Accountancy Solved Question Paper 2022 [AHSEC Class 12 Solved question Papers]

ACCOUNTANCY SOLVED QUESTION PAPER 2022
AHSEC CLASS 12 Solved Question Papers

Full Marks: 100

Pass Marks: 30

Time: Three Hours

The figures in the margin indicate full marks for the questions.

1. (a) Fill in the blanks with appropriate word/words: (any four)

a) Income and Expenditure account is prepared on _______ basis.      1

Ans: Accrual Basis

b) Liability of a partner is _______.          1

Ans: Unlimited

c) Annual Report is issued by a company to its _______. 1

Ans: Shareholders

d) Liquid ratio is the relationship between _______ and current liabilities.              1

Ans: Liquid assets

e) Equity shareholders are _______ of a company.            1

Ans: Owners

(b) Choose the correct alternative:

a) When a new partner is admitted –       1

1. Consent of all the partners is required.

2. Consent of majority of the partners is required.

3. Consent of any one partner is required.

Ans: 1. Consent of all the partners is required.

b) Balance of shares forfeited account after re-issue is transferred to –    1

1) Reserve Fund.

b) Profit and Loss Account.

c) Capital Reserve.

Ans: c) Capital Reserve.

(c) State whether the following statements are “True” or “False”: (any two)

1. Outstanding subscription is an asset. 1

Ans: True

2. A Preference Shareholders gets interest at a fixed rate.              1

Ans: False, dividend

3. Company’s shares are generally transferable. 1

Ans: True

4. Life membership fee is a capital receipt. 1

Ans: True

2. Mention two features of a not-for-profit organisation.  2

Ans: Characteristics of Not-for-profit organisations: Following are the main characteristics or the salient features of Not for Profit organisations:

a) The main objective of not-for-profit organisations is not to make profit but to provide service to its members and to the society in general.

b) The main source of income of these organisations is admissions fees, subscriptions, donations, grant-in-aid, etc.

3. What is Profit and Loss Appropriation Account?           2

Ans: Profit or loss appropriation account: For the purpose of distribution of net profit between or amongst the partners, an additional account known as profit and loss appropriation accounts is prepared. This account is nominal in nature. It is prepared after profit and loss accounts to show the distribution of net profit amongst the partners after all appropriations.

4. What is the meaning of Cash Flow from Financing Activities?                2

Ans: Financing activities are the activities which results in changes in the size and composition of the owner’s capital and borrowings of the enterprises from other sources. The financing activities of a firm include issuing or redemption of share capital, issue and redemption of debentures, raising and repayment of long term loans etc. Dividends and Interest paid are also come under financing activities.

5. Mention any two features of a debenture.     2

Ans: The characteristics/features of debentures can be summarised as follows:  

a) Debentures are debt instruments.

b) Interest is payable on debentures at a fixed rate irrespective of the profit earned by the business.

6. Mention any two rights of a partner.                 2

Ans: Rights of a Partner:

a) Every partner has a right to take part in the conduct and management of the business.

b) Every partner has a right to be consulted in the matters of the partnership.

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ALSO READ (AHSEC ASSAM BOARD CLASS 12):

1. AHSEC CLASS 12 ACCOUNTANCY CHAPTERWISE NOTES

2. AHSEC CLASS 12 ACCOUNTANCY IMPORTANT QUESTION (THEORY)

3. AHSEC CLASS 12 ACCOUNTANCY IMPORTANT QUESTION BANK (PRACTICAL)

4. AHSEC CLASS 12 ACCOUNTANCY PAST EXAM PAPERS (FROM 2012 TILL DATE)

5. AHSEC CLASS 12 ACCOUNTANCY SOLVED QUESTION PAPERS (FROM 2012 TILL DATE)

6. AHSEC CLASS 12 ACCOUNTANCY CHAPTERWISE MCQS

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7. A and B are partners sharing profits and losses in the ratio 3:2. C is admitted into the partnership. A surrendered 1/3rd of his share and B surrendered 1/4th of his share in favour of C. Determine the new profit sharing ratio.    3

Ans:

Or

Write three distinctions between Fixed Capital Account and Fluctuating Capital Account.             3

Ans: Difference between fixed capital accounts and fluctuating capital Accounts:

Basic of difference

Fixed Capital Account

Fluctuating Capital Accounts

1. Opening and Closing balance

Opening and Closing balances normally remains same.

