20,000

Computerised Accounting System Course of Action Max. Time: 50 mins. Max. Question: 15

CHAPTER

1

OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

  Revision Notes

Computerised Accounting System (CAS) Computerised Accounting System (CAS) is a method of maintaining financial records using computers. It encompasses the processing of accounting transactions with the aid of hardware and software to create and preserve accounting records and generate various accounting reports. CAS processes accounting transactions via accounting software and produces reports that include: 

Day books /Journals



Ledger

 Trial

Scan to know more about this topic

balance

 Trading

account



Profit and loss account



Balance sheet, etc.

Computerised Accounting System Introduction

In accounting, a computer is commonly used in the following areas: (a) Recording of business transactions (b) Payroll accounting (c) Stores accounting, and (d) Generation of accounting reports It's important to emphasise that the fundamental principles of accounting remain consistent, whether accounting records are maintained manually or using computerised systems. The timeless concepts of debit and credit continue to apply in a computerized accounting environment. Features of computerised accounting system Computerised Accounting System (CAS) facilitates the management and other users to maintain accounts and prepare financial statements using computers. The reports generated through CAS are used to analyse the financial status of a business and take necessary decisions to strengthen the financial soundness of the business. The CAS possesses the following features: 1. Simplicity and Integration: CAS simplifies and integrates various business operations, including purchasing, sales, finance, inventory management, and manufacturing. It can be further enhanced with features like a robust Management Information System (MIS) and multi-lingual support, making business processes more accessible and cost-effective. 2. Speed: CAS operates at a significantly higher speed compared to manual methods. It performs financial functions swiftly, leading to increased efficiency and productivity within the organisation.

3. Accuracy: Computerised systems are renowned for their precision. When the hardware, software, and data input are maintained correctly, CAS ensures accurate outcomes, reducing the risk of errors in calculations and data entry. 4. Reliability: CAS processes vast amounts of data, resulting in reliable financial information. This reliability supports confident decision-making and financial analysis. 5. Versatility: CAS and accounting software can perform a wide range of tasks. For instance, with just a few accounting entries, you can generate essential financial reports, including the trial balance, trading account, profit and loss account, balance sheet, and customized reports, simplifying financial reporting. 6. Transparency: CAS enhances transparency in day-today business operations, providing stakeholders with clearer insights into financial transactions. This transparency promotes accountability and informed decision-making. 7. Scalability: CAS adapts to changing business sizes and complexities. It can effortlessly process increasing volumes of data as an organisation grows, without the need for extensive system overhauls. 8. Online Access: CAS offers online capabilities for storing and processing transactions and data. This feature allows users to retrieve financial information and generate reports from anywhere in the world with an internet connection, promoting accessibility and flexibility. 9. Security: CAS ensures that only authorized users have access to sensitive accounting data. In contrast, manual accounting systems lack these security measures and are open to inspection by anyone dealing with the books of accounts. Components of Computerised System Components of CAS can be classified into six categories, namely, 1. Hardware 2. Software 3. People 4. Procedure 5. Data 6. Connectivity 1. Hardware: Hardware encompasses the physical components of a computer system. These components include devices that allow input (such as a keyboard, mouse, and scanner) and devices that produce output (such as a monitor and printer). Hardware is essential for the functioning of the CAS as it processes and displays financial data and reports.

66 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

67

OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

2. Software: Software comprises a collection of programs that act as intermediaries between the computer's hardware and its users. There are two main types of software:

satellites, infrared, Bluetooth, and microwave transmission, enable this sharing to occur, enhancing collaboration and data accessibility among connected computers.

i. System Software: This category includes programs responsible for internal operations like reading data from input devices and ensuring the proper functioning of hardware components. Examples include the operating system (e.g., Windows, Linux), programming software (e.g., C, Pascal), and utility software (e.g., antivirus programs).

These components collectively form the foundation of a Computerised Accounting System, providing the necessary tools and infrastructure for efficient financial data management, security, and accessibility, which are crucial for modern businesses and organisations.

ii. Application Software: These programs are designed to perform specific tasks for users. General-purpose software, like Microsoft Office, can handle various functions, while specificpurpose software, such as payroll software, is customized for particular needs. 3. People: The most vital element of a computer system is its users, often referred to as "live-ware." These individuals interact with the system in different roles: i. System Analysts: These professionals design the operations and processing of the computer system, ensuring it meets the organisation's needs. ii. System Programmers: They are responsible for writing code and creating programs to implement the system's operations. iii. System Operators: These individuals operate the CAS and use it for various purposes, often referred to as end-users. They input data, run reports, and make use of the system to support business operations. 4. Procedure: Procedures are step-by-step instructions that guide the execution of specific functions and the attainment of desired outcomes in the CAS. Within a computer system, there are three main types of procedures: i. Hardware-Oriented Procedure: These procedures define how hardware components function, ensuring they operate as intended. ii. Software-Oriented Procedure: This set of instructions provides detailed guidance on how to use software applications effectively. iii. Internal Procedure: Internal procedures manage the overall operation of each part of the computer system by directing the flow of information between various components, ensuring smooth operation. 5. Data: Data are the raw facts and figures that are input into the computer system for further processing. These inputs are initially unprocessed but are interpreted using machine language, stored in memory, classified for processing, and then produce results in accordance with the given instructions. Processed and useful data are known as information, which is used for decision-making in the organisation. 6. Connectivity: Connectivity allows for the interconnection of multiple computers to facilitate the sharing of information and resources. This includes sharing files (data, music, etc.), sharing printers, and sharing facilities like internet access. Various communication methods, such as wires, cables,

Differences between manual and computerised accounting systems Basis

Manual accounting

Computerised accounting

(i) Recording of transactions

Transactions are recorded manually.

Transactions are recorded using computers.

(ii) Storage

Transactions are Transactions are stored in volumes stored in wellof books. designed databases.

(iii) Preparation of ledger accounts, trial balance and financial statements

Ledger accounts, trial balance and financial statements are prepared manually.

Once journal entries are passed or subsidiary books are entered, data are processed automatically and ledger accounts, trial balance and balance sheet are automatically prepared.

(iv) Preparation of Analysis report of financial statements and preparation of report are to be done manually.

Financial statement analysis such as ratio analysis, preparation of cash flow statement, etc. is automatically done.

(v) Time involved It takes lot of time as everything from journalising to report generation is done manually.

It saves lot of time. Time is taken only for passing journal entries or entering data in subsidiary books. Once date are entered, preparation of ledger, trial balance, financial statements or report generation is done within seconds.

(vi) Cost involved The cost is high in manual accounting as several books of account are to be maintained.

The cost is less compared to manual accounting as all the records are kept in soft copy.

68 Oswaal CUET (UG) Chapterwise Question Bank (vii) Retrieval of data

(viii) Accuracy

It becomes difficult and flint consuming to retrieve data as several books have to be gone through.

Retrieval of data is easier as the records are kept in soft copy in data base. By giving instructions, data can be retrieved quickly.

Certain clerical errors such as arithmetical, error in carrying forward, etc., can happen.

If the input given is correct, the output will also be correct. Arithmetical error, error in carrying forward will not happen provided the programming is correct.

(ix) Communication Communication of report of report takes time and it is difficult as it has to be done manually to the users of information.

It is easier and takes lesser time. The report is in soft copy and if online facility is available, it can be communicated to the users very easily at any time and at any place.

