Accounting Equation is also known as Balance Sheet Equation as already discussed in the previous article on Balance Sheet Equation. Here is the break-up analysis of 50 transactions given below, showing the effect of these transactions on Capital, Liability and Asset.

Students can use C + L = A or A - L = C but C + L = A is preferred as it aligns the normal Balance Sheet columns.

The presentation of the effect of transactions can be given in horizontal or vertical form. Here, only horizontal way has been given. Either way the effect is same.

Here’s a breakdown of 50 sample transactions along with their balance sheet equation effects (Assets = Liabilities + Equity):

Effect of 50 Transactions on Accounting Equation

1. Started business with cash.

Cash - Asset - Increase

Capital - Increase

2. Started business with cash, bank balance.

Cash - Asset - Increase,

Bank – Asset- Increase

Capital - Increase

3. Borrowed loan from State Bank of India.

Bank - Asset – Increase,

SBI’s loan – Liability - Increase

4. Borrowed loan from a friend.

Bank - Asset - Increase,

Friend’s loan - Liability - Increase

5. Purchased machinery for cash.

Machinery - Asset - Increase,

Cash - Asset - Decrease

6. Purchased machinery for cash, payment made by cheque.

Machinery - Asset - Increase,

Bank - Asset - Decrease

7. Purchased furniture, payment made by accepting a bill of exchange

Furniture – Asset – Increase,

Bills Payable - Liability - Increase

8. Purchased goods, 50% payment made by cheque.

Stock – Asset - Increase,

Bank - Asset - Decrease,

Creditors - Liability - Increase

9. Goods purchased on credit, now returned.

Creditors - Liability - Decrease,

Stock – Asset - Decrease

10. Sold goods for cash.

Cash - Asset - Increase

Stock – Asset - Decrease

11. Sold goods on credit.

Debtors - Asset - Increase

Stock – Asset - Decrease

12. Sold goods, 50% payment received in cash.

Cash - Asset - Increase

Debtors - Asset - Increase

Stock – Asset - Decrease

13. Payment of an instalment of State bank of India’s loan.

SBI’s loan – Liability – Decrease,

Bank – Asset - Decrease

14. Bills Receivable received from a debtor.

Bills Receivable – Asset – Increase,

Debtors – Asset - Decrease

15. Deposited into Canara bank.

Canara Bank – Asset – Increase,

Cash – Asset - Decrease

16. Withdrew from bank for office use.

Cash - Asset – Increase,

Bank - Asset – Decrease

17. Withdrew from bank for domestic use.

Drawings – Capital – Decrease,

Bank – Asset - Decrease

18. Payment of wages, rent by cheque.

Wages and Rent – Capital (Expenses) – Decrease,

Bank – Asset - Decrease

19. Returned to friend, loan borrowed from him, by cheque.

Friend’s loan – Liability – Decrease,

Bank – Asset - Decrease

20. Bad Debts (Debtors didn’t pay their dues, declared insolvent by court).

Bad Debts – Capital (Expense) – Decrease,

Debtors – Asset - Decrease

21. Cash received from Munim for commission.

Cash – Asset – Increase,

Commission – Capital (Income) - Increase

22. Received rent by cheque

Bank – Asset – Increase,

Rent – Capital (Income) - Increase

23. Goods returned by our customers.

Stock – Asset – Increase,

Debtors – Asset - Decrease

24. Collection of cash from debtors after discount.

Cash - Asset - Increase

Discount Allowed – Capital (Expense) - Decrease

Debtors - Asset - Decrease

25. Payment to creditors after discount.

Creditors - Liability - Decrease

Cash – Asset – Decrease

Discount received – Capital - Increase

26. Depreciation on asset.

Depreciation – Capital (Expense) - Decrease

Asset - Decrease

27. Appreciation to asset.

Asset - Increase

Appreciation – Capital - Increase

28. Interest on Loan.

Interest on Loan – Capital - Decrease

Loan – Liability - Increase

29. Interest on bank deposit.

Bank - Asset - Increase

Interest on Bank Deposit – Capital - Increase

30. Outstanding expenses.

Expenses – Capital - Decrease

Outstanding expenses – Liability - Increase

31. Expenses paid in advance (when these are paid).

Prepaid expenses - Asset - Increase

Cash – Asset - Decrease

32. Accrued Income.

Accrued Income - Asset - Increase

Income – Capital - Increase

33. Income received in advance. (when it is received).

Cash - Asset - Increase

Income received in advance – Liability - Increase

34. Withdrew goods for personal use.

Drawings - Capital - Decrease

Stock – Asset - Decrease

35. Goods given as charity.

Charity – Capital - Decrease

Stock – Asset - Decrease

36. Prepaid Expenses (Adjustment)

Prepaid Expenses - Asset - Increase

Expenses – Capital - Decrease

37. Interest On Capital.

Interest on Capital - Capital – Increase and - Decrease

38. Interest on Drawings.

Interest on Drawings - Capital – Decrease and - Increase

39. Loss By Fire (Theft)

Loss by Fire (Theft) – Capital - Decrease

Stock – Asset - Decrease

40. Received a Cheque from Angad, directly deposited into bank.

Bank - Asset - Increase

Angad – Asset - Decrease

41. Collected accounts Receivable

Cash – Asset – Increase

Accounts Receivable – Asset - Decrease

42. Purchased vehicle with loan

Vehicle – Asset – Increase

Loan – Liability - Increase

43. Owner withdrew cash

Cash – Asset – Decrease

Capital - Decrease

44. Paid off accounts payable

Accounts Payable – Liability – Decrease

Cash/Bank – Asset - Decrease

45. Provided services on credit

Debtors – Asset – Increase

Service Income - Capital - Increase

46. Owner invested additional cash

Cash – Asset – Increase

Capital - Increase

47. Received interest income

Cash – Asset – Increase

Interest - Capital - Increase

48. Paid insurance premium

Insurance – Capital – Decrease

Cash/Bank – Asset - Decrease

49. Paid for software subscription

Software Expenses – Capital – Decrease

Cash – Asset - Decrease

50. Paid for employee medical insurance

Employee Benefit Expenses – Capital – Decrease

Cash – Asset - Decrease

Note:

Name of the expense, asset, liability, debtor, creditor etc. is to be used if given.

For payment Cash/ Bank is to be used depending on the case.

Learning Games and Activities in Accountancy – Class 11

The post Effect of 50 Transactions on Accounting Equation appeared first on Commerceatease - Website for 11th & 12th Commerce.

The Accountancy exam is a culmination of your year-long efforts and hard work. It requires not only a sound understanding of the subject but also meticulous attention to detail during the exam. Here are some essential precautions and tips to keep in mind:

Relax and Concentrate
Firstly, it’s crucial to remain calm and composed. The exam is an opportunity to showcase your knowledge and efforts. Take a deep breath, focus on the task at hand, and believe in yourself.

Read the Instructions
Before you dive into the questions, make sure to read the instructions on the backside of the title page of your answer sheet carefully. Understanding these guidelines will help you avoid any unnecessary mistakes.

Utilize the Fifteen Minutes Reading Time
Make the best use of the fifteen minutes of reading time provided. Plan your approach and grasp what is required for each question. Identify the questions you are most confident about and those that might need more time.

Follow the Sequence
When attempting the questions, follow a sequence that works best for you. Start with the questions you know well and leave space for the more challenging ones to be addressed later. Start from Part A or Part B. This strategy ensures that you secure marks for the answers you are confident about.

Double-Check the Questions
Before writing your answers, read each question once more to ensure you fully understand what is being asked. This precaution will help you avoid any misinterpretation and ensure that you provide relevant answers.

Avoid Common Mistakes
Common mistakes in the Accountancy exam often occur due to rushing rather than a lack of knowledge. Stay calm and take your time to avoid simple errors. Double-check your calculations and ensure accuracy.

Proper Format for Accounts and Statements
Ensure that the format of accounts and statements is drawn correctly. Neatness and proper formatting play a significant role in scoring well. If applicable, underline the main figures or enclose them in boxes for clarity.

Include Working Notes
Working notes are an integral part of the solution. Always show your working notes clearly, and keep rough work separate. This practice demonstrates your methodical approach to solving problems.

Symmetry in Digits
When writing digits in statements and accounts, maintain symmetry. This practice saves time and effort during totaling and reduces the chances of errors.

Fill in the Blanks and MCQs
For fill-in-the-blank questions (In case there is any), write the entire question along with the answer, and underline or highlight the answer figures and entries. For multiple-choice questions (MCQs), write the part number followed by the answer statement clearly. Skip one or two lines between MCQ answers for better readability.

Start Long Questions on a Fresh Page
Always start long questions on a fresh page. This practice helps in organizing your answers and makes it easier for the examiner to follow your work.

Correcting Mistakes
If you need to correct something, use a single horizontal stroke to cut through the word, amount, or sentence. If you need to cancel an entire statement or account, draw a big cross over it. Avoid making your answer sheet messy with too many corrections.