Opening and Closing balance change due to adjustment in capital account.

2. Current account

Current accounts of partners are opened in this case.

Current accounts of partners are not opened in this case.

3. Adjustment relating to capital

All adjustment relating to partners’ capital accounts are made in current account.

All such adjustments are made in capital account itself.

4. Closing capital

The closing balance of capital account always shows a credit balance.

The closing balances of partner’s capital account may be debit or credit.

8. Explain three uses of financial statement.      3

Ans: Objectives and purposes for which financial statements are prepared:

a) Financial statements are prepared to provide reliable information about the earning of a business enterprise and it ability to operate of profit in future.

b) Financial statements are prepared to show the financial strength and weakness of the enterprise.

c) Financial statements are intended to provide the base for tax assessments.

9. Mention any three objectives of preparing Comparative Statement. 3

Ans: Objectives of Comparative statements

a) Inter-firm and intra-firm Comparison: Inter-firm and intra-firm comparison becomes easy with the help of financial analysis. It helps in assessing own performance as well as that of others.

b) Understandable: It simplifies and summarises the accounting figures to make them understandable to the users. It gives a brief idea about the whole story of changes in the financial condition of a business.

c) To judge the financial health of the company: The main objective of the financial analysis is to determine the financial strength and weakness of the company. It is done by properly establishing the relationship between the various items of balance sheet and profit and loss account.

Or

A company’s stock is Rs. 2,00,000. Total liquid assets are Rs. 8,00,000 and quick ratio is 2:1. Calculate current ratio.

 

10. Explain the following terms:                3 [Out of syllabus]

a) Capital Fund.

b) Life Membership Fee.

c) Entrance Fee.

Or

Write three features of Fund Based Accounting.

Or

Calculate the amount of stationery consumed to be shown in the Income and Expenditure A/c for the year ended 31st December, 2020:

 

01-01-2020

31-12-2020

Creditors for stationery

Stock of stationery

4,000

5,400

6,200

5,000

During the year 2020 payment made for stationery was Rs. 40,000.

11. Write three differences between Realisation Account and Revaluation Account.     3

Ans: Difference between Revaluation Account and Realisation Account:

Basis

Revaluation Account

Realisation Account

Meaning

Revaluation account is prepared in order to work out the profit or loss on revaluation of assets and liabilities.

Realisation account is prepared to work out the profit or loss on realisation of assets and payment to liabilities.

Preparation

Revaluation account is prepared at the time of admission, retirement or death of a partner.

Realisation account is prepared at the time of dissolution of a partnership firm.

Closing of accounts

After preparing the revaluation account the firm’s business gets going with the same set of books.

After preparation of Realisation account, all the accounts of the firm are closed.

Or

Write any three uses of Cash Flow Statement.

Ans: The Cash Flow Statement is prepared because of number of merits, which are offered by it. Such merits are also termed as its objectives. The important objectives are as follows:

a) To Help the Management in Making Future Financial Policies: Cash Flow statement is very helpful tool to the management. The management can base its future financial policies and is in a position to know about surplus or deficit of cash with the help of cash flow statement.

b) Helpful in determining the ability to pay dividends: Cash flow statement indicates the various sources and uses of cash under different heads which helps the shareholders to know whether the business can make the payment of dividends on their investment or not.

c) Efficient Cash Management: It helps in efficient management of cash resources. It will help the management to make the reliable cash flow projections for the immediate future and will tell surplus or deficit of cash so that management can make plan for the investment of surplus cash or to arrange the sources to meet the deficiency.