Advantages of Computerised Accounting System: 1. Enhanced Accuracy: Accounting errors are a common challenge in businesses, but accounting software is designed to identify and rectify these errors before they affect the company's records, making it more accurate than manual systems. 2. Simplicity: Regardless of a company's size, accounting software is user-friendly and easy to use. This ensures that even new employees can quickly grasp how to operate the system and record financial transactions. 3. Financial Report Precision: Accounting software is engineered for complete accuracy. Companies can rely on their financial reports to be error-free, enabling managers to make prompt decisions based on the accounting data. 4. Standardized Financial Reporting: The use of accounting software ensures consistent financial statements over time. These reports are invaluable for comparing a company's financial performance over the years or when evaluating similar businesses in the same industry. 5. Enhanced Control: CAS empowers management to exert greater control over its operations. This is especially advantageous for larger companies with multiple departments. All essential information is readily accessible with a simple click, facilitating better decision-making. 6. Seamless Integration: Most accounting systems are designed to integrate smoothly with other crucial accounting tools, including online banking services. This integrated approach streamlines business processes and enhances operational efficiency. Disadvantages of Computerized Accounting System: 1. Initial Costs: While CAS simplifies book-keeping and reduces accounting service expenses, the setup and

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ongoing maintenance of accounting software can be relatively expensive. Consequently, many businesses opt for computerized accounting systems once they have reached a certain level of growth and financial stability. 2. Skill and Expertise Requirements: Some business owners prefer to maintain in-house control over their accounting processes. As a result, they may choose to use manual accounting systems until they have the resources and personnel with the necessary expertise to implement computerised accounting tools. 3. High Costs of Installation and Training: The costs associated with accounting software can vary significantly depending on the complexity and features of the software. Additionally, the expenses related to installation and training can be substantial and may exceed the budget of some businesses. 4. Potential Work-flow Disruption: The introduction of newer versions of both hardware and software can necessitate regular updates within the organisation. This often requires employee retraining to ensure efficient use of the new tools. The process of reinstalling and retraining can disrupt workflow and business operations. 5. Job Insecurity: Adoption of computerised accounting software can lead to fewer employees handling a larger volume of work, potentially resulting in layoffs. Even without layoffs, employees might fear the possibility of losing their jobs due to automation. 6. Accuracy Concerns: The reliability of financial records depends on the accuracy of data inputted into the accounting software. If the quality of the entered data is compromised, the software may produce erroneous or misleading accounting information, adhering to the principle of 'garbage-in, garbageout.' 7. Increased Fraud Risks: Storing financial data in the cloud exposes it to potential security breaches by skilled hackers. Such breaches can jeopardize a company's assets, posing greater risks to its financial integrity. 8. Technical Vulnerabilities: The functionality of accounting software might be compromised in cases where a business faces technical issues like frequent power outages or computer virus attacks, impacting its reliability and usability. Types of Computerised Accounting Software Multiple accounting software programs are used by professionals across the globe. They can be classified into three types, which are 1. Readymade Software: Readymade accounting software is designed for general users and doesn't include specific features tailored to a particular category of users. It is ideal for businesses with relatively low accounting workloads. Readymade software typically has low system requirements, is cost-effective, and offers an easy learning curve. 2. Customised Software: Customised accounting software is derived from readymade software but has been modified to meet the specific requirements of a particular user or organisation. It is commonly used by large and medium-sized enterprises. While the installation expense is relatively higher, the main cost lies in ongoing maintenance. Users may also need to pay a customisation fee to the software vendor. Customised software

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OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

offers benefits like enhanced data security and confidentiality, but users must undergo proper training to use it effectively. 3. Tailor-Made Software: Tailor-made accounting software is developed exclusively for specific businesses and is an integral part of their Management Information System (MIS). These programs are typically designed for large-scale enterprises and require specialized training for users to operate them accurately and efficiently. Structure of a Computerised Accounting System: 1. Database Management System (DBMS): CAS is structured around a database management system that stores and organizes accounting data. It provides a structured format for storing transaction records. 2. User Interface: CAS features a user-friendly interface that allows users to input, retrieve, and manage financial data. This can include graphical user interfaces and dashboards. 3. Data Files: Data files within CAS store various types of financial data, such as general ledgers, accounts payable, accounts receivable, and payroll records. 4. Reports and Outputs: CAS generates financial reports, including balance sheets, income statements, cash flow statements, and various management reports. 5. Chart of Accounts: A critical component that organizes financial transactions into categories and accounts for reporting and analysis.

Accounting Information System (AIS) An Accounting Information System (AIS) involves the collection, storage, and processing of financial and accounting data used by internal users to report information to investors, creditors, and tax authorities. It is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. An AIS combines traditional accounting practices, such as the use of Generally Accepted Accounting Principles (GAAP), with modern information technology resources. Accounting Information System (AIS) and its various subsystems may be implemented through the Computerised Accounting System (CAS). Such a system of AIS is described below. 1. Cash and Bank sub-system: Receipts and payments of cash 2. Sales and Accounts Receivable sub-system: Maintaining of sales and Receivables ledgers. 3. Inventory sub-system: Purchase and sale of goods, Specifying the price, quantity, and date. 4. Purchase and Accounts Payable sub-system: Maintaining of purchase and payable ledgers. 5. Pav Roll Accounting sub-system: Payment of salaries and wages. 6. Fixed Assets Accounting sub-system: Purchases, additions, sales and usage of fixed assets. 7. Expense Accounting sub-system: Various types of expenses.

6. Security and User Access Controls: CAS includes mechanisms to control user access to different parts of the system, ensuring data security.

8. Tax Accounting sub-system: Deals with GSTIN, Income Tax etc.

7. Integration with Other Systems: For larger organizations, CAS may be integrated with other business systems such as inventory management or customer relationship management (CRM).

10. Costing sub-system: Ascertainment of cost of goods produced.

8. Data Backup and Recovery: CAS includes features for regular data backup and recovery to prevent data loss.

Management Information sub system

9. Final Accounts sub-system: Preparation of nil accounts.

11. Budget sub-system: Preparation of budgets. 12. Management information sub-system (MIS): Preparation of reports that are vital for management decision making.

Cash and Bank sub system

Sales & Accounts Receivable sub system Inventory sub system

Budget sub system Accounting Information system

Costing sub system

PayRroll Accounting sub system

Final Accounting sub system Tax Accounting sub system

Purchase & Accounts Payable sub system

Expense Accounting sub system

Fixed Assets Accounting sub system

70 Oswaal CUET (UG) Chapterwise Question Bank

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OBJECTIVE TYPE QUESTIONS 1. What is a Computerised Accounting System (CAS)? (1) A system used to count physical inventory. (2) A manual accounting system. (3) An automated system to record financial transactions. (4) A system to calculate tax returns. 2. Which of the following is NOT a type of Computerized Accounting System? (1) Enterprise Resource Planning (ERP) (2) Spreadsheet software (3) Online banking (4) Stand-alone accounting software 3. Which feature of a Computerised Accounting System allows for quick and accurate data entry? (1) Data encryption (2) Data validation (3) Data backup (4) Data reconciliation 4. Which type of Computerised Accounting System integrates various business processes like HR, inventory, and finance into a single system? (1) Spreadsheet software (2) Stand-alone accounting software (3) Enterprise Resource Planning (ERP) (4) Online banking 5. Which of the following is a primary feature of a Computerised Accounting System? (1) Manual data entry (2) Data redundancy (3) Real-time financial reporting (4) Limited storage capacity 6. What is the structure of a Computerised Accounting System based on? (1) Physical architecture of the computer (2) Database management system (3) Software development tools (4) None of the above 7. Which type of Computerised Accounting System is typically used by small businesses and individuals for basic financial tracking? (1) Enterprise Resource Planning (ERP) (2) Online banking (3) Spreadsheet software (4) Stand-alone accounting software 8. What is the purpose of data backup in a Computerised Accounting System? (1) To prevent data from being accessed by unauthorised users