So, these were 12 Tips to Attempt Accountancy Exam. Following these will definitely help you attempting the exam perfectly.

MCQs on Partnership Accounting Class 12

MCQs on Company Accounts Class 12

MCQs on Analysis of Financial Statements

The post 12 Tips to Attempt Accountancy Exam. appeared first on Commerceatease - Website for 11th & 12th Commerce.

Case Based Questions in Accountancy Class 12 are designed to test your understanding of accounting concepts in real-world scenarios. They typically present a situation or a business case, and you're asked to analyze it, apply accounting principles, and make decisions based on the data provided. These questions often require a deeper level of thinking and problem-solving skills.

Common Topics for case-Based Questions:

Here are some common topics you might prepare for case study questions:

1. Partnership accounts: Dealing with the accounting aspects of partnerships, such as admission, retirement, or dissolution of partners.
2. Issue of shares and debentures: Recording and accounting for the issue of shares or debentures in a company.
3. Ratio analysis: Analyzing financial ratios to assess the performance and financial health of a business.
4. Comparative Statements: Filling the missing information.
5. Cash Flow Statement: Analysis of different activities resulting in cash flows - inflows or outflows.

Case-Based Questions from CBSE Resources

Following are a few questions taken from CBSE resources for Case Based Questions:

Question 1: (Fundamentals of Partnership Accounting)

Read the following hypothetical text and answer the given questions:
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 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 Mahesh. Such a promising performance for 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 Sundaram as a new partner and offered him 20% as a share of profits along with monthly remuneration of ₹ 2,500. Sundaram was asked to introduce ₹1,30,000 for capital and ₹70,000 for premium for goodwill. Besides this Sundaram was required to provide Rs.1,00,000 as loan for two years. Sundaram readily accepted the offer. The terms of the offer were duly executed, and he was admitted as a partner.

Questions:
Q1 Remuneration will be transferred to .............. of Amit and Mahesh at the end of the accounting period.
(a) Capital account.
(b) Loan account.
(c) *Current account.
(d) None of the above.

Q2 Upon the admission of Sundaram the sacrifice for providing his share of profits would be done:
(a) by Amit only.
(b) by Mahesh only.
(c) by Amit and Mahesh equally.
(d) *by Amit and Mahesh in the ratio of 3:2.

Q3 Sundaram will be entitled to a remuneration of ...............at the end of the year. *(₹15,000)

Q4 While taking up the accounting procedure for this reconstitution the accountant of the firm Mr. Suraj Marwaha faced a difficulty. Solve it be answering the following:
For the amount of loan that Sundaram has agreed to provide, he is entitled to interest thereon at the rate of .............. *(6% p.a.)

Case Based Questions in Accountancy

Question 2: (Admission of Partner)

Sterling enterprises is a partnership business with Ryan, Williams and Sania as partners engaged in production and sales of electrical items and equipment. Their capital contributions were ₹50,00,000, ₹50,00,000 and ₹80,00,000 respectively with the profit the sharing ratio of 5:5:8. As they are now looking forward to expanding their business, it was decided that they would bring in sufficient cash to
double their respective capitals. This was duly followed by Ryan and Williams but due to unavoidable reasons Sania could not do so and ultimately it was agreed that to bridge the shortfall in the required capital a new partner should be admitted who would bring in the amount that Sania could not bring and that the new partner would get share of profits equal to half of Sania’s share which would be sacrificed by Sania only. Consequent to this agreement Ejaz was admitted and he brought in the required capital and ₹30,00,000 as premium for goodwill.
Based on the above information you are required to answer the following questions.

Q1 What will be the new profit-sharing ratio of Ryan, Williams, Sania and Ejaz?
(a) 1:1:1:1
(b) 5:5:8:8
*(c) 5:5:4:4
(d) None of the above

Q2 What is the amount of capital brought in by the new partner Ejaz?
(a) ₹50,00,000
*(b) ₹80,00,000
(c) ₹40,00,000
(d) ₹30,00,000

Q3 What is the value of the goodwill of the firm?
*(a) ₹1,35,00,000
(b) ₹30,00,000
(c) ₹1,50,00,000
(d) Cannot be determined from the given data.

Q4 What will be correct journal entry for distribution of Premium for Goodwill brought in by Ejaz?
(a) Ejaz Capital A/c ……………...Dr. ₹30,00,000
To Sania’s Capital A/c ₹30,00,000
*(b) Premium for Goodwill A/c….......…Dr. ₹30,00,000
To Sania’s Capital A/c ₹30,00,000
(c) Premium for Goodwill A/c…........…Dr. ₹30,00,000
To Reyan’s Capital A/c ₹8,33,333
To William’s Capital A/c ₹8,33,333
To Ejaz’s Capital A/c ₹13,33,333
(d) Premium for Goodwill A/c…......…Dr. ₹30,00,000
To Reyan’s Capital A/c ₹10,00,000
To William’s Capital A/c ₹10,00,000
To Ejaz’s Capital A/c ₹10,00,000

Case Based Questions in Accountancy

Question 3: (Accounting for Share Capital)

Nidiya limited was incorporated on 1stApril 2017 with registered office in Mumbai. The capital clause of memorandum of Association reflected a registered capital of 8,00,000 equity shares of ₹10 each and 1,00,000 preference shares of ₹50 each. Since some large investments were required for building and machinery the company in consultation with vendors, Ms. VPS Enterprises, issued 1,00,000 equity shares and 20,000 preference shares at par to them in full consideration of assets acquired. Besides this the company issued 2,00,000 equity shares for cash at par payable as ₹3 on application, ₹2 on allotment, ₹3 on first call and ₹2 on second call. Till date second call has not yet been made and all the shareholders have paid except Mr. Ajay who did not pay allotment and calls on his 300 shares and Mr. Vipul who did not pay first call on his 200 shares. Shares of Mr. Ajay were then forfeited and out of them 100 shares were reissued at ₹12 per share.

Based on above information you are required to answer the following questions:

Q1 Shares issue to vendors of building and machinery, Ms. VPS Enterprises, would be classified as:
(a) Preferential Allotment
(b) Employee Stock Option Plan
(c) *Issue for Consideration other than cash
(d) Right Issue of Shares

Q2 How many equity shares of the company have been subscribed?
(a) 3,00,000
(b) 2,99,500
(c) *2,99,800
(d) None of these

Q3 What is the amount of security premium reflected in the balance sheet at the end of the year?
(a) ₹200
(b) ₹600
(c) *₹400
(d) ₹ 1,000

Q4 What amount of share forfeiture would be reflected in the balance sheet?
(a) *₹600
(b) ₹900
(c) ₹200
(d) ₹ 300

Case Based Questions in Accountancy

Question 4: (Cash Flow Statement)

Read the following hypothetical text and answer the given questions on the basis of the same:
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 was ₹31,25,000. This profit was arrived after taking into consideration the following items: -
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                             31.03.2020 (in ₹)                      31.03.2019 (in ₹)
Prepaid Expenses                      7,50,000                                        5,00,000
Inventory                                  10,50,000                                        8,20,000
Trade Payables                          4,50,000                                        3,50,000
Trade Receivables                    6,20,000                                         5,90,000

Questions:
Q1 Net Profit before tax will be ₹………….
(a)22,50,000 (b) 35,62,500 (c) 39,67,500 *(d) 44,37,500

Q2 Operating profit before working capital changes will be ₹…………                                                                                                                                  (a) 52,17,500 (b) 64,67,500 *(c) 39,67,500 (d) 39,69,500

Q3 Cash from operating activities before tax will be ₹………..
*(a) 35,57,500 (b) 40,67,500 (c) 37,87,500 (d) 35,67,300

Q4 Cash flow from Operating Activities will be ₹…………
(a) 39,95,000 *(b) 31,20,000 (c) 40,67,500 (d) 31,00,000

MCQs on Partnership Accounting Class 12

MCQs on Company Accounts Class 12

MCQs on Analysis of Financial Statements

The post Case Based Questions in Accountancy Class 12 appeared first on Commerceatease - Website for 11th & 12th Commerce.

All these questions have been taken from previous year CBSE examination question papers.

Question 1:

The Quick Ratio of a company is 1 : 2. Which of the following transactions will result in an increase in this ratio?

1. Cash received from debtors
2. *Sold goods on credit
3. Purchased goods on credit
4. Purchased goods on cash

Question 2:

Identify which of the following would result in inflow of cash from operating activities:

1. Payment to creditors
2. Interest received by a non-finance company
3. Dividend received by a non-finance company
4. *Amount received from debtors

Question 3:

Analysis of Financial Statements is useful and significant to different users. Which of the following users is particularly interested in firm's ability to meet their claims over a very short period of time?