12. Prepare Income and Expenditure Account from the following Receipts and Payments Account and other details of Surya Club for the year ended 31st December, 2019:  5 [Out of Syllabus]

Receipts and Payments Account

Receipt

Rs.

Payments

Rs.

To Balance b/d:

Cash-in-hand

To Subscriptions

2018                           900

2019                      19,000

2020                        1,000

To Sale of newspaper

To Life Membership Fee

To Donation

To Donation for Building

To Interest

To Maintenance Grant

To Sale of Furniture

 

10,000

 

 

 

20,900

100

5,000

6,000

8,000

200

2,000

1,000

By Salaries

By Honorarium

By Travelling Expenses

By Telephone Charges

By Investment

By Construction of Building

By Rent

By Postage

By Balance c/d:

Cash-in-hand

12,000

3,000

2,000

5,000

10,000

7,000

2,000

1,000

 

11,200

 

53,200

 

53,200

Other details:

(1)       Outstanding Salaries Rs. 1,000.

(2)       Subscription Outstanding Rs. 2,000.

(3)       Subscription for 2019 received in 2018 Rs. 200

Or

Write five distinctions between Receipts and Payments Account and Income and Expenditure Account.

13. Explain the method of calculating “Cash flows from Operating Activities” under direct method.  5

Ans:

Or

Calculate cash from operating activities from the following information:

 

2019 (Rs.)

2020 (Rs.)

Profit and Loss A/c

Debtors

Bills Receivable

General Reserve

Salary Outstanding

Wages Prepaid

Goodwill

Cash and Bank Balance

60,000

87,000

62,000

2,02,000

30,000

5,000

80,000

40,000

65,000

50,000

1,03,000

2,37,000

12,000

7,000

70,000

30,000

 

14. What is Ratio Analysis? Mention any three limitations of ratio analysis. 2+3=5

Ans: A Ratio is an arithmetical expression of relationship between two related or interdependent items. If such ratios are calculated on the basis of accounting information, then they are called accounting ratios. Simply, accounting ratio is an expression of relationship between two accounting terms or variables or two set of accounting heads or group of items stated in financial statement. It is one of the techniques of financial analysis which is used to evaluate the operating efficiency and financial position of a business concern.

Limitations of Ratio Analysis

1. False Result: Ratios are calculated from the financial statements, so the reliability of ratio is dependent upon the correctness of the financial statements. If financial statements are misleading, then the accounting ratios also gives a false picture.

2. Ignores Price Level Changes: Change is price level affects the comparability of ratios. A change in the price level makes the ratio analysis of different accounting years invalid because accounting records ignores change in value of money.

3. Qualitative aspect Ignored: Since the financial statements are based on quantitative aspects only, the quality aspect such as quality of management, quality of labour force etc., are ignored while calculating accounting ratios. Under such circumstances, the conclusions derived from ratio analysis would be misleading.

Or

Briefly explain the meaning and significance of any two of the following ratios: 2½ x 2 = 5

a) Debt-Equity Ratio.

Ans: Debt-Equity Ratio: Debt equity ratio shows the relationship between long-term debts and shareholders funds’. It is also known as ‘External-Internal’ equity ratio.

Objective and Significance: This ratio is a measure of owner’s stock in the business. Proprietors are always keen to have more funds from borrowings because:

(i) Their stake in the business is reduced and subsequently their risk too

(ii) Interest on loans or borrowings is a deductible expenditure while computing taxable profits. Dividend on shares is not so allowed by Income Tax Authorities.

b) Gross Profit Ratio.

Ans: c) Gross Profit Ratio: Gross Profit Ratio shows the relationship between Gross Profit of the concern and its Net Sales. Gross Profit Ratio can be calculated in the following manner: Gross Profit Ratio = Gross Profit/Net Sales x 100

Objective and Significance: Gross Profit Ratio provides guidelines to the concern whether it is earning sufficient profit to cover administration and marketing expenses and is able to cover its fixed expenses. This ratio can also be used in stock-inventory control. Maintenance of steady gross profit ratio is important. Any fall in this ratio would put the management in difficulty in the realisation of fixed overheads of the business.

c) Quick Ratio.