(2) To reduce data entry errors (3) To recover data in case of loss or corruption (4) To create multiple copies of the same data 9. What does the acronym ERP stand for in the context of Computerised Accounting Systems? (1) Electronic Reporting Platform (2) Efficient Resource Processing (3) Enterprise Resource Planning (4) Effective Revenue Processing 10. What is the purpose of a chart of accounts in a Computerised Accounting System? (1) To track inventory levels (2) To create invoices (3) To organize and categorise financial transactions (4) To perform payroll calculations 11. If an organisation wants to develop a computerised accounting system according to its needs as the business of the organisation is complex, which software it should opt for? (1) Ready to use software (2) Customised software (3) Tailor-made software (4) None of these 12. What are the advantages of tailor-made software? (1) These are ready-made software (2) Low cost (3) High secrecy of data (4) None of the above 13. What type of Software is an Accounting Package? (1) System Software (2) Application Software (3) Utility Software (4) Basic Software 14. The components of computerised accounting system are: (1) Data, Report, Ledger, Software, Hardware (2) Software, Hardware, People, Procedure, Data (3) Data, Coding, Procedure, Objective, Output (4) People, Procedure, Hard ware, software 15. _______________________ refers to the system of recording, organising, summarising, analysing, interpreting and communicating the financial data of a business. (1) Manual Accounting (2) Computerised Accounting (3) Auditing (4) Human Resource Accounting

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (3)

3. (2)

4. (3)

5. (3)

11. (3)

12. (3)

13. (2)

14. (2)

15. (2)

6. (2)

7. (3)

8. (3)

9. (3)

10. (3)

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OVERVIEW OF COMPUTERISED ACCOUNTING SYSTEM

ANSWERS WITH EXPLANATION 1. Option (3) is correct. Explanation: Data: A Computerized Accounting System (CAS) is an automated system used to record, store, and manage financial transactions and accounting data electronically. 2. Option (3) is correct. Explanation: Online banking is a service provided by banks and financial institutions and is not a type of Computerized Accounting System. 3. Option (2) is correct. Explanation: Data validation in CAS ensures that the data entered is accurate, consistent, and follows predefined rules. 4. Option (3) is correct. Explanation: ERP systems integrate various business processes, including accounting, into a single system for better coordination. 5. Option (3) is correct. Explanation: Real-time financial reporting is a key feature of CAS, allowing for up-to-date financial information. 6. Option (2) is correct. Explanation: The structure of a CAS is based on the database management system used to organize and store accounting data. 7. Option (3) is correct. Explanation: Spreadsheet software like Microsoft Excel is often used for basic financial tracking by small businesses and individuals. 8. Option (3) is correct. Explanation: Data backup is essential for data recovery in case of loss or data corruption. 9. Option (3) is correct. Explanation: ERP stands for Enterprise Resource Planning, which integrates various business processes into a single system. 10. Option (3) is correct. Explanation: The chart of accounts in CAS is used to organize and categorize financial transactions for reporting and analysis.

11. Option (3) is correct. Explanation: For an organization with complex business operations, tailor-made software is the most suitable choice. It is specifically designed to meet the unique requirements of the organization, ensuring it aligns perfectly with the complex accounting needs. This type of software is highly customized and often integrated into the organization's Management Information System (MIS). 12. Option (3) is correct. Explanation: Tailor-made software is known for its high data security and confidentiality. Since it's designed for a specific organization, it offers a higher level of control and protection over sensitive financial data, making it a preferred choice for organizations with stringent data security requirements. 13. Option (2) is correct. Explanation: An Accounting Package is considered application software. Application software is designed to perform specific tasks or functions for end-users, in this case, accounting-related functions. 14. Option (2) is correct. Explanation: The components of a computerized accounting system include software (accounting software), hardware (computers and devices), people (users and operators), procedures (step-by-step instructions), and data (financial information). These elements work together to enable efficient and accurate accounting processes. 15. Option (2) is correct. Explanation: Computerized accounting involves using software and technology to handle financial data, making the process more efficient and accurate compared to manual accounting.



Course of Action Max. Time: 50 mins. Max. Question: 15

CHAPTER

2

  Revision Notes

STEP IN INSTALLATION OF CAS

USING COMPUTERISED ACCOUNTING SYSTEM Scan to know more about this topic

Installing CSA involves several steps to ensure a successful installation. 1. Initial Preparation: Before initiating Using the installation process, it is essential to Computerised Accounting prepare the system. This involves verifying System that the computer meets the hardware and software prerequisites specified by the accounting software. It is important to ensure that the computer has adequate storage space available. 2. Software Procurement: The next step involves obtaining the accounting software from a reputable source. This can be done by purchasing the software from an authorised vendor or by downloading it from a trusted website. It is imperative to confirm that the software is compatible with the computer's operating system. 3. Data Backup: In preparation for the installation, it is of paramount importance to perform a comprehensive backup of all critical data and files on the computer. This precaution ensures that in the event of unexpected issues during installation, data can be restored without any loss or damage. 4. Installation Procedure: - Locate the installation file for the software, which can either be downloaded or from a disc, and insert it into the computer's CD/DVD drive. - Initiate the installation process by double-clicking on the setup file. - Follow the step-by-step instructions provided by the installation wizard. - Choose the preferred installation location and, if prompted, create a shortcut on the desktop. - Carefully review and accept the terms and conditions outlined in the license agreement. - Allow the installation process to run to completion, which may take a few minutes. 5. Registration and Activation: After the installation is completed, some accounting software may require registration and activation. This typically involves entering a valid license key or serial number to unlock the software's full functionality. Users should follow the software's instructions to complete the registration and activation process. 6. Customisation: Following successful installation and activation, it's time to configure the accounting software to align with the specific needs of the organisation. This entails setting up user accounts, entering company information, defining the chart of accounts, configuring tax rates, and adjusting other relevant settings to tailor the software to the organisation's requirements. 7. Testing and Training: Before fully integrating the software into regular operations, it is advisable to conduct initial

testing to confirm that all features and functionalities are operating correctly. Additionally, users who will be utilising the accounting software should receive training to familiarise themselves with the software's interface, features, and best practices, ensuring its effective use. Grouping of accounts: In any organisation, the primary unit of account classification is the major head, which is subsequently subdivided into minor heads. Each minor head may further include several sub-heads. Once the accounts are categorised into various groups, such as major, minor, and sub-heads, and assigned unique codes to each account, they are integrated into the computer system. Proper codification necessitates a methodical organisation of accounts. The major groups or heads typically encompass categories like Assets, Liabilities, Revenues, and Expenses. The sub-groups or minor heads may include divisions such as capital, noncurrent liabilities, current assets, sales, and more. In essence, the fundamental classification of different accounts within a transaction is carried out by applying the accounting equation. Assets = Liabilities + Capital + (Revenues – Expenses) Each component of the above equation can be divided into groups of accounts as follows: A. Liabilities and capital Capital  Capital  Reserves and surplus Non-Current Liabilities  Long-term borrowings  Other long-term liabilities Current liabilities  Short-term borrowings  Trade payables  Other current liabilities B. Assets Fixed tangible assets  Land and building  Plant and machinery  Furniture and fixtures Intangible assets  Goodwill  Copyright  Patents Current Assets  Short-term investments

USING COMPUTERISED ACCOUNTING SYSTEM

73

74 Oswaal CUET (UG) Chapterwise Question Bank Inventories receivables  Cash and cash equivalents  Short-term loans and advances  Other current assets C. Revenues  Sales  Other income D. Expenses  Material consumed  Wages  Manufacturing expenses  Depreciation  Administrative expenses  Interest  Selling and distribution expenses, etc. Codification of accounts 