1. Labour Unions
2. *Trade Payables
3. Top Management
4. Finance Manager

Question 4:

_____ ratios are calculated to determine the ability of the business to service its debt in the long run.

1. Liquidity
2. Turnover
3. *Solvency
4. Profitability

Question 5:

Acquisition of machinery by issue of equity shares will result in:

1. Cash inflow from financing activities
2. Cash outflow from financing activities
3. Cash outflow from investing activities
4. *No flow of cash

MCQs on Analysis of Financial Statements

Question 6:

The transaction "Capital gains tax paid on sale of fixed assets" is classified under which of the following:

1. Operating Activities
2. *Investing Activities
3. Financing Activities
4. Cash and Cash Equivalents

Question 7:

Which of the following is not an objective of Analysis of Financial Statements?

1. To assess the current profitability and operational efficiency of the firm.
2. To ascertain the relative importance of different components of the financial position of the firm.
3. *To consider the impact of price level changes.
4. To identify the reasons for change in the profitability/financial position of the firm.

Question 8:

_______ is also known as Acid-Test Ratio.

1. Current Ratio
2. *Quick Ratio
3. Gross profit Ratio
4. Operating Ratio

Question 9:

Current Ratio of Super Ltd. is 2 : 1. Which of the following transactions will result in decrease in this ratio?

1. Payment of ₹40,000 to creditors
2. Sale of furniture (book value ₹38,000) for ₹16,000 only
3. *Repayment of long-term loan of ₹7,00,000
4. Cash collected from debtors ₹1,18,000

Question 10:

Statement I: Issue of Debentures will result in inflow of cash.

Statement II: Issue of Debentures to the vendors for purchase of machinery will result in outflow of cash.

Choose the correct option from the following:

1. Both statements are correct.
2. Both statements are incorrect.
3. *Statement I is correct, and Statement II is incorrect.
4. Statement I is incorrect, and Statement II is correct.

MCQs on Analysis of Financial Statements

Question 11:

What will be the effect of “Purchase of Marketable Securities for cash” on Cash Flow Statement?

1. *No effect
2. Inflow from financing activities
3. Outflow from investing activities
4. Outflow from financing activities

Question 12:

₹5,00,000 to acquire shares in Neligare Industries and received a dividend of ₹30,000 after acquisition.

1. Cash outflow from financing activities ₹4,70,000
2. Cash inflow from investing activities ₹4,70,000
3. Cash inflow from financing activities ₹4,70,000
4. *Cash outflow from investing activities ₹4,70,000

Question 13:

The Debt-Equity Ratio of a company is 3 : 2. Which of the following transactions will result in increase in this ratio?

1. Purchase of goods on credit
2. *Issue of Debentures
3. Issue of Equity Shares
4. Cash received from Debtors

Question 14:

Statement I: Issue of fully paid bonus shares out of Securities Premium Account will result in inflow of cash.

Statement II: Cash withdrawn from bank will result in inflow of cash.

In the context of the above two statements, choose the correct option:

1. Both statement I and statement II are correct
2. *Both statement I and statement II are incorrect
3. Statement I is correct, and statement II is incorrect
4. Statement I is incorrect, and statement II is correct

Question 15:

Which of the following tools of Analysis of Financial Statements indicate the trend and direction of financial position and operating results?

1. *Comparative statements
2. Common size statements
3. Cash flow analysis
4. Ratio analysis

MCQs on Analysis of Financial Statements

Question 16:

________ indicate the speed at which activities of the business are being performed.

1. Liquidity ratios
2. *Turnover ratios
3. Solvency ratios
4. Profitability ratios

Question 17:

Which of the following transactions will result in cash flows from operating activities?

1. Cash receipts from sale of investments ₹60,000
2. *Cash receipts from sale of goods ₹94,000
3. Dividend received ₹31,000
4. Payment of cash for purchase of fixed assets ₹3,00,000

Question 18:

Dividend paid by a Finance Company is classified under which of the following:

1. Operating Activities
2. Investing Activities
3. *Financing Activities
4. Cash and Cash Equivalents

Question 19:

The Quick Ratio of a company is 1 : 1. Which of the following transactions will result in increase of this ratio?

1. Purchase of inventory ₹1,50,000 through cheque
2. *Sold inventory on credit ₹ 50,000
3. Outstanding expenses of ₹ 40,000 paid
4. Machinery purchased for cash ₹50,000

Question 20:

Which of the following transactions will result in cash outflow from operating activities?

1. *Payment to creditors
2. Proceeds from sale of investments
3. Dividend received by a non-finance company
4. Depreciation charged on furniture

MCQs on Analysis of Financial Statements

Question 21:

Which of the following is not a limitation of ‘Analysis of Financial Statements’?

1. It is just a study of the reports of the company.
2. It does not consider price level changes.
3. *It ascertains the relative importance of different components of the financial position of the firm.
4. It may be misleading without the knowledge of the changes in accounting procedures followed by a firm.

Question 22:

Ratios that are calculated for measuring the efficiency of operations of business based on effective utilization of resources are known as:

1. Liquidity ratios
2. *Turnover ratios
3. Solvency ratios
4. Profitability ratios

Question 23:

Sale of patents of ₹50,00,000 will result in:

1. Cash inflow of ₹50,00,000 from financing activities
2. Cash outflow of ₹50,00,000 from financing activities
3. Cash outflow of ₹50,00,000 from investing activities
4. *Cash inflow of ₹50,00,000 from investing activities

Question 24:

Income tax paid is classified under:

1. *Operating activities
2. Investing activities
3. Financing activities
4. Cash and cash equivalents

Class 12 Accountancy MCQs Financial Statements Analysis

Class 12 Accountancy MCQs Comparative Statements

Class 12 Accountancy MCQs Ratio Analysis

Class 12 Accountancy MCQs Cash Flow Statement

MCQs on Company Accounts Class 12

MCQs on Partnership Accounting Class 12

Case Based Questions in Accountancy Class 12

The post MCQs on Analysis of Financial Statements appeared first on Commerceatease - Website for 11th & 12th Commerce.

The following questions are all from the previous year CBSE question papers. Students can have idea of the level and type of questions asked in examination, to prepare well for the coming final exam.

Question 1:

Alfa Ltd. invited applications for 50,000 equity shares of ₹10 each at a premium of 30%. The whole amount was payable on application. Applications were received for 2,50,000 shares. The company decided to allot the shares on a pro-rata basis to all the applicants. The amount refunded by the company was:

1. ₹32,50,000
2. ₹15,60,000
3. ₹39,00,000
4. *₹26,00,000

Question 2:

Reserve capital is that part of _________ capital which cannot be called except at the time of winding up of the company.

1. Issued
2. Called up
3. *Uncalled
4. Nominal

Question 3:

Xeno Ltd. issued 25,000 equity shares of ₹0 each. The amount was payable as follows: On Application ₹4 per share, On Allotment ₹5 per share, On First and Final call Balance All the shares offered were applied for and allotted. All the money due on allotment was received except on 1,500 shares. These shares were forfeited immediately after allotment. First and final call was not yet made. At the time of forfeiture, Share Capital Account will be debited by:

1. ₹15,000
2. ₹24,000
3. *₹13,500
4. ₹18,000

Question 4:

Assertion (A) : Irredeemable debentures are also known as perpetual debentures.

Reason (R) : The company does not give any undertaking for the repayment of money borrowed by issuing such debentures. They are repayable on the winding up of the company or on the expiry of a long period.

1. *Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
2. Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
3. Assertion (A) is incorrect, but Reason (R) is correct.
4. Assertion (A) is correct, but Reason (R) is incorrect.

Question 5:

Money received in advance from shareholders before it is actually called up by the directors is:

1. *debited to calls in advance account
2. credited to calls in advance account
3. debited to share capital account
4. credited to share capital account

MCQs on Company Accounts

Question 6:

An offer of securities or invitation to subscribe securities to a select group of persons is termed as:

1. Buy back of shares
2. Employee stock option plan
3. *Private placement of shares
4. Sweat Equity

Question 7:

A share of ₹100 on which ₹80 is received is forfeited for non-payment of final call of ₹20. The minimum price at which this share can be reissued is:

1. ₹120
2. ₹100
3. ₹80
4. *₹20

Question 8:

Shiv Ltd. forfeited 500 shares of ₹10 each on which ₹7 per share was paid. These shares were reissued for ₹9 per share fully paid. Amount transferred to Capital Reserve Account will be:

1. *₹3000
2. ₹5000
3. ₹4500
4. ₹3500

Question 9:

If a share of ₹100 on which ₹70 has been paid is forfeited, then at which minimum price can it be re-issued ?