Ans: Liquid ratio shows short-term solvency of a business. It is also called acid-test ratio and quick ratio. It is calculated in order to know whether or not current liabilities can be paid with the help of quick assets quickly. Quick assets mean those assets, which are quickly convertible into cash.

Objective and Significance: Liquid ratio is calculated to work out the liquidity of a business. This ratio measures the ability of the business to pay its current liabilities in a real way. The ideal liquid ratio is supposed to be 1:1. In case, this ratio is less than 1:1, it shows a very weak short-term financial position and in case, it is more than 1:1, it shows a better short-term financial position.

d) Stock Turnover Ratio.

Ans: Stock Turnover Ratio: Stock turnover ratio is a ratio between cost of goods sold and average stock. This ratio is also known as stock velocity or inventory turnover ratio.

Stock Turnover Ratio = Cost of Goods Sold/Average Stock

Objective and Significance: Stock is a most important component of working capital. This ratio provides guidelines to the management while framing stock policy. It measures how fast the stock is moving through the firm and generating sales. It helps to maintain a proper amount of stock to fulfill the requirements of the concern. A proper inventory turnover makes the business to earn a reasonable margin of profit.

Or

 

Rs.

Cost of Goods Sold

Stock Turnover Ratio

3,00,000

6 times

Find out the value of Opening Stock, if Opening Stock is Rs. 10,000 less than the Closing Stock.    5

15. From the following Income Statement, prepare Common Size Income Statement and give your comments:         5

Particulars

2018 (Rs.)

2019 (Rs.)

Particulars

2018 (Rs.)

2019 (Rs.)

To Cost of Goods Sold

To Gross Profit c/d

95,000

25,000

1,05,000

40,000

By Net Sales

1,20,000

1,45,000

 

1,20,000

1,45,000

 

1,20,000

1,45,000

To Office Expenses

To Distribution Expenses

To Net Profit c/d

2,000

3,000

20,000

8,000

5,000

27,000

By Gross Profit b/d

25,000

40,000

 

25,000

40,000

 

25,000

40,000

Or

Give the new format of the Balance Sheet of a company (main headings only) as per the requirements of the revised Schedule – VI of the Companies Act.

Proforma of Balance Sheet

Name of the Company …………………………………….

Balance Sheet as at…………………………………….

Particulars

Note

No.

Amount

(Current Year)

Amount

(Previous Year)

I. EQUITY AND LIABILITIES

(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) Other long term liabilities

(d) Long term provisions

(4) Current liabilities

(a) Short term borrowings

(b) Trade payables

(c) Other current liabilities

(d) Short term provisions

 

 

 

Total

 

 

 

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

 

 

 

Total

 

 

 

Or

Give five points of distinctions between under subscription and over-subscription.

Basis

Oversubscription

Undersubscription

Meaning

When the number of shares applied is more than the number of shares issued by a company, the issue of shares is said to be oversubscribed.

When the number of shares applied is less than the number of shares issued by a company, the issue of shares is said to be under subscribed.

Allotment

Allotment of shares is made upto the number of shares issued.

Allotment of shares is made upto the number of shares applied.

Minimum subscription

No question of minimum subscription arise in case of oversubscription.

Minimum subscription is necessary in case of undersubscription.

Refund or adjustment

Excess money is refunded or adjusted with allotment or call money.

Since excess application money is not receive, therefore question of refund or adjustment does not arises in case of under subscription.

Accounting entries

Accounting entries for application money is passed with number of shares applied and remaining entries are pass with the number of shares issued.

All entries are passed on the basis of share application received.

16. A, B and C were in partnership sharing profits and losses in the ratio of 3 : 2 : 1. On 1st January, 2020, B retired from the firm. On that date their Balance Sheet was as follows: 2+3=5

Balance Sheet

Liabilities

(Rs.)

Assets

(Rs.)

