Accountancy Solved Question Paper 2024 [AHSEC Class 12 Solved question Papers]

Accountancy Solved Question Paper 2024
AHSEC Class 12 Solved question Papers

For New Course Students

Full Marks: 80

Pass Marks: 24

For Old Course Students in lieu of Project works

Full Marks: 100

Pass Marks: 30

Those who appeared H.S. Final Exam till 2023 have been treated as Old Course students

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) 1 x 4 = 4

(i) Partners current accounts are prepared when the capital accounts are _______.

Ans: Fixed

(ii) Company has a separate _______ entity apart from its members.

Ans: Legal

(iii) Current ratio is the relationship between current assets and _______.

Ans: Current Liabilities

(iv) Equity shareholders are _______ of a company.

Ans: Owners

(v) At the time of dissolution of partnership firm, assets are transferred to Realisation Account at _______ value.

Ans: Book

(b) State whether the following statements are ‘True’ or ‘False’:  1 x 2 = 2

(i) Debenture holders do not have right to vote in the meetings of the company.

Ans: True

(ii) Premium for goodwill is shared in gaining ratio.

Ans: False, Sacrifice Ratio

(c) Choose the correct alternative: 1 x 2 = 2

(1) The portion of the authorised capital which is offered to the public for sale in the form of shares is called

(i) subscribed capital.

(ii) issued capital.

(iii) called-up capital.

 (iv) paid-up capital.

Ans: (ii) issued capital.

(2) In the absence of partnership deed, the rate of interest allowed on partner’s capital is

(i) 6%.

(ii) 5%.

(iii) 6.5%.

(iv) None of the above.

Ans: (iv) None of the above.

2. What is meant by re-issue of forfeited shares?  2

Ans: After forfeiture of shares, the directors of the company can re-issue the forfeited shares at par, or at premium or at discount to maintain its equity capital balance. The forfeited shares may then be disposed by sale or in any other manner as directed by the Board.  

3. Write any two demerits of partnership business.        2

Ans: Demerits of partnership business:

1. Less capital as compared to a company

2. Unlimited liability of partners

4. Mention two features of a debenture.              2

Ans: Features of Debentures:

a) Debentures are secured against the assets of the company.

b) Interest at a fixed percentage is given to the debenture holders.

Or

Write the meaning of ‘Cash flow from investing activities’.          2

Ans: The investing activities of a business include all cash flow arises due to acquisition and disposal of long term assets (whether tangible and intangible) and investments. Acquisition or disposal of companies also comes under investing activities.

5. Give two circumstances under which the fixed capitals of partners may change.          2

Ans: Fixed capital changed in two circumstances:

a) Additional capital brought in by partners

b) Drawings out of capital made by partners.

Or

Why is Profit and Loss Adjustment Account prepared?                   2

Ans: 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.

6. What is meant by ‘calls-in-advance’?                2

Ans: Calls-in-Advance: Sometimes, it so happens that a shareholder may pay the entire amount on his shares even though the whole amount has not been called up. The amount received in advance of calls from such a shareholder should be credited to "calls in advance". The maximum rate of interest allowed on calls in advance is 12% per annum.

********************************************

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

********************************************

7. Mention two limitations of financial statement analysis.         2

Ans: Financial analysis suffers from various limitations which are given below:

a) Historical Analysis: Financial statements are historical in nature. Financial analysis is simply a rearrangement of historical data. It analysed what has happened till date but it does not reflect the future.

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

Or

What is meant by the term ‘cash equivalents’? 2

Ans: Cash Equivalents: Cash Equivalents are short-term, highly liquid investments that are readily convertible cash. Examples of cash equivalents are: (a) treasury bills, (b) commercial paper, (c) money market funds and (d) Investments in preference shares and redeemable within three months.

8. Write three situations when a partnership firm is compulsorily dissolved.       3

Ans: Compulsory Dissolution (Sec.41): A firm is dissolved compulsorily:

(a) If all the partners or a partner has been adjudicated as insolvent, then the firm is dissolved as on the date of his insolvency.