1. ₹100
2. *₹30
3. ₹70
4. ₹130

Question 10:

If a share of ₹10 issued at a premium of ₹2 per share, on which ₹8 (including premium) has been called and ₹6 (including premium) has been paid by the shareholder, is forfeited, then Share Capital Account will be debited with :

1. ₹10
2. ₹4
3. ₹8
4. *₹6

MCQs on Company Accounts

Question 11:

On 1st April 2022, Mega Ltd. issued 30,000, 10% Debentures of ₹100 each at a discount of 10%. The total amount of interest due on debentures for the year ending 31st March 2023 will be:

1. ₹2,70,000
2. *₹3,00,000
3. ₹27,000
4. ₹30,000

Question 12:

Maharaja Ltd. took over assets of ₹15,00,000 and liabilities of ₹2,00,000 of Dolphin Ltd. for an agreed purchase consideration of ₹12,60,000. It was agreed that the purchase consideration will be paid by issuing 11% Debentures of ₹100 each at 10% discount. The number of debentures issued will be:

1. 13,000
2. 12,600
3. 10,000
4. *14,000

Question 13:

Misha Ltd. issued 6,000, 8% Debentures of ₹100 each at ₹96 per debenture. 8% Debentures Account will be credited by:

1. ₹5,76,000
2. ₹24,000
3. *₹6,00,000
4. ₹60,000

Question 14:

Nominal/Authorized share capital is:

1. that part of the share capital which is issued by the company.
2. the amount of share capital which is actually applied for by the prospective shareholders.
3. *The maximum amount of share capital which a company is authorized to issue.
4. the amount actually paid by the shareholders.

Question 15:

The debentures which do not have a specific charge on the assets of the company are called:

1. Redeemable Debentures
2. *Unsecured Debentures
3. Zero Coupon Rate Debentures
4. Non-Convertible Debentures

MCQs on Company Accounts

Question 16:

Alfa Ltd. offered for public subscription 50,000 equity shares of ₹10 each at ₹110 per share. The entire amount was payable on application. Applications were received for 48,000 shares and allotment was made to all the applicants. The amount received on application will be:

1. *₹52,80,000
2. ₹55,00,000
3. ₹50,00,000
4. ₹48,00,000

Question 17:

Assertion (A): When the shares are forfeited, share capital account is debited with the amount called up and credited to (i) respective unpaid calls account i.e., calls in arrears and (ii) share forfeiture account with the amount already received on shares.

Reason (R): When the shares are forfeited, all entries relating to the shares forfeited, except those relating to securities premium, already recorded in accounting records must be reversed.

Choose the correct option from the following:

1. *Both Assertion (A) and Reason (R) are correct, and Reason (R) is the correct explanation of Assertion (A).
2. Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
3. Assertion (A) is incorrect, but Reason (R) is correct.
4. Assertion (A) is correct, but Reason (R) incorrect.

Question 18:

Lexa Ltd. issued 50,000 equity shares of ₹10 each at a premium of ₹2 per share. The amount was payable as follows:

On application and allotment ₹7 per share (including premium)

On first and final call Balance

The issue was fully subscribed. All the money was duly received except the first and final call on 1,000 equity shares. These shares were forfeited. On forfeiture of these shares Calls in Arrears Account will be:

1. credited by ₹7,000
2. debited by ₹5,000
3. *Credited by ₹5,000
4. debited by ₹7,000

Question 19:

Minimum subscription for allotment of shares as per Securities and Exchange Board of India (SEBI) guidelines cannot be less than 90% of which of the following capital?

1. Reserve Capital
2. Nominal Capital
3. Subscribed Capital
4. *Issued Capital

Question 20:

KLB Ltd. forfeited 3,000 shares of 10 each, ₹8 per share called up for non-payment of first call of ₹2 per share. All these shares were reissued at ₹7 per share, ₹8 paid up. The amount transferred to Capital Reserve Account will be:

1. ₹18,000
2. ₹24,000
3. *₹15,000
4. ₹3,000

MCQs on Company Accounts

Question 21:

NUK Ltd. forfeited 1,000 shares of ₹10 each, fully called up for non-payment of final call of ₹2 per share. 800 of these shares were reissued at ₹11 per share fully paid. The amount credited to Capital Reserve Account will be:

1. *₹6,400
2. ₹8,000
3. ₹7,200
4. ₹10,000

Question 22:

The debentures which do not carry a specific rate of interest are called:

1. *Zero Coupon Rate Debentures
2. Specific Coupon Rate Debentures
3. Unsecured Debentures
4. Secured Debentures

Question 23:

Beeta Ltd. offered for subscription 1,00,000 equity shares of ₹ 10 each at a premium of 100% payable entirely on application. Applications were received for 5,00,000 equity shares. The company decided to allot the shares on pro-rata basis to all the applicants. The amount received by the company on application was:

1. *₹ 1,00,00,000
2. ₹ 20,00,000
3. ₹ 1,20,00,000
4. ₹ 80,00,000

Question 24:

The amount of share capital which a company is authorized to issue by its Memorandum of Association is called:

1. Issued capital
2. Subscribed capital
3. Reserve capital
4. *Nominal capital

Question 25:

Sinoy Ltd. issued 20,000 shares of ₹ 10 each at a premium of ₹ 6. The amount was payable as follows:

On Application – ₹ 7 per share (Including Premium ₹ 1 per share)

On Allotment – ₹ 5 per share (Including Premium ₹ 2 per share)

On First and Final call – Balance

The issue was fully subscribed. All the money was duly received except the allotment and first and final call on 1,000 shares. These shares were forfeited. On forfeiture of these shares, the ‘Securities Premium Account’ will be debited by:

1. ₹ 2,000
2. ₹ 3,000
3. *₹ 5,000
4. ₹ 20,000

MCQs on Company Accounts

Question 26:

Money not received from shareholders on allotment or calls is:

1. debited to calls in advance account.
2. credited to calls in advance account.
3. *Debited to calls in arrears account.
4. credited to calls in arrears account.

Question 27:

Those debentures where a charge is created on the assets of the company for the purpose of payment in case of default are known as:

1. *Secured Debentures
2. Registered Debentures
3. Specific Coupon Rate Debentures
4. Redeemable Debentures

Question 28:

Nagar Ltd. issued 6,000, 11% Debentures of ₹ 100 each at a discount of 10% redeemable at a premium. ‘Discount on issue of debentures’ and ‘Premium on redemption of debentures’ were accounted for through ‘Loss on issue of debentures account’. If the amount of ‘Loss on issue of debentures’ was ₹90,000, then the amount of premium on redemption of debentures was:

1. ₹ 60,000
2. ₹ 90,000
3. ₹ 1,20,000
4. *₹ 30,000

Question 29:

On 1st April 2022 Surya Ltd. issued 10,000, 12% Debentures of ₹ 100 each at a premium of 5%. The total amount of interest on debentures for the year ended 31st March 2023 will be:

1. *₹ 1,20,000
2. ₹ 50,000
3. ₹ 1,00,000
4. ₹ 1,26,000

Class 12 Accountancy MCQs Share Capital

Class 12 Accountancy MCQs Debentures

Case Based Questions in Accountancy Class 12

The post MCQs on Company Accounts Class 12 appeared first on Commerceatease - Website for 11th & 12th Commerce.

Question 1

Atul, Beena and Sita were partners in a firm sharing profits and losses in the ratio of 8 : 7 : 5. Damini was admitted as a new partner for 1/5th share in the profits which she acquired entirely from Atul. The NPSR after Damini's admission will be:

7 : 7 : 5 : 1

*4 : 7 : 5 : 4

8 : 7 : 5 : 4

7 : 5 : 8 : 4

Question  2

Rushil and Abheer were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted Sunil as a new partner for 3/7th share in the profits of firm, which he acquired 2/7th share from Rushil and 1/7th share from Abheer. The new profit-sharing ratio of Rushil, Abheer and Sunil will be:

4 : 3 : 3

2 : 1 : 3

*2 : 2 : 3

4 : 3 : 1

Question 3

Abhay, Boris and Chetan were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Boris was guaranteed a profit of ₹95,000. Any deficiency on account of this was to be borne by Abhay and Chetan equally. The firm earned a profit of ₹2,00,000 for the year ended 31st March, 2023. The amount given by Abhay to Boris as guaranteed amount will be:

*₹17,500

₹35,000

₹25,000

₹10,000

Question 4

Aavya, Mitansh and Praveen were partners in a firm. On 31st March, 2023, the firm was dissolved. Creditors took over furniture of book value of ₹ 50,000 at ₹ 45,000 in part settlement of their amount of ₹ 60,000. The balance amount was paid to them through cheque. The amount paid through cheque will be:

₹ 10,000

₹ 50,000

₹ 45,000

*₹ 15,000

Question 5

Piyush, Rajesh and Avinash were partners in a firm sharing profits and losses equally. Shiva was admitted as a new partner for an equal share. Shiva brought his share of capital and premium for goodwill in cash. The premium for goodwill amount will be divided among:

Old partners in old ratio

New partners in new ratio

New partners in sacrificing ratio

*Old partners in sacrificing ratio

MCQs on Partnership Accounting

Question 6

Alex, Benn and Cole were partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. They admitted Dona as a new partner for 1/5th share in the future profits. Dona agreed to contribute proportionate capital. On the date of admission, capitals of Alex, Benn and Cole after all adjustments were ₹1,20,000; ₹80,000 and ₹1,00,000 respectively. The amount of capital brought in by Dona will be:

*₹75,000

₹60,000

₹65,000

₹70,000

Question 7

Assertion (A) : Each partner is a principal as well as an agent for all the other partners.

Reason (R) : As per the definition of Partnership Act, partnership business may be carried on by all the partners or any of them acting for all.