 Trade

Codification of accounts is the process of assigning unique identification codes to different account heads in an organisation. This practice is commonly employed in computerised accounting systems. The need for codification arises when there are a large number of account heads in an organisation. This coding system establishes a hierarchical relationship between account groups and their respective components, ensuring that the structure is maintained. The coding scheme for account heads should be designed in a way that facilitates the grouping of accounts at various levels, allowing for the generation of various reports and financial statements. This systematic approach to codification aids in organising financial data and streamlining the reporting process, making it more efficient and comprehensible. For example, the codes for various accounts may be allotted as follows: i. Liabilities and Capital ii Assets iii. Revenues iv. Expenses Under Liabilities and Capital i. Capital ii. Non-current liabilities iii. Current liabilities Under Assets i. Non-current assets ii. Current assets The above codification scheme utilises the hierarchy present in the grouping of accounts. A major advantage of such coding is that if the account codes are listed in ascending order, these will be automatically listed as per the desired hierarchy. Methods of codification Following are the three methods of codification. (a) Sequential codes A sequential code is a system where numbers and/or letters are assigned in a consecutive or sequential order. These codes are typically used for labeling source documents like cheques, invoices, and similar items. The primary purpose of a sequential code is to make it easier to track and locate

ACCOUNTANCY

specific documents. Since the codes are assigned in numerical or alphabetical order, they provide a systematic and organized way to identify and retrieve documents when needed. For example: Code Accounts CL001 ABC LTD CL002 XYZ LTD CL003 SCERT (b) Block codes In a block code, a set of numbers is divided into distinct subranges, and each sub-range is allocated to a particular group or category. Block codes are often used to systematically categorize and organize data. Within each of these sub-ranges, the numbers are typically assigned in a sequential order, where each number follows the previous one in a consecutive manner. This sequential coding scheme within the sub-ranges helps maintain an orderly structure and makes it easier to manage and identify data within each group. For example: Code Dealer type 100 – 199 Small pumps 200 – 299 Medium pumps 300 – 399 Pipes 400 – 499 Motors (c) Mnemonic codes A mnemonic code is a coding system that employs alphabets or abbreviations as symbols to represent and encode specific pieces of information. This method is often used to create memorable and easy-to-recall codes that aid in quickly retrieving or understanding information without the need for numerical or complex coding systems. For example: Code Information SJ Sales Journals HQ Head Quarters METHODOLOGY TO DEVELOP CODING STRUCTURE AND CODING Let us expect that we should do coding for students in considered one of seven colleges run through a trust. The first step is to broaden a coding structure (scheme), in an effort to be used to develop individual codes for every student. The development of coding structure calls for the identification (finalisation) of a hierarchy of training devices and that of diverse attributes (parameters) related to a student. A hierarchy in such a state of affairs will be as follows: Trust → College → Entry-year → Stream → Class → Section → Student Data Entry: Data entry is the process of transcribing information into an electronic medium such as a computer or other electronic device. It can either be performed manually or automatically by using a machine or computer. Most data entry tasks are time-consuming in nature, however, data entry is considered a basic, necessary task for most organisations. Data entry is considered a non–core process for most organisations and is usually performed on data forms such as spreadsheets, handwritten or scanned documents, and audio or video. Addition, modification and deletion are the three modes of operation in data entry.

USING COMPUTERISED ACCOUNTING SYSTEM

Main Data Entry Tasks While the most popular data entry task is copying and pasting information from one source to a database, there are also several other more specific tasks that a data entry employee can manage. Data Tagging The process of tagging adds a short piece of information or description to an item, allowing it to be indexed, searched on a database, browsed in a catalogue, classified, etc. If a company has big data to tag, they would usually outsource the data entry process as it can be very time-consuming. Data Annotation This is the process of selecting the data, framing or highlighting it and then labelling it. It is used to annotate all types of data, such as pictures, audio, sounds, text, etc. Data annotation is usually used to analyse big data with the help of automation and machine learning. The software that uses machine learning will recognise  the annotations  find patterns  learn more about the data  make predictions  and be more accurate in general. Data Capture This is the process of capturing, recording and collecting data and information to be later used or processed by a machine. Data capture can be performed manually by a data entry employee or automatically by software. Some technologies used for capturing data are  Optical Character Recognition (OCR) tools  Intelligent Character Recognition (ICR)  Optical Mark Reading (OMR). Data Transcription When the source of data or information is an audio/video file that needs to be converted to text, the process is referred to as data transcription. As the name suggests, it is the process of transcribing audio and voice files. Another feature of data transcription is adding subtitles or even captions to the videos. Speech recognition or automatic subtitling can also be used to aid data transcription in cases when a fast solution is needed. Yet, machines are not fully able to provide a 100% accurate transcription and they cannot substitute human labour. Data Logging This is the process of recording and collecting data to be stored for a specific time-frame for later analysis. Data logging is used for discovering trends, recording parameter information, behaviours, activity, etc. It is often used for scientific purposes or as an IT solution for monitoring networks and systems. This process is almost always performed by a machine rather than a human. Data Processing After the data has been collected, the data can be processed for several purposes. The main reason for processing data is to analyse it and to produce reports. Data processing can also be used for storage, archiving, organisation, classification, etc. Data Cleansing This process is used to organise and correct information stored in a database, identify duplicates, errors, outdated information, and delete irrelevant data. Data Cleansing is used as a form of database maintenance and update.

75 Data Validation Data validation in Excel is a feature that allows you to control the type of data entered into your worksheet. For example, Excel data validation allows you to limit data entries to a selection from a dropdown list and to restrict certain data entries, such as dates or numbers, outside of a predetermined range. Data validation can also help you control formulas and the input from those formulas. You can even craft custom Excel data validation messages that help guide users toward the right data entry when they hit a limit. As a result, Excel data validation helps reduce the amount of unstandardised data, errors, or irrelevant information in your worksheet. It’s a helpful feature, especially when widely sharing an Excel worksheet with others for completion. Many data analysts find data validation in Excel to be beneficial when they are working with many users or with strict guidelines in data entry. In addition, data validation in Excel can help save analysts valuable resources that are spent when the data isn’t input correctly. Overall, data validation in Excel is a beneficial feature, but even beneficial features have limitations that can impede its ability to help users. Data Validation Form To input data into a spreadsheet, often we type the data into cells directly. That’s where data validation comes in handy. Instead of typing the same thing again and again, we can enter data into cells using drop-down lists or using data input form. Using a data form can make data entry easier than moving from column to column when we have more columns of data than can be viewed on the screen. Data Formatting Data formatting is a crucial step in data preparation and analysis, as it can greatly affect the quality and usability of the data. Whether you’re preparing a report, working with spreadsheets, or creating data visualisations, understanding and applying appropriate data formatting techniques is essential for effective data communication and decision-making. Security Features of CAS Every accounting software ensures data security, safety, and confidentiality by providing features like Password Security, Data Audit and Data Vault. 1. Password Security: The use of a password is the gateway to access the system. A computerized accounting system safeguards business data from unauthorized access. Only individuals granted access with the correct password can enter the system. 2. Data Audit: This functionality allows users to track and monitor changes made to the original data. It plays a crucial role in identifying who made alterations and what specific changes were made. This feature is essential for accountability and maintaining data integrity. 3. Data Vault: The software offers an added layer of security through data encryption. Encryption involves the transformation of data in a way that renders it indecipherable, making it impossible for unauthorised parties to interpret. This method ensures that sensitive data remains confidential and secure.