(b) If any event of the business of the firm becomes unlawful, then the firm is dissolved.

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

9. Give any three items that can be shown under the heading ‘Reserves and Surplus’ in a company’s Balance Sheet.3

Ans: Reserves and Surplus: Under this head the following items are shown:

a) Capital Reserve

b) Securities Premium (Reserve)

c) Capital Redemption Reserve.

d) Debenture Redemption Reserve

Or

Name any three items of current assets. 3

Ans: Current Assets includes:

(a) Current investments such as temporary investments and marketable securities

(b) Inventories such as raw materials, work-in-progress and finished stock

(c) Trade receivables such as debtors and bills receivable

10. Current liabilities of a company are Rs. 3,50,000. Its current ratio is 3: 1 and liquid ratio is 1.75: 1. Calculate the current assets and liquid assets. 3

Ans:

Or

Mention any three objectives of preparing comparative statement.                        3

Ans: Objectives of preparing comparative statements:

a) Inter-firm and intra-firm Comparison: Inter-firm and intra-firm comparison becomes easy with the help of comparative statements. 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 earnings performance of the company: Potential investors are primarily interested in earning efficiency of the company and its dividend paying capacity. The analysis and interpretation using comparative statement is done with a view to ascertain the company’s position in this regard.

Or

What is computerised accounting system?                          3

Ans:

11. A and B are partners sharing profits and losses equally. They have admitted C into the firm. A has surrendered 1/3 of his share and B has surrendered 1/6 of his share in favour of C. Ascertain the new profit sharing ratio.             3

Ans:

Or

Explain in brief the ‘average profit method’ of goodwill valuation.  3

Ans: Average Profits Method: In this method, Actual maintainable profits of business over a number of years are taken into account. Actual maintainable profits earned over a number of years are totalled and average is determined by dividing total with number of years. The average profits so determined are multiplied by the number of year’s purchases to arrive at the value of goodwill.

For calculation of goodwill following steps are to be followed

a) Calculate Actual maintainable profits with the help of following formula. Actual maintainable profits = Net Profit + Abnormal loss – Abnormal Gain – regular business expenses not considered in accounts.

b) Calculate Average Maintainable Profit = Total Actual maintainable profits /no of years.

c) Calculate goodwill = Average maintainable Profit x no. of year’s purchase

Or

Write three advantages of using graphs. 3

Ans:

12. Prepare a Common Size Income Statement of Maina Ltd. from the following informations:      6

Particulars	2022 (Rs.)	2023 (Rs.)
Sales Sales Returns Cost of Goods Sold Office Expenses Non-operating Incomes Non-operating Expenses Income Tax Rate	1,05,000 5,000 70,000 3,000 5,000 1,000 50%	1,10,000 10,000 74,800 3,200 6,600 1,100 50%

Or

Explain in brief the tools of financial analysis.   6

Ans: Tools of financial Statement analysis: The main objective of financial analysis to determine the financial health of a business enterprise. The analysis may be done with the help of following tools

a) Comparative Statements: These are the statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods. It usually applies to the two important financial statements, namely, balance sheet and statement of profit and loss prepared in a comparative form. The financial data will be comparative only when same accounting principles are used in preparing these statements. If this is not the case, the deviation in the use of accounting principles should be mentioned as a footnote. Comparative figures indicate the trend and direction of financial position and operating results. This analysis is also known as ‘horizontal analysis’.

b) Common Size Statements: Common size statement is a statement in which amounts of individual item of balance sheet and profit and loss account for one or more years are expressed in terms of percentage of a common base. The common base can be net sales in the case of profit and loss account and total of balance sheet for the balance sheet.

c) Trend Analysis: Trend analysis is an important tool of horizontal financial analysis. This is helpful in making a comparative study of the financial statements over several years. Under these method trend percentages are calculated for each item of the financial statements taking the figure of base year as 100. Normally the starting year is taken as the base year. The trend percentages show the relationship of each item with its preceding year’s percentages.

d) Ratio analysis: 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.

e) Cash Flow Statement:  Cash­ flow is made up of two words i.e. Cash and Flow, whereas Cash means cash balance in hand including cash at bank, and Flow means changes (which may be increase or decrease) in the cash movements of the business. So, Cash Flow Statement is a statement which shows the movement of cash and cash equivalents over a particular period of time and also analyses the reasons for changes in balance of cash in hand and at bank between two accounting period. It shows the inflows and outflows of cash and cash equivalents.