Pick the correct option:

Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

*Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

Assertion (A) is correct, but Reason (R) is incorrect.

Assertion (A) is incorrect, but Reason (R) is correct.

Question 8

Abha and Babita were partners in a clay toy making firm sharing profits in the ratio of 2 : 1. On 1st April, 2023, their capital accounts showed balances of ₹5,00,000 and ₹10,00,000 respectively. The partnership deed provides for interest on capital @ 10% p.a. The firm earned a profit of ₹90,000 during the year. The amount of interest on capital allowed to Abha will be:

₹50,000

₹60,000

*₹30,000

₹1,00,000

Question 9

Abha and Babita were partners in a clay toy making firm sharing profits in the ratio of 2 : 1. On 1st April, 2023, their capital accounts showed balances of ₹5,00,000 and ₹10,00,000 respectively. The partnership deed provides for interest on capital @ 10% p.a. The firm earned a profit of ₹90,000 during the year. Babita's share in profit will be:

₹60,000

₹30,000

*Nil

₹1,00,000

Question 10

Mita, Veena and Atul were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Atul retired and his share was taken over by Mita and Veena in the ratio of 1 : 4. The new profit sharing ratio between Mita and Veena after Atul's retirement will be:

3:2

*8:7

7:3

2:3

MCQs on Partnership Accounting

Question 11

Which of the following items cannot be recorded in the capital account of partners if the capital accounts of partners are fixed?

*Drawings

Withdrawal of capital

Introduction of additional capital

Opening balance of capital

Question 12

Ashu and Basu are partners sharing profits and losses in the ratio of 2 : 1. Chetan is admitted as a new partner with 1/4th share in the profits which he acquires equally from Ashu and Basu. The new profit sharing ratio between Ashu, Basu and Chetan will be:

*13 : 5 : 6

13 : 2 : 1

2 : 13 : 5

1 : 1 : 1

Question 13

On 1st January, 2023, Abhishek, a partner, advanced a loan of ₹3,00,000 to the firm. In the absence of a partnership agreement, the amount of interest on the loan for the year ending 31st March, 2023 will be:

₹18,000

*₹4,500

₹9,000

NIl

Question 14

If a partner withdraws a fixed amount at the end of each quarter, interest on drawings will be charged for _____ months.

9

7.5

6

*4.5

Question 15

Bhim, Arjun and Nakul were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. With effect from 1st April, 2023, they agreed to share profits equally. Due to change in the profit sharing ratio, Arjun's sacrifice or gain will be:

Sacrifice 1/30

*Gain 1/30

Sacrifice 1/15

Gain 1/15

MCQs on Partnership Accounting

Question 16

Neeru and Meetu are partners in a firm with capitals of ₹2,00,000 and ₹1,50,000 respectively. If the firm earned a profit of ₹17,500 for the year ended 31st March, 2023, then interest on capital @ 10% p.a. would be:

Neeru ₹ 15,000; Meetu ₹ 20,000

Neeru ₹ 8,750; Meetu ₹ 8,750

Neeru ₹ 20,000; Meetu ₹15,000

*Neeru ₹10,000; Meetu ₹ 7,500

Question 17

At the time of dissolution of a firm, the total assets were ₹6,00,000 and outside liabilities were ₹2,40,000. If assets realised ₹7,20,000 and realisation expenses of ₹ 8,000 were paid, the profit or loss on realisation will be:

Loss ₹1,20,000

Profit ₹ 1,20,000

Loss ₹ 1,12,000

*Profit ₹ 1,12,000

Question 18

Kishore and Bimal are partners in a firm sharing profits and losses in the ratio of 4 : 3. Nand is admitted as a new partner in the firm for 1/4th share in the profits. Kishore and Bimal decide to share profits and losses equally in the future. The sacrificing ratio of Kishore and Bimal will be:

1 : 1

4 : 3

*11 : 3

3 : 11

Question 19

Raju, Sohan and Tina are partners in a firm sharing profits and losses in the ratio of 2 : 2 : 1. Tina is guaranteed a minimum amount of ₹40,000 as share of profit every year. Any deficiency arising on that account shall be borne by Raju. If profit of the firm for the year ended 31st March, 2023 is ₹1,60,000, Raju will bear a deficiency of:

*₹8,000

₹40,000

₹48,000

₹4,000

Question 20

Assertion (A) : The court does not intervene when dissolution of partnership takes place.

Reason (R) : Dissolution of partnership takes place by mutual agreement between the partners.

Choose the correct option from the following:

*Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is incorrect, but Reason (R) is correct.

Assertion (A) is correct, but Reason (R) is incorrect.

MCQs on Partnership Accounting

Question 21

Manas and Ranvir are partners in a firm having capital balances of ₹1,20,000 and ₹ 80,000 respectively. Sanju is admitted as a new partner in the firm for 1/5th share in future profits. Sanju brought ₹1,00,000 as his capital. The goodwill of the firm on Sanju's admission will be:

₹5,00,000

*₹2,00,000

₹3,00,000

₹1,00,000

Question 22

Assertion (A) : In a partnership firm, at the time of admission, the new partner brings in an agreed amount of capital either in cash or in kind.

Reason (R) : In a partnership firm, at the time of admission, the new partner acquires the right to share the assets and the profits of the partnership firm. Choose the correct option from the following:

*Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

Assertion (A) is incorrect, but Reason (R) is correct.

Assertion (A) is correct, but Reason (R) is incorrect.

Question 23:

Shrikant and Ajay were partners in a firm sharing profits and losses in the ratio of 5 : 3. Shrikant withdrew ₹10,000 in the beginning of each quarter during the year ended 31st March, 2023. Interest on Shrikant’s drawings @ 6% p.a for the year ended 31st March, 2023 will be :

(A) ₹2,400

(B) ₹1,200

*(C) ₹1,500

(D) ₹900

Question 24:

Abha, Manju and Rhea were partners in a firm sharing profits and losses in the ratio of 3 : 3 : 4. During the year ended 31st March, 2023, Rhea withdrew ₹30,000 at the beginning of each half year. Interest on Rhea’s drawings @ 10% p.a. for the year ended 31st March, 2023 will be :

(A) ₹6,000

*(B) ₹4,500

(C) ₹3,000

(D) ₹1,500

Question 25:

Seema and Laksh were partners in a firm sharing profits and losses in the ratio of 2 : 1. Their capitals were ₹2,00,000 and ₹1,80,000 respectively. They admitted Aadi as a new partner on 1st April, 2023 for 1/5th share in future profits. Aadi brought ₹1,50,000 as his share of capital. The goodwill of the firm on Aadi s admission will be :

(A) ₹7,50,000

*(B) ₹2,20,000

(C) ₹3,70,000

(D) ₹1,50,000

MCQs on Partnership Accounting

Question 26:

Lata, Mehu and Namita were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. They decided to dissolve the firm on 31st March, 2023. Creditors took over stock of book value of ₹80,000 at 80%, in part settlement of their amount of ₹90,000. The balance amount was paid to the creditors by cheque. The amount paid by cheque to the creditors will be :

*(A) ₹26,000

(B) ₹64,000

(C) ₹80,000

(D) ₹1,44,000

Question 27:

Sanya, Sarthak and Nitya were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 1. They decided to dissolve the firm on 31st March, 2023. On this date, the firm had debtors amounting to ₹3,00,000 and provision for doubtful debts of ₹30,000. On dissolution, debtors for ₹20,000 proved bad and the remaining debtors realised 90%. Amount realised from the debtors will be :

(A) ₹3,00,000

(B) ₹2,25,000

(C) ₹2,80,000

*(D) ₹2,52,000

Question 28:

Geeta and Hari were partners in a firm sharing profits and losses in the ratio of 3 : 2. Krish was admitted as a new partner for 1/5th share in profits of the firm which he acquired from Geeta and Hari in the ratio of 2 : 3. Krish brought ₹1,00,000 as his share of capital and ₹50,000 as premium for goodwill in cash. The sacrificing ratio of Geeta and Hari will be :

(A) 3 : 2

(B) 1 : 1

*(C) 2 : 3

(D) 13 : 7

MCQs on Partnership Accounting

Question 29:

Manu, Sonu and Rahul were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. With effect from 1st April, 2023, they decided to share profits and losses in the future in the ratio of 3 : 2 : 1. Their Balance Sheet showed Workmen Compensation Reserve of ₹84,000. The claim on account of Workmen Compensation is estimated at ₹75,000. The journal entry to give effect to the above transaction will be :

*(A) Workmen Compensation Reserve A/c Dr 84,000

To Workmen Compensation Claim A/c 75,000

To Manu’s Capital A/c 4,000

To Sonu’s Capital A/c 3,000

To Rahul’s Capital A/c 2,000

(B) Workmen Compensation Reserve A/c Dr 84,000

To Workmen Compensation Claim A/c 75,000

To Manu’s Capital A/c 4,500

To Sonu’s Capital A/c 3,000

To Rahul’sCapital A/c 1,500

(C) Manu’s Capital A/c Dr 500

To Rahul’s Capital A/c 500

(D) Workmen Compensation Reserve A/c Dr 84,000

To Workmen Compensation Claim A/c 75,000

To Manu’s Capital A/c 3,000

To Sonu’s Capital A/c 3,000

To Rahul’s Capital A/c 3,000

Question 30:

Assertion (A) : Partner current accounts under Fixed Capital Method may show a debit or a credit balance.