76 Oswaal CUET (UG) Chapterwise Question Bank

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OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

1. Accounting Packages are developed on the basis of:  (1) Accounting concepts (2) Accounting conventions (3) Both Accounting concepts and Conventions (4) None of the above 2. Grouping of Accounts means the classification of data from: (1) Assets, Capital, and Liabilities (2) Assets, Capital, Liabilities, Revenues & Expenses (3) Assets, Owners equity, Revenue & Expenses (4) Capital, Liabilities, Revenues & Expenses 3. Codification of Accounts required for the purpose of: (1) Hierarchical relationship between groups and components (2) Data processing faster and preparing of final accounts (3) Keeping data and information secured (4) None of the above 4. The need of codification is: (1) Easy to process data (2) Keeping proper records (3) The generation of block codes (4) The encryption of data 5. Method of codification should be: (1) Such that it leads to grouping of accounts (2) An identification mark (3) Easy to understand and leads to grouping of accounts (4) None of the above 6. Which type of codes are usually assigned to source documents for facilitating document search? (1) Range Codes (2) Mnemonic Codes (3) Block Codes (4) Sequential Codes 7. Which of the following is a step in installation of CAS? (1) Selection of Hardware and Software (2) Planning (3) Generation of Reports (4) All of the above. 8. Match List I with List II:  List I

List II

(A) Record of inflow and outflow of resources

(I) Accounting equation

(B) Equality of assets and liabilities

(II)  Encryption

(C)  Codification

(III)  Hierarchy

(D) Difficult interpretation of information

(IV)  Transaction

Choose the correct option: (1) A-III, B-I, C-IV, and D-II (2) A-IV, B-I, C-II, and D-III (3) A-I, B-IV, C-III, and D-II (4) A-IV, B-I, C-III, and D-II 9. What is the first step in the installation of a Computerised Accounting System (CAS)? (1) Data entry (2) Data validation (3) Preparation of chart of accounts (4) Adjusting entries 10. Which step in the accounting process involves adjusting entries to ensure accurate financial reporting? (a) Data entry (b) Data verification (c) Closing entries (d) Data validation 11. In a Computerised Accounting System (CAS), which of the following is responsible for ensuring the accuracy and integrity of data entered? (1) Data verification (2) Data entry (3) Data validation (4) Data processing 12. What is the purpose of opening entries in the accounting process? (1) To begin a new accounting period (2) To close the books at the end of the year (3) To verify data accuracy (4) To prepare financial statements 13. Which of the following steps involves the actual input of financial data into the CAS? (1) Data validation (2) Data verification (3) Data processing (4) Codification 14. What is the primary purpose of a hierarchy of account heads in CAS? (1) To simplify data entry (2) To enhance data validation (3) To organize accounts in a structured manner (4) To prevent data verification errors 15. What is the primary purpose of closing entries in a Computerised Accounting System (CAS)? (1) To end the accounting process (2) To open a new accounting period (3) To calculate the company's income (4) To reset revenue and expense accounts to zero

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (2)

3. (1)

4. (4)

5. (3)

11. (1)

12. (1)

13. (2)

14. (3)

15. (4)

6. (4)

7. (4)

8. (4)

9. (3)

10. (3)

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ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS

1. Option (3) is correct. Explanation: Accounting packages, or accounting software, are developed based on both accounting concepts and accounting conventions. Accounting concepts provide the fundamental principles and guidelines for preparing financial statements, while accounting conventions are generally accepted practices and rules that are followed in accounting. Both concepts and conventions are essential in designing accounting software to ensure that financial transactions are recorded and reported accurately. 2. Option (2) is correct. Explanation: Grouping of accounts refers to the classification of data into categories. In accounting, accounts are grouped into various categories, which typically include assets, capital, liabilities, revenues, and expenses. This grouping helps in organizing financial data, making it easier to understand, analyze, and prepare financial statements. 3. Option (1) is correct. Explanation: Codification of accounts involves assigning specific codes or numbers to different accounts in the chart of accounts. This is done primarily for the purpose of establishing a hierarchical relationship between groups and components within the accounting system. It helps in organizing accounts in a structured manner, making data processing more efficient and aiding in the preparation of final accounts. 4. Option (4) is correct. Explanation: The primary need for codification in accounting is to ensure the encryption of data. This means that codifying accounts helps keep financial data and information secure by assigning codes or numbers to various accounts and financial transactions. It doesn't directly relate to data processing but rather focuses on data security and integrity. 5. Option (3) is correct. Explanation: When codifying accounts, it's important to use a method that is easy to understand and leads to the grouping of accounts logically. The purpose of codification is to provide a structured system for classifying accounts and transactions, making it easier for users to navigate and comprehend the accounting data. An identification mark (code or number) should be meaningful and organized to facilitate efficient accounting processes. 6. Option (4) is correct. Explanation: Sequential codes involve assigning numbers or codes in a sequential order, making it easier to organize and

locate documents by their assigned numerical or sequential order. 7. Option (4) is correct. Explanation: All these steps are vital components of the CAS installation process, collectively ensuring a comprehensive setup that aligns with the organisation's needs and facilitates efficient accounting operations. 8. Option (4) is correct. Explanation: A. Transactions represent the record of inflow and outflow of resources within an accounting system. B. The accounting equation reflects the fundamental balance between a company's assets and liabilities. C. Codification refers to the process of assigning codes or categories in a hierarchical structure for organised data management. D. Encryption involves encoding data to protect sensitive information, potentially making interpretation difficult without decryption keys or methods. 9. Option (3) is correct. Explanation: The first step in installing a CAS is to prepare a chart of accounts, which involves defining the accounts and their categories for organising financial data. 10. Option (3) is correct. Explanation: Closing entries are made at the end of an accounting period to adjust accounts and prepare the financial statements. 11. Option (1) is correct. Explanation: Data verification involves checking data for accuracy and consistency to ensure that it is correct and reliable. 12. Option (1) is correct. Explanation: Opening entries are made at the start of a new accounting period to carry over balances from the previous period and start with accurate account balances. 13. Option (2) is correct. Explanation: Data entry involves the physical input of financial data into the CAS. 14. Option (3) is correct. Explanation: The hierarchy of account heads in CAS helps in organizing and categorizing accounts for efficient data management. 15. Option (4) is correct. Explanation: Closing entries are made to reset revenue and expense accounts to zero at the end of an accounting period, preparing them for the next period.

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Course of Action Max. Time: 50 mins. Max. Question: 15

CHAPTER

3

  Revision Notes

Database Management System

ACCOUNTING USING DATABASE MANAGEMENT (DBMS) Scan to know more about this topic

A Database Management System (DBMS) is a comprehensive software package that provides users with the ability to create, Accounting maintain, and control access to databases. It using (DBMS) serves as a computer-based record-keeping system, offering a structured and efficient way to manage and manipulate data. DBMS software is used to manage databases and can come in various forms, such as MySQL, INGRES, MSACCESS, and more. It acts as a versatile tool for performing a wide range of operations on data within a database, enabling users to store, retrieve, modify, and analyze data in a systematic and organized manner. Objects of database The main database objects in MS access are as follows: 1. Table 2. Query 3. Forms 4. Reports The table in the database is used to store and organized data in the database. The query in the database is used to recover data from the database. Tables: Tables are fundamental database objects that store data in a structured manner. They consist of rows (records) and columns (fields), with each column representing a specific attribute or data element. Tables are used to organise and store data into logical categories, making it easy to search, retrieve, and manipulate information. They are the building blocks of a database. Queries: Queries are commands or requests used to extract specific information from a database. They allow users to filter and retrieve data that meets certain criteria. Queries can be simple or complex, using SQL (Structured Query Language) or visual query builders, and they play a crucial role in generating meaningful insights from the database. Forms: Forms are user interfaces designed to input and display data in a user-friendly manner. They provide a structured way for users to enter and edit data.