Or

Explain the concepts of ‘data validation’ and ‘data verification’.               6

Ans:

13. Give Journal entries in the books of Pakhi Ltd. for issue of debentures under the following situations: 1+1+1+1+2=6

(a) Issued 5,000, 8% debentures of Rs. 100 each at par redeemable at 5% premium after 4 years.

(b) Issued 6,000, 9% debentures of Rs. 100 each at 5% premium, redeemable at par after 4 years.

(c) Issued 7,000, 10% debentures of Rs. 100 each at 5% discount, redeemable at par after 4 years.

(d) Issued 8,000, 10% debentures of Rs. 100 each at 5% premium, redeemable at 10% premium after 4 years.

(e) Issued 5,000, 9% debentures of Rs. 100 each to the vendors for purchasing a machinery of Rs. 5,00,000.

Ans:

Or

Give six points of distinctions between a share and a debenture. 6

Ans: Difference between Shares and Debentures

Or

Explain the applications of Spreadsheet in Accounting. 6

Ans:

14. Susanta, Ananta and Diganta were in partnership sharing profits and losses in the ratio of 3:2:1. On 1.1.2023, Susanta retires from the firm. On that date Balance Sheet of the firm was as follows: 6

Balance Sheet

Liabilities	Rs.	Assets	Rs.
Creditors Reserve Fund Capital: Susanta = 80,000 Ananta = 60,000 Diganta = 40,000	50,000 60,000       1,80,000	Cast at Bank Debtors Stock Furniture Land and Building	6,000 1,50,000 30,000 24,000 80,000
	2,90,000		2,90,000

 The terms of the retirement were:

(i) Goodwill of the firm were valued at Rs. 1,20,000.

(ii) Land and Building to be appreciated by Rs. 20,000.

(iii) Provision for Bad Debts to be made @ 2% on debtors.

(iv) Furniture to be depreciated by Rs. 4,000.

(v) Susanta capital is to be transferred to his Loan Account.

Give Journal entries relating to the above transactions.

Or

Explain how the amount due to a decreased partner is ascertained?      6

Ans: The death may come at any time. On the death of a partner, the legal heirs of the deceased partners are entitled to get the amount due to the deceased partner as per the provisions of partnership deed. On the death of a partner, the legal heirs or representatives are entitled to get the following:

a)    The amount standing to the credit to the capital account of the deceased partner

b)    Interest on capital, if provided in the partnership deed upto the date of death:

c)    Share of goodwill of the firm;

d)    Share of undistributed profit or reserves;

e)    Share of profit on the revaluation of assets and liabilities;

f)     Share of profit upto the date of death;

g)    Share of Joint Life Policy.

The following specimen of deceased partner’s capital will help to find out the amount due to the deceased partner.

Particulars	Amount	Particulars	Amount
To Balance B/d (If there is a debit balance) To Share in Revaluation loss To Accumulated losses To Drawings To Interest on Drawings To Profit and Loss Suspense A/c (Share in loss upto death) To Assets taken over To Executors Account (Balancing figure)		By Balance B/d (If there is a credit balance) By Share in Revaluation Profit By Accumulated Profits and Reserves By Interest on Capital By Profit and Loss Suspense A/c (Share in profits upto death) By Liabilities taken over by legal heirs

15. Distinguish between dissolution of partnership and dissolution of firm. 6

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 of, 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.