Reason (R) : In the Fixed Capital , all items like share of profit or loss, interest on capital, drawings, interest on drawings etc. are recorded in the partners capital accounts.

Choose the correct option from the following :

(A) Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

(B) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

*(C) Assertion (A) is correct, but Reason (R) is not correct.

(D) Both Assertion (A) and Reason (R) are not correct.

MCQs on Partnership Accounting

Question 31:

Read the following hypothetical situation and answer questions No. 1 and 2 on the basis of the given information :

Richa, Sheena and Tapti were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. The partnership deed provided for charging interest on drawings @ 10% p.a. The drawings of Richa, Sheena and Tapti during the year ended 31st March, 2023 amounted to ₹50,000, ₹40,000 and ₹30,000 respectively. The net profit for the year ended 31st March, 2023 was ₹57,000.

(a) Sheena’s interest on drawings will be :

(A) ₹5,000

(B) ₹4,000

(C) ₹3,000

*(D) ₹2,000

(b) Tapti’s share of profit will be :

(A) ₹11,500

(B) ₹34,500

*(C) ₹10,500

(D) ₹23,000

Question 32:

Nicku, Mala and Ritu were partners in a firm sharing profits in the ratio of 5 : 3 : 2. Nicku died on 30th September, 2023. The deceased partner was entitled to his share of profit up to the date of death which was to be calculated on the basis of previous year profit. ₹80,000. Nicku s share of profit will be :

(A) ₹10,000

*(B) ₹20,000

(C) ₹30,000

(D) ₹40,000

Question 33:

Nikhil, Arun and Mansi were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 3. With effect from 1st April, 2023, they decided to share profits and losses in the ratio of 5 : 3 : 2. Due to change in the profit s gain or sacrifice will be :

(A) Gain 1/10

(B) Sacrifice 3/10

*(C) Sacrifice 1/10

(D) Gain 3/10

Question 34:

Hema and Tara were partners in a firm sharing profits and losses in the ratio of 2 : 3. They admitted Ojas as a new partner. Hema surrendered 1/3rd of her share and Tara surrendered ½  of her share in favour of Ojas. The new profit sharing ratio of Hema, Tara and Ojas will be :

*(A) 8 : 9 : 13

(B) 3 : 2 : 5

(C) 2 : 3 : 5

(D) 2 : 3 : 25

Question 35:

Aaroh, Bhuvan and Charu were partners in a firm sharing profits and losses in the ratio of 1 : 2 : 6. Charu died. Aaroh and Bhuvan acquired Charu’s share in 2 : 1. The new profit sharing ratio between Aaroh and Bhuvan after Charu’s death would be:

(A) 2 : 1

(B) 1 : 2

*(C) 5 : 4

(D) 4 : 5

MCQs on Partnership Accounting

Question 36:

Renu, Trilok and Mansi were partners in a firm sharing profits and losses in the ratio of 9 : 6 : 5. Hina was admitted as a partner for 1/10th share in the profits which she acquired equally from Renu and Trilok. The new profit sharing ratio after Hina’s admission will be :

(A) 5 : 5 : 2 : 8

(B) 5 : 5 : 8 : 2

(C) 8 : 2 : 5 : 5

*(D) 8 : 5 : 5 : 2

Question 37:

Ashu and Ria were partners in a firm sharing profits and losses in the ratio of 4 : 3. They admitted Nitu for a 3/7th share in the profits of the firm, which she took 2/7th from Ashu and 1/7th from Ria. The new profit sharing ratio between Ashu, Ria and Nitu will be :

(A) 4 : 3 : 3

(B) 2 : 1 : 3

*(C) 2 : 2 : 3

(D) 4 : 3 : 2

Question 38:

Nikhil and Sharat were partners in a firm sharing profits and losses in the ratio of 4 : 3. Nikhil withdrew ₹ 6,000 on the first day of every quarter for the year ended 31st March, 2023. Interest on drawings is to be charged @ 5% p.a. Interest on Nikhil’s drawings will be calculated for :

(A) 6 months

(B) 4.5 months

*(C) 7.5 months

(D) 3 months

Question 39:

Pawan, Kavita and Gaurav were partners in a firm. The firm was dissolved. Creditors took over furniture of book value of ₹ 60,000 at 10% less than the book value in part settlement of their amount of ₹ 60,000. The balance amount was paid to them through cheque. The amount paid through cheque will be :

(A) ₹ 5,000

*(B) ₹ 6,000

(C) ₹ 54,000

(D) Nil

Question 40:

Kamini, Lata and Meera were partners in a firm sharing profits and losses equally. Neel was admitted as a new partner for an equal share in the profits of the firm. Neel brought his share of capital and premium for goodwill in cash. On the date of admission of Neel, goodwill appeared in the books at ₹ 1,20,000. The existing goodwill is to be written off among :

*(A) Old partners in old ratio.

(B) New partners in new ratio.

(C) Sacrificing partners in sacrificing ratio.

(D) Old partners in sacrificing ratio

MCQs on Partnership Accounting

Question 41:

Arjun, Babita and Charlie were partners in a firm sharing profits in the ratio of 2 : 2 : 1. They admitted Dheeraj for 1/5th share in the profits of the firm. He has to contribute proportionate capital to acquire 1/5th share in future profits. On the date of admission, the capitals after all adjustments relating to goodwill and revaluation of assets and liabilities, were : Arjun ₹ 62,000, Babita ₹52,000 and Charlie ₹36,000. The capital brought by Dheeraj will be :

*(A) ₹ 37,500

(B) ₹ 30,000

(C) ₹ 32,500

(D) ₹ 35,000

Question 42:

There are two statements Assertion (A) and Reason (R) :

Assertion (A) : The maximum number of partners in a partnership firm are 50.

Reason (R) : The maximum number of partners are prescribed by the Partnership Act, 1932.

Choose the correct option from the following :

(A) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

(B) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

*(C) Assertion (A) is correct, but Reason (R) is incorrect.

(D) Assertion (A) is incorrect, but Reason (R) is correct.

Question 43:

Read the following hypothetical situation and answer questions (a) and (b) on the basis of the given information :

Daksh and Ekansh are partners in a firm sharing profits and losses in the ratio of 3 : 1. Their capitals were ₹ 1,60,000 and ₹ 1,00,000 respectively. As per partnership deed, they were entitled to interest on capital @ 10% p.a. The firm earned a profit of ₹ 13,000 for the year ended 31st March, 2023.

(a) Daksh’s interest on capital will be :

(A) ₹ 5,000

*(B) ₹ 8,000

(C) ₹ 16,000

(D) ₹ 10,000

(b) Ekansh’s share of profit/loss will be :

*(A) Nil

(B) ₹ 9,750 (Loss)

(C) ₹ 3,250 (Loss)

(D) ₹ 9,750 (Profit)

MCQs on Partnership Accounting

Question 44:

There are two statements Assertion (A) and Reason (R) :

Assertion (A) : Court does not intervene in case of dissolution of partnership.

Reason (R) : Dissolution of partnership takes place by mutual agreement among partners.

Choose the correct option from the following:

(A) Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).

*(B) Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

(C) Assertion (A) is correct, but Reason (R) is incorrect.

(D) Assertion (A) is incorrect, but Reason (R) is correct.