Forms can be customized to control data input, ensure data consistency, and enhance the user experience when interacting with the database. Reports: Reports are documents or outputs generated from the data stored in the database. They present data in a structured and organised format for analysis, presentation, or distribution. Reports can be customised to display specific data elements and calculations, making them valuable for decision-making, communication, and documentation purposes. Accounting Reports Accounting reports are the scorecard by which a business’s financial health is measured. A report is a collection of related information for a particular need and purpose and must meet the objectives of reporting. An accounting report, therefore is the physical form of accounting information. Business owners, investors, suppliers and banks use accounting reports to understand the financial position, financial performance and cash flows of business. Every report is prepared with a definite objective. The three main accounting reports for any business are the trial balance, the income statement (also called the profit and loss statement) and the balance sheet. Every accounting report must be able to fulfill the following criterion:  Relevance       Timeliness  Accuracy       Completeness  Summarisation Types of Reports Accounting reports can take the following form 1. Summary Reports In this report, all activities of the organisation are summarised, e.g. profit and loss account and balance sheet. 2. Demand Reports This report will be prepared only when the management requests it, e.g. bad debts report for a given product, a stock valuation report. 3. Customer/Supplier Reports These reports are prepared according to the specifications of the management, e.g. top 10 customers report, interest on customer account/invoices, statements of account, customer reminder letters outstanding/open delivery order, purchase analysis/ vendor analysis report.

Designing the Report  Identifying accounting Information Queries  Using the Record Set of final SQL

• Wizard • Design • SQL view

• Simple • Parameter • Summary

Common Contro

ls

• Programmed Report - Scheduled report - On demand report • Casual report

Accounting Report

Query

Forms

ng Using Dat i t un agement Sys

Objects

• • • •

Acc Ma o n

Creating Table

MS Access

Table Query Forms Reports

erties

ld N

Second Level

e

Text Memo Member Data/time Currency Hyperlink etc.

Column name of the table being created.

• • • • • •

• General • Look-up

Third Level

am

Trace the Mind Map

Fie

Data T ype

Prop e the crib s e D

• Organise data into manageable related units. • Enter, locate and modify data. • Extract subsets of data based on specific criteria. • Create custom forms and reports. • Automatic common database tasks. • Graph data relationships.

• Allows user to create and manipulate the database.

First Level 

Label Text box List box Combo box Sub-form Option group Common button Control wizard



• • • • • • • •



• Wizard • Design

ACCOUNTING USING DATABASE MANAGEMENT (DBMS)

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ase ab em t

80 Oswaal CUET (UG) Chapterwise Question Bank 4. Exception Reports These are the reports that are specially sought by the management. In other words, exception reports are reports upon matters happening as per instructions, conditions or exceptions, e.g., inventory report in short supplies, stock status query, overstocked status etc. 5. Responsibility Reports These are the various reports prepared by the managers responsible, e.g., report on cash position, to be submitted by the head of finance and accounts department. 6. Debtors’ Reports These are user specific reports but are generally obtained with respect to the age of debtors. 7. Other Reports Besides the specific activities, management may seek reports on any other activities of the organisation. Steps Involved in Designing Accounting Reports The various steps involved in designing accounting reports from accounting data are as follows Step 1 Definition of Objectives Step 2 Structure of the Report Step 3 Querying with the Database Step 4 Finalising the Report Accounting and Database Management System A Database Management System (DBMS) is a software system that allows access to data contained in a database, The objective of DBMS is to provide a convenient and effective method of defining, storing and retrieving the information contained in the database. The DBMS makes it possible to share the data in the database among multiple applications or users. Benefits of Database Management System  Database management system reduces data redundancy, i.e. duplicacy of data.  Database management system removes inconsistency.  Database management system facilitates data sharing.  Database management system helps enforce standards and data integrity.  Database management system ensures security.  Database management system saves resources. Disadvantages of Database Management System  Database technology or system is complex, and without having sufficient expertise, it cannot run efficiently.  Database management system lacks data security and integrity.  Acquiring and maintaining the database management system is very costly. Functions of DBMS in Context to Accounting System 1. Designing Simple Tables A table is a collection of related data on a specific topic, such as a student’s personal details, marks, competition, participation, etc. A table is organised into columns called fields and rows called records. Two or more tables can have common fields, which are used to make relations between tables. Before a table is created, it needs to be designed. Designing the table means deciding the type of data that is to be stored in the table and based on that, deciding the fields, the type of fields and these properties. While designing a table, the following issues need to be decided first (a) Field name

ACCOUNTANCY

(b) Field type or data type (c) Field size (d) Field properties (e) Primary key 2. Creating Tables A table can be created using the following three methods  Create a table using a design view  Create a table by using a wizard  Create a table by entering data 3. Forms Forms are used to easily view, enter, and change data directly in a table. When you open a form, MS Access retrieves the data from one or more tables, and displays it on the screen, in a layout you choose. A form is made up of controls. A control is used to facilitate the entry of information into the table(s) that the form represents. Controls can be of various types such as text boxes, radio buttons, pull-down lists, pack lists, etc. To facilitate easier data entry, forms are often designed with several special features. 4. Querying Queries select records from one or more tables in a database so that they can be viewed, analysed, and sorted on a common datasheet. The resulting collection of records called a dynaset (short for a dynamic subset), is saved as a database object and can, therefore, be easily used in the future. The query will be updated whenever the original tables are updated. Types of the queries are select queries that extract data from tables based on specified values, find duplicate queries that display records with duplicate values for one or more of the specified fields, and find unmatched queries which display records from one table that do not have corresponding values in a second table. 5. Report Generation A report is an effective way to present your data in a printed format. Since you have control over the size and appearance of everything on a report, you can display the information the way you want to see it. Most of the information in a report comes from an underlying table, query or SQL statement, which is the source of the report’s data. Other information in the report is stored in the report’s design. A report is printed information that like a query result, is assembled by gathering data based on user-supplied criteria. Reports can range from simple lists of records to customised formats for specific purposes. The report can be created in the following ways (a) Creating a report by auto report: Auto report creates a report that displays all fields and records in the underlying table or query: (b) Creating a report by wizard. Applications of DBMS in Accounting Information: 1. Shareholders' Records: DBMS allows for the efficient management of shareholders' records. It stores information about shareholders, including their names, contact details, shareholdings, and transaction history. This data is crucial for communicating with shareholders and maintaining accurate ownership records. 2. Sales Reports: DBMS stores and organises sales data, including transaction details, customer information, product descriptions, and pricing. It enables the generation of sales reports, which provide insights into revenue, sales trends, and product performance.

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ACCOUNTING USING DATABASE MANAGEMENT (DBMS)

3. Customers' Profiles: DBMS maintains comprehensive customer profiles, including contact information, purchase history, preferences, and credit terms. These profiles assist in personalised marketing, customer relationship management, and addressing customer inquiries. 4. Suppliers' Profiles: Supplier information, such as contact details, payment terms, product offerings, and transaction history, is stored in the DBMS. This data streamlines supplier management, order processing, and payment tracking. 5. Payroll: DBMS manages employee payroll information, including salary details, tax deductions, and attendance records. It

facilitates accurate and timely payroll processing, helping to generate payslips and comply with tax regulations. 6. Employees' Profiles: Employee data, such as personal information, job roles, performance evaluations, and training records, is stored in the DBMS. This information supports human resource management, workforce planning, and employee development. 7. Petty Cash Registers: DBMS helps in tracking and managing petty cash expenses. It records transaction details, reimbursement requests, and approvals, making it easier to reconcile and audit petty cash accounts.