Creditors

Capitals:

A                               30,000

B                               20,000

C                               20,000

27,180

 

 

 

70,000

Cash

Debtors

Stock

Buildings

Profit and Loss A/c

9,400

16,000

23,380

46,000

2,400

 

97,180

 

97,180

The terms of the retirement were:

(1)       Building is to be appreciated by Rs. 14,000.

(2)       Provision for doubtful debts is to be made at 5% on the debtors.

(3)       The goodwill of the firm is to be valued at Rs. 36,000.

(4)       No cash is to be paid to B immediately and balance of his capital account is to be transferred to his loan account.

Prepare Revaluation Account and Partners’ Capital Account.

Or

Write the uses of securities premium amount.

Ans: Under Section 52 of the Company Act 2013, the amount of security premium may be used only for the following purposes:

a)    To write off the preliminary expenses of the company.

b)    To write off the expenses, commission or discount allowed on issued of shares or debentures of the company.

c)    To provide for the premium payable on redemption of redeemable preference shares or debentures of the company.

d)    To issue fully paid bonus shares to the shareholders of the company.

e)    In purchasing its own shares (buy back).

17. P, Q and R were in partnership sharing profits and losses in the ratio of 4 : 3 : 3. On 31st March, 2020 their Balance Sheet was as follows:                                                      5

Balance Sheet

Liabilities

(Rs.)

Assets

(Rs.)

Creditors

Reserve

Capitals:

P                               1,05,000

Q                                  85,000

R                                  80,000

87,000

33,000

 

 

 

2,70,000

Fixed Assets

Stock and Debtors

Cash

2,90,000

85,000

15,000

 

3,90,000

 

3,90,000

‘Q’ died on 30.06.2020. Under the partnership agreement the executors of a deceased partner were entitled to:

(a)       Amount standing to the credit of deceased partner’s capital account.

(b)       Interest on capital @ 12% p.a.

(c)        His share of goodwill. The goodwill of the firm on Q’s death was valued at Rs. 2,70,000.

(d)       Share of profit from the closing of the last financial year to the date of death on the basis of last year’s profits.

The profit of the firm for the year ended 31.3.2020 was Rs. 2,40,000.

Prepare Q’s capital account on the date of his death.

Or

Distinguish between Profit and Loss account and Profit and Loss Appropriation account.

Ans: Difference between Profit and loss account and Profit and loss appropriation account:

Profit and loss Account

Profit and loss appropriation account

1. It is prepared after trading account.

2. This account is prepared by every form of business organisation.

3. Items debited in profit and loss account are all expenses.

 

4. At the time of preparing this account, matching concept is followed.

5. This account is the basis of calculation of income tax.

1. It is prepared after profit and loss account.

2. This account is prepared by partnership firm only.

 

3. Items debited in profit and loss appropriation account are all appropriations.

4. At the time of preparing this account, no matching concept is followed.

5. This account is not the basis of calculation of income tax.

18. What is Realisation Account? Write three cases where a partnership firm may be dissolved by a court. 2+3=5

Ans: Realisation account is prepared at the time of dissolution of firm. It is a nominal account. It is prepared to find out profit or loss on realisation of assets and payment of liabilities when a firm is dissolved. Any profit or loss on realisation is transferred to the capital accounts of all the partners in their profit sharing ratio. It is prepared by:

a) Transferring all assets except cash or bank account to the debit side of the account.

b) Transferring all liabilities except partner’s capital, partner’s loan and reserves and surplus.

c) Amount realised on sale of assets is credited to the realisation account.

d) Liabilities paid are debited to the realisation account.

e) Expenses of dissolution are debited to realisation account.

(v) Dissolution by Court (Sec. 44): A court may order a partnership firm to be dissolved in the following cases:

a)    When a partner becomes permanently incapable of performing his/her duties as a partner.

b)    When partner deliberately and consistently commits breach of partnership agreement.

c)    When the court considers it just and equitable to dissolve the firm. The following are the cases for the just and equitable grounds:

1. Deadlock in the management.

2. Where the partners are in talking terms between them.

3. Loss of substratum.

4. Gambling by a partner on a stock exchange.

Or

Amal and Bimal are two partners in a firm. They share profits 3:2. Following is their Balance Sheet as on 31st March, 2021 on which date the firm dissolved:

Balance Sheet

Liabilities

(Rs.)