Question 45:

Deepa, Elton and Frank were partners in a firm sharing profits in the ratio of 2 : 2 : 1. With effect from 1st April, 2023 they decided to change their profit sharing ratio as 1 : 2 : 2. There existed a Debit Balance of Profit and Loss Account of ₹50,000 in the books of the firm on the date of change in profit sharing ratio. The partners decided to retain the Debit Balance of Profit and Loss Account in the books. The adjustment entry will be :

*(A) Deepa’s Capital A/c Dr. 10,000

To Frank’s Capital A/c 10,000

(B) Deepa’s Capital A/c Dr. 5,000

To Frank’s Capital A/c 5,000

(C) Frank’s Capital A/c Dr. 10,000

To Deepa’s Capital A/c 10,000

(D) Frank’s Capital A/c Dr. 5,000

To Deepa’s Capital A/c 5,000

MCQs on Partnership Accounting

Question 46:

Som, Pam and Ron were partners in a firm sharing profits in the ratio of 7 : 2 : 1. With effect from 1st April, 2023 they decided to change their profit sharing ratio to 1 : 2 : 7. There existed a Credit Balance in the Profit and Loss Account of ₹ 1,00,000 on the date of change in profit sharing ratio in the books of the firm. The partners decided to retain the Credit Balance in Profit and Loss Account in the books. The adjustment entry will be :

(A) Ron’s Capital A/c Dr. 20,000

To Som’s Capital A/c 20,000

*(B) Ron’s Capital A/c Dr. 60,000

To Som’s Capital A/c 60,000

(C) Som’s Capital A/c Dr. 20,000

To Ron’s Capital A/c 20,000

(D) Som’s Capital A/c Dr. 60,000

To Ron’s Capital A/c 60,000

Question 47:

Anu, Bina and Roy were partners in a firm sharing profits and losses in the ratio of 3 : 2 : 1. Roy retired and his share was acquired by Anu. The new profit sharing ratio between Anu and Bina after Roy’s retirement will be :

(A) 3 : 2

(B) 3 : 1

(C) 1 : 1

*(D) 2 : 1

Question 48:

Asha, Yug and Zubin were partners in a firm sharing profits and losses in the ratio of 4 : 3 : 2. Zubin retired. Zubin’s share was acquired equally by Asha and Yug. The new profit sharing ratio between Asha and Yug after Zubin’s retirement was :

(A) 3 : 2

*(B) 5 : 4

(C) 4 : 3

(D) 2 : 1

Class 12 Accountancy MCQs Partnership Basic Concepts

Class 12 Accountancy MCQs Valuation of Goodwill

Class 12 Accountancy MCQs Reconstitution of Partnership Firm

Class 12 Accountancy MCQs Admission of Partner

Class 12 Accountancy MCQs Retirement of Partner

Class 12 Accountancy MCQs Death of Partner

Class 12 Accountancy MCQs Dissolution of Partnership Firm

Case Based Questions in Accountancy Class 12

The post MCQs on Partnership Accounting Class 12 appeared first on Commerceatease - Website for 11th & 12th Commerce.

Students find attempting the case studies difficult normally, but if they attempt case studies after following the tips explained in previous articles, Case Studies Become Easy.

Here 14 Questions on Case Studies have been taken from Sample papers and previous year papers of CBSE, to illustrate the process of solving the case studies easily and score full marks.

Precaution: Always read the question of case study first, then read the case.

Analyze the question properly, to understand the requirement of the examination, before framing the answer.

Given after each question, are the hints and steps to attempt the answer.

Question 1:

The General manager of a reputed organisation, Mr. Agastaya Lokhande, made the following announcement at the Annual General Meeting of the company- “When we think of a brand, we think of reputation, but the reputation is made or broken by the quality of products and customer representation. If people are miserable, they can't give their best work and the brand suffers. On the contrary, positive results can be observed if there is job satisfaction, effective and efficient functioning.”

(I) Identify and explain the feature of management discussed by Mr Agastaya in his announcement.

(II) Explain any three reasons that make management important to any organisation.

Answer:

(I) Management is an intangible force - heading and explanation

(II) Importance of management - Any three points to be explained

Solution of Case Studies

Question 2:

From the following information regarding Aditya Ltd. which is in the business of manufacturing green tea, calculate the Return on Investment and Interest Coverage Ratio of the company: (Show working) Earnings before interest and tax ₹ 15,00,000, 10% debentures ₹ 12,00,000, Equity Share Capital (₹10 each) ₹ 18,00,000, Tax Rate 40%

Answer:

Calculation of Return on Investment (ROI) = 50% (With detailed working)

Calculation of Interest Coverage Ratio (ICR) = 12.5 times (With detailed working)

Solution of Case Studies

Question 3:

Mr Vivek Vaswani, a foodpreneur combined his passion for food with his entrepreneurial skills and started his innovative fast-food outlet OH CHILLI! in 2021. He had started his career as a food blogger and had noticed that numerous Indian consumers were looking for reasonable and pure vegetarian fast food options for dining out. The high-end restaurants were not opted by many as they were exorbitantly priced. Though many global fast-food chains were running across the country, yet not many outlets offered reasonable and healthy pure vegetarian fast food options to consumers. OH CHILLI! became a pioneer in offering a healthy and delicious variety of food.

What came as a surprise for consumers was that even without using onion or garlic in the pasta sauce, marinade and ketchup, the food could actually taste great. The company witnessed an increase in net profit of 26% in its second financial year and became a market leader.

(I) State the concept of business environment.

(II) Identify and explain in what way, a good understanding of business environment enabled Mr. Vivek Vaswani to improve the performance of the enterprise.

Answer:

(I) Business Environment - meaning

(II) It enables the firm to identify opportunities and getting the first mover advantage: Heading and explanation (From importance of Business Environment).

Solution of Case Studies

Question 4:

When Bhaanupriya joined as technical head of Logic Lotus Innovators, she was keen on increasing the productivity and profitability of the company. However, she observed that the employees were demotivated as no attention was given to their work. Also, the workers were given little freedom to make decisions. Bhaanupriya decided to stimulate the employees by giving each worker Tshirts with their name on it. She also decided to include workers in work committees. This helped in improving the performance of the workers.

(I) On the basis of the understanding of Maslow’s Need Hierarchy Theory of motivation, identify the human need that Bhaanupriya has recognized in order to make the subordinates act towards achievement of organizational goals.

(II) Identify and explain two incentives that have been provided by Bhanupriya to improve the performance of the employees.

Answer:

(I) Esteem Needs

(II) Two incentives provided by Bhanupriya:

(a) Employee Recognition programmes: heading and explanation.

(b) Employee Participation: heading and explanation.

Solution of Case Studies

Question 5:

When Chandrashekhar Shukla returned to India after completing a Certificate course in Food Quality Assurance and Quality Control from the Netherlands, he was convinced that he would fulfil his grandfather's dream of converting their 58 acres land into a fertile farm. He started by setting out specific goals and laid down related activities to be performed to achieve the goals. Soon he launched his own company ‘Food and Agribusiness Solutions Private Limited’. He sought to ensure that the future events effectively meet the best interest of the company. He prepared an annual statement for production and sales, based on sales forecasting. He noticed that the farmers grew only paddy due to which land remained idle for the subsequent 8 to 9 months of the year. He identified and assessed various alternatives through which farms could be utilised for the remaining months of the year. Through his accurate vision, judgement and systematic thinking based on analysis of the facts, he presented a scheme to the farmers where both paddy and vegetables could be grown.

Identify and explain the features of one of the functions of Management highlighted above.

Answer:

Function of management discussed here is Planning.

Features of Planning

(1) Planning focuses on achieving objectives: heading and explanation.

(2) Planning is futuristic: heading and explanation.

(3) Planning involves decision making: heading and explanation.

(4) Planning is a mental exercise: heading and explanation.

Solution of Case Studies

Question 6:

It was established by the Government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of the securities market and for investor protection. It was given statutory status in 1992 through an Act of Parliament.

(I) Identify the regulatory body which has been highlighted above.

(II) State the three objectives of the regulatory body identified in part (I).

(III) State any two functions that are performed for the development of the securities market by the regulatory body identified in part (I).

Answer:

(I) Securities Exchange Board of India (SEBI)

(II) Explanation of three objectives of SEBI.

(III) Two developmental functions of SEBI to be explained.

Solution of Case Studies

Question 7:

Leena has been appointed as the Operations Manager in a small trading company dealing in garments, with growing online sales. The company has recently rented space in a warehouse to store garments and mail out orders. In order to take over the responsibilities of order fulfilment, Leena promotes an associate, Kushagra to the post of Inventory and Order fulfilment Supervisor. Kushagra has been given the task to assess whether it is best to process orders as they come in or let them accumulate and then to process them in batches. He concludes that accumulating and then processing them in batches is the best way of fulfilling orders, in order to minimize cost and maximize customer satisfaction. Through several readings Leena finds that the standard time taken from the placement of order to the delivery of garments for a batch of 100 pieces is 72 hours. This helped her to determine the labour cost.

On the basis of the understanding of concepts of scientific management, identify and explain the techniques used by Leena and Kushagra to improve the performance of the employees.

Answer:

Various techniques used by Leena to improve the performance of her employees:

Method Study - Heading and explanation

Time Study - Heading and explanation

Case Studies in Previous year Question Papers

Question 8:

Two ambitious friends, Sana and Mihir, having passion for creating innovative software applications, established a tech startup named ‘Quick Solutions'. Their software was developed in such a way that it caters to the needs of all sections. Since its inception, 'Quick Solutions' was earning enough revenue to cover the costs. They faced countless challenges from competing with large and well-established companies. But they learned from their mistakes and continuously improved their product. Slowly, their software gained recognition for its quality and uniqueness and the company started making profits. It was a big incentive for Sana and Mihir for the continued successful operation of the enterprise. Within two years, the customer base increased manifold. Now, Sana and Mihir decided to make additional capital investment and hired more employees. They invested in research and development and expanded their product line to meet emerging market demands. ‘Quick Solutions' ultimately became the industry leader because of the tireless efforts of Sana and Mihir.

Quoting lines, identify and state the objectives of management discussed in the above case which 'Quick Solutions' seeks to achieve.

Answer:

Organizational Objectives

(i) Survival - ‘Since its inception, 'Quick Solutions' was earning enough revenue to cover the costs’ with explanation.