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

1. ‘DBMS’ stands for: (1) Drawing Board Management Software (2) Dividend Based Marking System (3) Data Base Management System (4) Data Base Marking Software. 2. MS Access is a: (1) Word processing Software (2) Presentation Software (3) Spreadsheet Software (4) Data Base Management Software. 3. The term ‘field’ as applied to the database table means: (1) Vertical column of the table (2) Size of the table (3) Horizontal row of the table (4) Name of the table. 4. The term ‘record’ as applied to a database table means: (1) Vertical column of the table (2) Size of the table (3) Horizontal row of the table (4) Name of the table. 5. The common fields used in a relationship between tables are called: (1) Joint fields (2) Main fields (3) Key fields (4) Table fields. 6. The existence of data in a Primary key field is: (1) Not necessarily required (2) Required but need not be unique (3) Required and must be unique (4) All of the above 7. The existence of data in a secondary key field is : (1) Not necessarily required (2) Required but need not be unique (3) Required and must be unique (4) All of the above 8. SQL stands for: (1) Simple Questions Language (2) Simple Que line-up

(3) Singular Quantity Loading (4) Structured Que Language 9. The default extension of the MS Access (2007) file is: (1) .accbd (2) .exl (3) .doc (4) .exe 10. Wizards in MS Access means (1) Person who develops programmes (2) Tools for simplifying the programme usage (3) Relating between tables (4) Reporting generated by a programme. 11. ‘Join line’ in the context of Access Tables means: (1) Graphical representation of the relationship between tables (2) Lines bonding the data within a table (3) Line connecting two fields of a table (4) Line connecting two records of a table. 12. In order to retrieve select data meeting specified criteria from two different tables of the Access database, we may make use of the following: (1) Table (2) Query (3) Form (4) Report 13. To expect a well-formatted printable data from the Access database, we may use: (1) Table (2) Query (3) Form (4) Report 14. A ________ is a software package that can be used for creating and managing databases. (1) Database Management System (2) Basedata Management System (3) Database Manage System (4) None of the above 15. Example of the database ________. (1) Microsoft Access (2) OpenOffice Base (3) MySQL (4) All of the above

ANSWER KEY [A] MULTIPLE CHOICE QUESTIONS 1. (3)

2. (4)

3. (1)

4. (3)

5. (3)

11. (1)

12. (2)

13. (4)

14. (1)

15. (4)

6. (3)

7. (2)

8. (4)

9. (1)

10. (2)

82 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

ANSWERS WITH EXPLANATION [A] MULTIPLE CHOICE QUESTIONS

1. Option (3) is correct. Explanation: DBMS stands for Data Base Management System. It is a software system that provides an interface to interact with databases. 2. Option (4) is correct. Explanation: Microsoft Access is a Database Management Software (DBMS) that allows users to create and manage databases. It is not a word processing, presentation, or spreadsheet software. 3. Option (1) is correct. Explanation: A “field” refers to a vertical column that represents a specific attribute or characteristic of the data being stored. 4. Option (3) is correct. Explanation: In a database table, a record refers to a horizontal row containing a collection of related data elements or fields. 5. Option (3) is correct. Explanation: The fields that are used to establish a relationship between two tables are commonly referred to as key fields. These fields are typically the primary key in one table and a foreign key in another, creating a link between the records in the two tables. 6. Option (3) is correct. Explanation: Data in a Primary key field is required, and each value must be unique. This key uniquely identifies each record in a table. 7. Option (2) is correct. Explanation: Data in a secondary key field is required but does not need to be unique. It is used for indexing and searching purposes. 8. Option (4) is correct. Explanation: SQL stands for Structured Query Language. It is a programming language specifically designed for managing and manipulating relational database management systems (RDBMS). 9. Option (1) is correct. Explanation: The default file extension for Microsoft Access databases in Access 2007 and later versions is “.accdb.” 10. Option (2) is correct.

Explanation: Wizards in MS Access are tools designed to simplify and automate certain tasks or processes within the program. These tools guide users through a series of steps to perform a specific operation, making it easier for users to accomplish tasks without needing advanced technical knowledge. 11. Option (1) is correct. Explanation: In Access, a 'Join line' is a graphical representation of how tables are related or joined in a query, illustrating the connections between tables. 12. Option (2) is correct. Explanation: A query in Microsoft Access is a tool used to retrieve specific data from one or more tables based on defined criteria. It allows you to filter, sort, and display the data that meets certain conditions. 13. Option (4) is correct. Explanation: A report is the object designed specifically for presenting well-formatted and printable data. Reports allow users to organise and format data from tables or queries in a way that is suitable for printing or sharing. 14. Option (1) is correct. Explanation: A Database Management System (DBMS) is a software package designed for creating, managing, and controlling databases. It provides tools and functionalities to create, store, update, and retrieve data efficiently, ensuring data integrity, security, and accessibility. Common examples of DBMS software include MySQL, Oracle, Microsoft SQL Server, and PostgreSQL, among others. 15. Option (4) is correct. Explanation: The provided options (Microsoft Access, OpenOffice Base, and MySQL) are examples of database management systems (DBMS) that are used to create and manage databases. Microsoft Access is a widely used DBMS, OpenOffice Base is an open-source alternative, and MySQL is a popular open-source relational database management system. Each of these software applications enables users to work with databases, although they may have different features and use cases.

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Course of Action Max. Time: 55 mins. Max. Question: 20

CHAPTER

4

  Revision Notes

ACCOUNTING APPLICATION OF ELECTRONIC SPREADSHEET Scan to know more about this topic

A spreadsheet is a software application designed to organise, display, and manipulate data presented in rows and columns. Spreadsheets are among the most widely Accounting used tools on personal computers, and they Application are primarily tailored for handling numerical of Electronic Spreadsheet information and brief text entries. Each cell within a spreadsheet grid contains specific data and can be customised with user-defined labels, enhancing data clarity and organisation. To reference and locate data efficiently, spreadsheets employ a system of row numbers and column letters. Spreadsheets can serve as individual worksheets for specific tasks or be integrated into a larger workbook to manage and analyse multiple datasets or related information within a single file. Basic Concept of Spreadsheet Spreadsheets are used for calculating and comparing numerical and financial data. The values in the spreadsheet can be either basic or derived. Basic values are independent values, and the derived values are the outcome of any function or an arithmetic expression. Spreadsheet applications are computer programs that allow users to add and process data. One of the most widely used spreadsheet software that is used is Microsoft Excel. A file in an Excel Sheet is referred to as a workbook, and each workbook consists of worksheets where the data is entered for further processing. The concept of spreadsheet can be understood with the following terminologies, which are as follows. Label: In spreadsheets, text or special characters are used as identifiers for rows, columns, or descriptive purposes. It's important to note that these labels are not subject to mathematical operations such as multiplication or subtraction. Formulas: A formula in a spreadsheet refers to a mathematical calculation applied to a set of cells. Formulas are denoted by an equal sign at the beginning of a cell, initiating the calculation. Spreadsheets handle arithmetic operations and complex nested conditional scenarios, such as "what-if" scenarios, by adhering to the established rules of mathematical expressions. Functions: Functions are specific keywords entered into spreadsheet cells to process data contained within brackets. They provide a means of performing various operations on the data, making it easier to manipulate and analyse information. Functions can be added directly into the formula bar. There are four parts of a function which are: (a) the name of the function

(b) the purpose of the function (c) the arguments needed by the function to carry on the assignment, and (d) the result of the function. Functions are a set of in-built formulas that start with an equal to sign. The most common functions in the spreadsheet are SUM (), AVERAGE (), etc. What are the must-have features of spreadsheet software? When most people think of spreadsheets, they think of data entry and simple calculations. But modern spreadsheet software is more than a financial tool. These applications serve as a robust way to help collect, organise and analyse important business data. While every product is different, most come standard with the following features. Rows and columns: All of your information is neatly organised in one easy-to-read space through a spreadsheet’s grid system of rows and columns. Data Entry: Data Entry Forms are designed to facilitate the process of inputting data in Excel. These forms provide a structured interface for adding, searching, and deleting data, making the data entry process more efficient. When data is entered in Excel without the use of forms, two significant challenges arise: Time-Consuming: Data entry without forms can be a timeconsuming process. Users must enter data one cell at a time, move to the next cell, enter the relevant data, and repeat this process for each cell. This can lead to inefficiencies as users may need to scroll back and forth to locate the correct column and data, resulting in a loss of time. Error-Prone: Large datasets with numerous entries increase the likelihood of data entry errors. Without the structured guidance of a form, users may inadvertently input incorrect data into cells, leading to inaccuracies and the need for subsequent data corrections. Utilising data entry forms in Excel effectively addresses these limitations, streamlining the data entry process and reducing the potential for errors. These forms offer a user-friendly interface that simplifies data input and retrieval, ultimately enhancing the efficiency and accuracy of data management in Excel. Data filtering and visualisation: You can create tables, dropdown lists, filters and other tools to organise the information in your spreadsheet. Most spreadsheet software also comes with built-in tools to showcase your data visually, including bar charts, graphs and pie charts in various styles and colours.