Or

Ravi and Vicky are partners in a firm sharing profits and losses in the ratio of 3:2. They decided to dissolve their firm on 31^st December, 2022. Their Balance Sheet on that date was as under:

Balance Sheet

Liabilities	Rs.	Assets	Rs.
Capital: Ravi Vicky Creditors Profit and Loss A/c	17,500 10,000 2,000 1,500	Furniture Investment Debtors Stock Cash at Bank	16,000 4,000 2,000 3,000 6,000
	31,000		31,000

Ravi took over the investments at an agreed value of Rs. 3,800. Other assets were realised as follows:

Furniture = Rs. 18,000

Debtors = 90% of Book Value

Stock = Rs. 2,800

Creditors of the firm agreed to accept 5% less. Expenses of realisation amounted to Rs. 400. Close the firm’s books by preparing a Realisation Account, Partner’s Capital Accounts and Bank Account.    6

Ans:

16. Anvi Ltd. has issued 10,000 equity shares of Rs. 10 each at a premium of Rs. 2 each payable as follows: 8

On Application = Rs. 2

On Allotment = Rs. 5 (including premium)

On First and Final Call = Rs. 5

The shares have been fully subscribed, called up and paid-up except the following:

(a) Allotment and First and Final Call money on 500 shares held by Ritu, and

(b) First and Final Call money on 600 shares held by Jitu.

All these shares have been forfeited and re-issued at 10% discount as fully paid.

Give Journal Entries in the books of the company.

 

Or

(a) For what purposes ‘securities premium’ can be used? 5

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

1. To write off the preliminary expenses of the company.

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

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

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

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

(b) Write three distinctions between equity shares and preference share. 3

Ans: Difference between Equity Shares and Preference Shares 

Basis of Difference	Preference Share	Equity Share
Right of Dividend	Preference shares are paid dividend before the Equity shares.	Equity shares are paid dividend out of the balance of profit available after the dividend paid to preference shareholders.
Rate of Dividend	Rate of dividend is fixed.	Rate of dividend is decided by the Board of Directors, year to year depending on profits.
Convertibility	Preference Shares may be converted into Equity shares, if the terms of issue provide so.	Equity shares are not convertible.

Or

What are the steps involved in installation of computerised accounting system (CAS)?   8

17. Mihir and Karan are partners in a firm sharing profits in the ratio of 3:2. On April 1, 2022 their Balance Sheet was as under: 3+3+2=8

Balance Sheet

Liabilities	Rs.	Assets	Rs.
Sundry Creditors Capital: Mihir = 70,000 Karan = 60,000	85,000     1,30,000	Bank Stock Plant and Machinery Building Goodwill Debtors                       = 24,000 Less Provision               = 1,000	10,000 22,000 40,000 1,00,000 20,000   23,000
	2,15,000		2,15,000

On the above date, they admitted Sunil as a new partner on the following terms:

(1) Sunil will bring Rs. 50,000 for his capital.

(2) He would get 1/5^th share in the future profits.

(3) Goodwill of the firm is valued at Rs. 1,20,000.

(4) Sunil will bring necessary premium for goodwill.

Pass Journal entries to record the above transaction. Prepare Partner’s Capital Accounts and Balance Sheet of the new firm.

Or

(1) Distinguish between Profit and Loss Account and Profit and Loss Appropriation Account. 5

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.

(2) Mention any three rights of a partner. 3

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.

c) Every partner has a right to share profits with others in the agreed ratio.

18. Biswa and Pradip are partners in a firm. The Trial Balance of the firm as on 31^st December, 2022 was as under: 8

Trial Balance

Debit	Rs.	Credit	Rs.
Drawings: Biswa = 4,000 Pradip = 3,000 Cash at Bank Sundry Debtors Insurance Advertisement Closing Stock Cash in hand Commission Motor Car Machinery	7,000 45,000 40,500 19,740 9,000 12,500 16,300 5,000 20,860 10,000	Capital: Biswa = 65,000 Pradip = 40,000 Sundry Creditors Bank Loan Commission Trading Account (Gross Profit)	1,05,000 18,400 5,000 300 57,200
	1,85,900		1,85,900

Prepare Profit and Loss Account, Profit and Loss Appropriation Account and the Balance Sheet of the firm for the year ended 31^st December, 2022 after considering the following information:

(a) Partners are to share profits and losses in the proportion of 3/5 and 2/5 respectively.