Assets

(Rs.)

Creditors

Reserve

Capitals:

Amal                                20,000

Bimal                               15,000

20,000

5,000

 

 

35,000

Fixed Assets

Stock

Debtors

Cash

Profit and Loss A/c

30,000

10,000

15,000

3,000

2,000

 

60,000

 

60,000

Fixed Assets are realised at Rs. 28,000. Stock at Rs. 8,000 and Debtors at Rs. 13,000. Expenses on realisation are            Rs. 1,500. Creditors are paid at a discount of 10%. Prepare Realisation A/c, Partners’ Capital A/c and Cash A/c. 2+2+1=5

19. Pradeep and Pranab are partners in a firm. The Trial Balance of the firm as on 31st March, 2020 was as under:

Trial Balance

 Debit

(Rs.)

Credit

(Rs.)

Machinery

Goodwill

Patent

Sundry Debtors

Cash in hand

Closing Stock

Investment

Depreciation on Machinery

Rent

Carriage Outward

Taxes

Telephone charges

Commission

Drawings:

Pradeep                                5,000

Pranab                                  4,000

Salaries

Bank Charges

54,000

10,000

20,000

21,000

1,000

25,000

10,000

6,000

10,000

1,000

500

3,600

800

 

 

9,000

8,000

100

Capital:

Pradeep                               50,000

Pranab                                 40,000

Sundry Creditors

Interest on Investment

Sundry Receipts

Bills payable

Bank Overdraft

Outstanding Wages

Trading Account:

Gross Profit

Discount

 

 

90,000

5,000

400

200

2,000

10,000

500

 

71,000

900

 

1,80,000

 

1,80,000

Prepare Profit and Loss A/c, Profit and Loss Appropriation A/c and the Balance Sheet of the firm for the year ended 31st March, 2020, after considering the following information:

(1)       Write off Rs. 1,000 as Bad Debt and provide a 5% Provision on Sundry Debtors for Doubtful Debts.

(2)       Interest on Investment Accrued Rs. 600.

(3)       Interest on Partners’ Capital is allowed @ 5% p.a.

(4)       Create a General Reserve by taking Rs. 5,000 out of profit.

20. (a) Write two differences between Authorised Capital and Issued Capital of a company.        2

Ans: Difference between authorised capital and issued capital

Authorised capital

Issued capital

It is the maximum permitted capital of the company.

It is part of authorised capital which is issued to the public for subscription.

It is not the actual capital raised by the company.

It is the actual capital raised by the company.

(b) What is Minimum Subscription?                       2

Ans: Minimum Subscription: It means the minimum amount that, in the opinion of directors, must be raised to meet the needs of business operations of the company. AS per SEBI guidelines, the minimum subscription of capital cannot be less than 90% of the issued amount. 

(c) What is Reserve Capital?       2

Ans: Reserve Capital: A company may by special resolution determine that any portion of its share capital which has not been already called up shall not be capable of being called-up, except in the event of winding up of the company. Such type of share capital is known as reserve-capital.

(d) What is Call-in-Arrear?          2

Ans: Calls-in-Arrears: The amount which is not paid by shareholders when money is demanded by the company, such amount is known as ‘Calls-in-Arrears’. The maximum rate of interest to be provided on calls in arrears must not exceed 10% per annum.

Or

Arnab Company Ltd. issued 10,000 equity shares of Rs. 100 each at a premium of 10% payable as under:                 8

Rs. 30 on Application

Rs. 60 on Allotment (including premium)

Rs. 20 on call

Kamalesh holding 400 shares failed to pay the allotment and call money and Monalisha holding 700 shares failed to pay the call money.

Show the Entries in the Cash book and Journal of the company for the above transactions.