Grid layout Data Entry Formulas and Functions DataAnalysis Data Validation What-ifAnalysis Data Protection Conditional Formatting Import and Export

Generating accounting information Preparing deprecation schedules Loan repayment schedules Payroll accounting Budgeting and financial forecasting Inventory management Sales and revenue analysis Cost analysis

• • • • • • • • •

• • • • • • • •

Applications

Features

Spreadsheet

Us i n gK e

Methods of Navigating in a worksheet

App ting Sp licatio n ou ronic readsh n ct

Basic Spreadsheet Elements

A Ele cc

A large sheet which contains data and information arranged in rows and columns.

y

ti ina b m Co

s on

CTRL + HOME

) )

ial og ue Bo x

Second Level

Trace the Mind Map Third Level

• Press F5 or CTRL + G or choose Go to option from the Edit menu to invoke the go to dialogue box. • Enter the cell coordinates in the Reference text. • Click OK to move the desired cell.

Usi ng Go To D

• Type the cell address in the name box. • Press ENTER to reach the desired cell.

x

Using Name Bo

Top of the worksheet (cellA1)

Left arrow key (

Up arrow key (

One cell up One cell left

Keys Strokes

Movement

First Level 

• Workbook and Worksheet • Rows, columns and cells



f s o et e 

84 Oswaal CUET (UG) Chapterwise Question Bank ACCOUNTANCY

85

ACCOUNTING APPLICATION OF ELECTRONIC SPREADSHEET

Custom Formatting: Easily accomplished with just a few clicks, custom formatting allows you to apply various formatting styles to differentiate information, establish headers, consolidate cells into larger containers, and personalize the visual appearance of your spreadsheet. Furthermore, you can harness the power of conditional formatting features, which enable you to alter a cell's color or text style based on the presence or absence of specific information. This functionality simplifies the process of quickly tracking down specific information, sparing you the tedious task of manually searching through every cell to locate the data you require. Output Reports: We can print entire or partial worksheets and workbooks, one at a time, or several at once. The MS Excel can print just the Excel table, or it provide to:

Application of Electronic accounting information

Spreadsheets

in

general

Generating Accounting Information: Electronic spreadsheets, such as Microsoft Excel or Google Sheets, are widely used for maintaining general ledgers and journals. They allow accountants to record transactions, prepare trial balances, and create financial statements. Formulas and functions in spreadsheets enable automated calculations, making it easier to maintain accurate and up-todate financial records. Preparing Depreciation Schedules: Spreadsheets are essential for calculating and maintaining depreciation schedules for assets. Various methods such as straight-line, declining balance, and units of production can be easily implemented using spreadsheet formulas.

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Print a partial or entire workbook and worksheet.

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Print several worksheets at once.

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Print several workbooks at once.

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Print an Excel table.

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Print a workbook to a file.

Accountants can create templates to input asset details, acquisition costs, estimated useful life, and salvage values, and the spreadsheet will automatically compute depreciation expense.



Print graphic charts and Pivot Table

Loan Repayment Schedules:

Preparation of reports using Pivot Table: A Pivot Table is a way to present information in a report format. A Pivot Table report often provides an enhanced layout, attractive and formatted report with improved readability. This report is prepared from the spreadsheet once we add the fields with an appropriate level of details, calculations and group the data as per the required information. The Pivot Table feature allows us to create a cross-tabulation summary of data in which the heading can subsequently move to give different views of the data.

Electronic spreadsheets are invaluable for managing loan repayment schedules. By setting up a loan amortisation template, accountants can track and analyse loan payments, including principal and interest.

What should you consider when choosing spreadsheet software?

Payroll processing often involves complex calculations, including tax withholdings, deductions, and overtime. Spreadsheets simplify this task by allowing accountants to set up payroll templates.

When you’re ready to choose spreadsheet software for your company, here are a few specific factors to consider. Cost: Determine whether your company's spreadsheet needs can be met with free spreadsheet software or if a paid option with advanced features is necessary. Consider your budget and the cost-effectiveness of the software. Ease of Use: The usability of the spreadsheet software is crucial. While there might be a learning curve for all applications, look for software with user-friendly interfaces and features that are easy for your team to grasp once the basics are learned. Functionality: Assess how your team will utilise the software. Features like data visualisation and compatibility with other applications can enhance your work-flow and productivity. Choose software that aligns with your specific requirements. Integrations and Compatibility: Ensure that the spreadsheet program can easily interact with other software used by your business partners or clients. Compatibility between different file types and the availability of plugins and integrations can enhance the software's versatility. Collaboration and Version History: In an era of remote work, prioritize software that facilitates collaboration and offers version history. Cloud-based solutions often allow real-time collaboration, commenting, and tracking changes to prevent data loss or overwriting of information.

Spreadsheets can generate detailed schedules, helping businesses understand the impact of different repayment strategies and providing clarity on when loans will be fully paid off. Payroll Accounting:

Accountants can enter employee data, working hours, and other relevant information to automatically calculate net pay, generate pay stubs, and keep payroll records organised. Budgeting and Forecasting: Electronic spreadsheets are excellent tools for creating and managing budgets and financial forecasts. Accountants can input historical data, set assumptions, and use formulas to project future financial performance. These forecasts are vital for financial planning, resource allocation, and decision-making within a company. Variance Analysis: Spreadsheets facilitate variance analysis by comparing budgeted figures with actual results. Accountants can use conditional formatting and charts to visualise discrepancies and identify areas that need attention. This analysis helps organisations make informed decisions and adjust their strategies as needed. Data Visualisation and Reporting: Spreadsheets offer robust data visualisation capabilities, enabling the creation of charts, graphs, and dashboards to represent financial data in a visually appealing manner.

86 Oswaal CUET (UG) Chapterwise Question Bank

ACCOUNTANCY

These visual aids can enhance communication and help stakeholders understand financial information more effectively.

that only authorised personnel can view or edit sensitive information.

Data Security and Collaboration:

Cloud-based spreadsheets enable real-time collaboration among team members, making it easier to work together on accounting tasks.

Electronic spreadsheets allow for controlled access and sharing of financial data. Accountants can set permissions, ensuring

OBJECTIVE TYPE QUESTIONS [A] MULTIPLE CHOICE QUESTIONS

1. Which of the following options in a financial function indicates the interest for a period? (1) FV. (2) PV. (3) N-per. (4) Rate. 2. Which of the following arguments in a financial function represents the total number of payments? (1) FV. (2) PV. (3) N-per. (4) Rate 3. What category of functions is used in this formula: =PMT(C10/12,C8,C9,1) (1) Logical. (2) Financial. (3) Payment. (4) Statistical. 4. How can electronic spreadsheets enhance the efficiency of generating accounting information? (1) By automating data entry (2) By providing graphic design tools (3) By securing confidential data (4) By managing physical assets 5. Which formula would result in TRUE if C4 is less than 10 and D4 is less than 100? (1) =AND(C4>10, D4>10). (2) =AND(C4>10, C410, D4