(b) Write off depreciation @ 10% on Machinery and 20% on Motor Car.

(c) Create a provision of 5% on Sundry Debtors for Doubtful Debts.

(d) Partners are entitled to Interest on Capital @ 5% per annum and Pradip is entitled to a salary of Rs. 1,800 per annum.

For Old Course: (in lieu of Project Works)

19. Answer the following questions: (any four) 5 x 4 = 20

(a) Write distinctions between Fixed Capital Account and Fluctuating Capital Account.

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 the same.	Opening and Closing balance changed 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.
5. Number of Accounts	Two accounts i.e. capital and current account is maintained.	Only one account i.e. capital account is maintained.
6. Specific mention	If capital is fixed, then it should be specifically mentioned in the deed.	It is not necessary to be mentioned in the deed.

(b) What is Ratio Analysis? Mention any three limitations of ratio analysis.

Ans: Answer: 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.

According to J. Betty,” The term accounting ratio is used to describe significant relationships which exist between figures shown in a balance sheet and in a profit and loss account.”

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.

(c) Explain uses of Financial Statement.

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

a) To provide information about economic resources and obligations of a business.

b) To provide information about earning capacity of the business and its ability to operate of profit in future.

c) To provide information that is useful in predicting the future earning power of the enterprise.

d) To judge the effectiveness of management.

e) To provide the base for tax assessments.

f) To provide reliable information about the changes in economic resources that result from profit directed activities.

g) To show the financial strength and weakness of the enterprise.

(d) What is meant by Cash Flow Statement? Mention any three objectives of preparing cash flow statement.

Ans: Ans: Cash Flow Statement:  Cash­ flow is made up of two words i.e. Cash and Flow, whereas Cash means cash balance in hand including cash at bank, and Flow means changes (which may be increase or decrease) in the cash movements of the business. So, Cash Flow Statement is a statement which shows the movement of cash and cash equivalents over a particular period of time and also analyses the reasons for changes in balance of cash in hand and at bank between two accounting period. It shows the inflows and outflows of cash and cash equivalents.

Objectives/Importance/Uses/Significance of Cash Flow Statement

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.

(e) Explain the average profit method of valuation of goodwill. What is Revaluation Account?

Ans: Average Profits Method: In this method, Actual maintainable profits of business over a number of years are taken into account. Actual maintainable profits earned over a number of years are totalled and average is determined by dividing total with number of years. The average profits so determined are multiplied by the number of year’s purchases to arrive at the value of goodwill.

For calculation of goodwill following steps are to be followed

a) Calculate Actual maintainable profits with the help of following formula. Actual maintainable profits = Net Profit + Abnormal loss – Abnormal Gain – regular business expenses not considered in accounts.

b) Calculate Average Maintainable Profit = Total Actual maintainable profits /no of years.

c) Calculate goodwill = Average maintainable Profit x no. of year’s purchase

Revaluation Account: At the time of reconstitution of partnership, it is necessary to revalue the assets and liabilities of the firm because the book value of the assets and liabilities as shown in balance sheet may be different from their market value. To record any decrease or increase in the value of assets and liabilities, a separate nominal account is prepared which is called revaluation account. The Revaluation account is credited if there is an increase in the value of assets, decrease in the value of liabilities and unrecorded assets. On the other hand, it is debited if there is any decrease in the value of assets, an increase in the value of liabilities and unrecorded liabilities. This account is a nominal account and is sometimes also called Profit and Loss adjustment account. The profit or Loss arising due to revaluation is divided among the old partners in their old ratio.

***