21. Give the Journal entries for issue and redemption of Debentures in respect of the following:                  8

a) Debentures issued at a discount and redeemable at premium.

b) Debentures issued at premium and redeemable at premium.

c) Debentures issued at par and redeemable at par.

d) Debentures issued at premium and redeemable at par.

Or

What are the differences between a shareholder and a debenture holder?

Ans:

Basis of Difference

Shares

Debentures

Ownership

Shareholders are the owners of the Company.

Debenture holders are the Creditors of the Company.

Repayment

 

Normally, the amount of share is not returned during the life of the company.

Debentures are issued for a definite period.

Convertibility

Shares cannot be converted into debentures.

Debentures can be converted into shares.

Restrictions

Dividend is paid to the shareholders as an appropriation of profit.

Interest is paid to the debenture holders as a charge against profit.

Forfeiture

Shares can be forfeited for non-payment of allotment and call monies.

Debentures cannot be forfeited for non-payment of call monies.

Or

Explain different methods of redemption of debentures.

Ans: Meaning of Redemption of Debentures: Redemption of debenture is the discharge of debenture liability. It can be done either by repaying the money to debenture holders or converting the debenture into shares. The conditions of redemption are clearly stated at the time of issue of debenture in the prospectus. Debentures can be redeemed at par, premium or discount as per the terms of issue. The period of maturity, redemption amount, yield on redemption etc. will be mentioned in the prospectus. In case the non-convertible debentures proposed to be rolled over (repayment extended for an additional period), a compulsory option should be given to the debenture holders who wish to withdraw from the debenture programme, as per the guidelines issued by SEBI.

Methods of Redemption of Debentures

i) Redemption of debentures in lump-sum at maturity: Under this method the entire debentures are redeemed at the end of stipulated date stated in the prospectus for the issue of debentures. The main drawback of this method is that the company has to arrange a large amount at the time of redemption.

Journal entries for redemption of debentures under this method

a) When debentures are due for redemption

Debentures a/c                                                                   Dr

Premium on redemption of debentures a/c                 Dr (If debentures are redeemed at a premium)

To Debenture holders a/c

b) When payment is made to the debenture holders

Debenture holder a/c                                                       Dr

To Bank

ii) By Draw of Lots: Under this method the company does not redeem all the debentures at the same time. Instead a part of debentures redeemed at the end of each year. The company selects the debentures for redemption by drawing lot and they are redeemed that year.

Journal entries for redemption of debentures in installments (these entries are passed every year)

a) When debentures are due for redemption

Debentures a/c                                                                   Dr

Premium on redemption of debentures a/c                 Dr (If debentures are redeemed at a premium)

To Debenture holders a/c

b) When payment is made to the debenture holders

Debenture holder a/c                                                       Dr

To Bank

c) When amount equal to the face value of debenture to be redeemed is transferred to DRR

Profit and loss appropriation a/c                                 Dr

To Debenture redemption reserve a/c

iii) By Purchasing in the Open Market: Debentures can be redeemed by purchasing them from the open market. If a company finds its debentures are available in the open market at cheap rate it will purchase those debentures and cancel them. The profit due to cancellation of such debentures is transferred to capital reserve.

Journal entries for cancellation of debentures under this method:

a) When own debentures are purchased for cancellation:

Own debentures a/c                               Dr

To Bank a/c

b) When debentures are cancelled

Debentures a/c                                        Dr

To Own debentures a/c

To Profit on cancellation of own debentures a/c

c) Transfer of profit to capital reserve

Profit on cancellation of own debentures a/c             Dr.

To Capital reserve a/c

iv) By Conversion into New Debentures or Shares: Conversion of debentures into shares or new debentures is another method of redemption. When debentures are converted to shares, the company does not pay money to debenture holders. Instead the company issues share or debenture certificates in place of debentures.

Journal entries for conversion of debentures

a) When debentures are due for redemption

Debentures a/c                                                                   Dr

Premium on redemption of debentures a/c                 Dr (If debentures are redeemed at a premium)

To Debenture holders a/c

b) When new share or debentures are issued to the debenture holders

Debenture holder a/c                                                       Dr.

Discount on issue of debentures a/c                              Dr.

To Share Capital a/c

To Debentures a/c

To Securities premium reserve a/c (If shares or debentures are issued at a premium) 

22. Ram and Mohan are partners sharing profits and losses equally. Their Balance Sheet on 1st April, 2021 was follows:

Balance Sheet

Liabilities

(Rs.)

Assets

(Rs.)

Sundry Creditors

Capitals:

Ram:                                    40,000

Mohan:                               30,000

 

15,000

 

 

70,000

Cash

Debtors

Stock

Machinery

Building

5,000

16,000

12,000

22,000

30,000

 

85,000

 

85,000

They decided to admit Sanjoy into partnership for 1/3rd share on the following terms:

a) Machinery and Buildings were revalued at Rs. 20,000 and Rs. 42,000 respectively.

b) Creditors were reduced by Rs. 2,000.

c) Provision for doubtful debts on debtors is to be created at Rs. 1,000.

d) Sanjoy is to bring in Rs. 40,000 as his capital and Rs. 24,000 as premium for goodwill.

Pass journal entries for the above information and prepare Balance Sheet of the firm after the admission of Sanjoy.

Or

Write any three limitations of partnership business.     3

Ans: Limitations of Partnership:

1. Less capital as compared to a company: Capital is less due to limited number of partners.

2. Unlimited liability of partners: In case of loss, private property of partners is also liable.

3. Conflict between partners:  There is always a chance of dispute between or amongst the partners.

Explain five factors affecting the goodwill of a firm.        5

Ans: Factors affecting the value of Goodwill are:

a) Skill in Management: If the management is capable and efficient, the firm will earn good profits and that will raise the value of goodwill.

b) Location Factor: If the business is located at a favourable place, it can increase the volume of sales which correspondingly increases the value of goodwill.

c) Quality: If the quality of goods and services are high, then there will be a ready market for the goods and the value of its goodwill will be high.

d) Favourable Contracts: Sometimes, a firm enters into long term contracts for sale and purchase of goods at favourable prices. This will also affect profits and goodwill of the firm.

e) Risk Involved: When the risk is less in the business it creates more goodwill but if the risk is more, it creates less goodwill.

Or

Distinguish between dissolution of Partnership and dissolution of Partnership firm.        8

Ans: Dissolution of a partnership means the termination of connections with the firm by some of the partners of the firm, and remaining partners of the firm continuing the business of the firm under the same firm’s name under an agreement. Hence, admission, retirement and a death of a partner are considered dissolution of partnership. The dissolution of partnership may take place in any of the following ways:

a)    Change in existing profit sharing ratio among partners;

b)    Admission of a new partner;

c)    Retirement of a partner;

d)    Death of a partner;

e)    Insolvency of a partner.

Dissolution of a firm means discontinuation of the firm’s business and termination of relationship between the partners. According to Sec. 39 of Indian Partnership Act 1932, “Dissolution of firm means dissolution of partnership between all the partners in the firm."

Therefore, when a firm is dissolved, assets of the firm are disposed off, liabilities are paid off and the accounts of all the partners are also settled.

Difference between dissolution of partnership and dissolution of firm

Basis of distinction

Dissolution of partnership

Dissolution of firm

Relationship

Relationship amongst all the partners does not come to an end.

Relationship amongst all the partners comes to an end.

Continuation of business

Business of the firm may continue.

Business of the firm does not continue.

Inter relationship

Dissolution of partnership may or may not result in dissolution of the firm.

Dissolution of the firm necessarily results in dissolution of partnership.

Books of accounts

Books of accounts are not closed.

Books of accounts are closed.

Nature

Dissolution of partnership is voluntary.

Dissolution of partnership may sometimes compulsory or sometimes voluntary.

Account

Revaluation account is prepared.

Realisation account is prepared.

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