(ii) Profit - ‘Slowly, their software gained recognition for its quality and uniqueness and the company started making profits’

with explanation.

(iii) Growth - ‘Now, Sana and Mihir decided to make additional capital investment and hired more employees.’

OR

‘They invested in research and development and expanded their product line to meet emerging market demand’.

with explanation.

Solution of Case Studies

Question 9:

Neeraj Ltd. started an airline to provide good quality air services. For the same, he purchased ten aircrafts. Out of these, two aircrafts would be used to train the pilots. It will help them to achieve proficiency in handling the aircrafts before they would actually fly them.

(i) Identify and explain the method of training discussed above.

(ii) State any two advantages the pilots would get from this training.

Answer:

(i) Vestibule Training – Heading and explanation

(II) Two advantages of Vestibule Training.

Question 10:

Vibhas recently joined as a Human Resource Manager of Bajanta Enterprises'. The company had embarked on a special project for which Vibhas had appointed twenty new employees. After the employees underwent on-the-job training for a month and had been on the job for some time, there was a need to evaluate their performance against certain pre-determined standards. Not only this, 'Bajanta Enterprises' had to address the career related issues and promotional avenues for their employees. Vibhas was designing activities to serve their employees' long-term interests.

By doing this, 'Bajanta Enterprises' had completed the two important steps of staffing process. Identify and explain those steps.

Answer:

Two steps of staffing:

(i) Performance Appraisal – Heading and explanation.

(ii) Promotion and career planning - Heading and explanation.

Solution of Case Studies

Question 11:

‘Leno' is a reputed car manufacturing company, which is going to complete its 75 years in October 2024. The Chief Executive Officer of the company decided to take the company to a higher level. For this he called a meeting of all departmental heads of the company. In the meeting, the Chief Executive Officer proposed a target to increase sales by 10% and profits by 20% in its Platinum Jubilee year. The Human Resource Manager estimated that an increase of 500 workers would be required to achieve the target. The Finance Manager suggested that the company must hold adequate cash balances for various purposes, and he will prepare a statement showing the estimated cash inflows and outflows for this particular period.

Identify and explain two types of plans discussed in the above case.

Answer:

Two types of Plans are:

(i) Objectives - Heading and explanation.

(ii) Budget Heading and explanation.

Question 12:

Arushi successfully runs a bookstore 'Children's Delight' catering to children of the age group 5-15 years. They have the complete range of children's books like activity books, colouring books, fiction and much more. The books are of good quality and are highly appreciated by schools, parents and children. They have 16 stores all over India, where children can not only purchase the books, but can also come and read, and participate in quiz competitions and experience the joy of reading. They have their own well managed inventory management, storage, and warehousing to deliver books to locations all over India. The bookstore regularly communicates the availability, features, merits, etc. of the books to target customers and persuades them to buy the books.

Quoting lines in the situation, identify and explain the two elements of marketing mix in addition to 'Product' highlighted in the above case.

Answer:

In addition to Product here means, two other elements than Product…

(i) Place

‘They have 16 stores all over India’.

OR

‘They have their own well-managed inventory management, storage, and warehousing to deliver books to locations all over India’.

Explanation

(ii) Promotion

'The bookstore regularly communicates the availability, features, merits, etc. of the books to target customers and persuades them to buy the books’.

Explanation

Solution of Case Studies

Question 13:

Rewton Ltd. was a reputed computer software company providing unique software all over India. The turnover of the company was very high resulting in good profits. The Chief Executive Officer, Vihaan, was very strict and disciplined. He specified the boundaries of authority and responsibility for achieving organizational goals. There was systematic coordination among the various activities and specific relationships among various job positions. The company provided facilities like a canteen, a gym, a library, a music room, and a rest area for its employees, which they could use during rest intervals. Using these facilities, the employees developed friendships and discussed not only their personal, social and emotional issues, but also the official ones. The General Manager was of a different view. He told the Chief Executive Officer that there was no use providing these facilities to the employees as it is an extra financial burden on the organization on one hand and on the other hand, it encourages groupism and whenever any change is required in the organization, they all resist. He suggested that they should do away with these facilities. But the Chief Executive Officer, Vihaan, explained to the General Manager that this type of social interaction is necessary, and is in the best interest of the organization. These interactions among people at work give rise to a network of social relationships among employees and have many benefits.

(I) Identify and explain the type of organization whose existence the Chief Executive Officer felt was necessary.

(ii) State any two advantages and two disadvantages of the type of organization identified in (i) above.

Answer:

(i) Informal Organization

Explanation

Solution of Case Studies

Question 14:

Nishtha runs a chain of famous restaurants, 'Indian Kitchen', in different parts of Delhi. The restaurant chain was known for good quality food and quick service. 'Indian Kitchen' was generating good revenue and had goodwill in the market. Nishtha would take a weekly report from all the Restaurant Managers and take necessary action to resolve the problems, if any. Nishtha noticed a sudden decline in sales in one of the restaurants. She questioned the Restaurant Manager who mentioned that the restaurant is seeing a gradual decrease in the number of customers but could not provide a clear explanation for it. So, Nishtha formed a team to find out the causes of the declining customers as this is the key area for restaurant business and is critical to the success of business. By doing this, Nishtha is performing a step of the process of a function of management.

1. i) Identify and explain the function of management discussed
2. ii) Explain the step of the function identified in (i) above, followed by Nishtha to find out the causes of declining revenue.

iii) Explain the step Nishtha will take after she gets the report from the team formed to find out the causes of declining revenue.

Answer:

(i) Controlling – Heading and explanation

(ii) Analyzing Deviations - Detailed explanation

(iii) Taking Corrective Action - Detailed explanation

Following articles include more than 70 case studies from all the units of the syllabus.

How to Solve Case Studies?

How to Solve Case Studies in Business Studies?

4 Super Tips to Solve Case Studies in Business Studies Class 12

The post Solution of Case Studies Becomes Easy This Way appeared first on Commerceatease - Website for 11th & 12th Commerce.

The retiring partner must be compensated by the remaining partners by the amount of his share of goodwill by passing the following journal entry:

Remaining Partner's Capital A/c (In gaining ratio)                             Dr.

To Retiring Partner's Capital A/c

Existing goodwill, however, must be written off to all the partners’ capital accounts (including retiring partner) in the old profit-sharing ratio.

All partners’ capital (including retiring partner) A/c (in old ratio)     Dr.

To Goodwill A/c

Treatment of Goodwill on Retirement

Hidden Goodwill on Retirement:

There can be case of hidden goodwill in case of retirement also.

If the payment agreed to be made to the retiring partner is in excess of the claim calculated due to him after all the adjustments relating to Reserves, Revaluation etc., that excess is his share of Hidden Goodwill.

Retiring Partner's Share of Hidden Goodwill = Payment Agreed for Retiring Partner - Claim after all the adjustments

This Share of Retiring Partner in Hidden Goodwill should be adjusted through Capital/Current Accounts of the Gaining Partners in Gaining Ratio, by passing the following Journal Entry:

Gaining Partners' Capital/Current A/cs    Dr. (Shared in Gaining Ratio)

To Retiring Partner's Capital A/c      (Retiring Partner's Share of Hidden Goodwill)

Practice Questions for

Hidden Goodwill in case of Retirement of Partner:

Question 1:

A, B and C are partners sharing profits in 3:2:1. B retires and his capital account after making adjustments for reserves and profit on revaluation exists at ₹70,000. A and C have agreed to pay him ₹1,00,000 in full settlement of his claim. Pass journal entry for treatment of goodwill.

Answer with hints:

(a) B’s share of Hidden Goodwill: ₹30,000

(b) Gaining Ratio: 3:1

(c) A’s Capital A/c     Dr. ₹22,500

C’s Capital A/c     Dr.   ₹7,500

To B’s Capital A/c     ₹30,000

Question 2:

X, Y and Z are partners sharing profits in the ratio of 3:1:2. Z retires and his capital, after making adjustments for reserves and gain (profit) on revaluation is ₹2,80,000. X and Y agreed to pay him ₹3,50,000 in full settlement of his claim. Pass necessary Journal entry for the treatment of goodwill if new profit-sharing ratio is decided at 1:1.

Answer with hints:

(a) Z’s share of Hidden Goodwill: ₹70,000

(b) Gaining Ratio: Only Y gains 1/3 share.

(c) Y’s Capital A/c     Dr.   ₹70,000

To Z’s Capital A/c    ₹70,000

Question 3:

A, B and C were partners sharing profits and losses equally. On 1st April, 2024, A retired and amount due to him on account of share of reserves and revaluation profit was 11,00,000. B and C agreed to pay him ₹12,50,000 on retirement. B and C decide to share future profits and losses in the ratio of 3:2. Pass the necessary Journal entries on A's retirement.

Answer with hints:

(a) A’s share of Hidden Goodwill: ₹1,50,000

(b) Gaining Ratio: 4:1

(c) B’s Capital A/c     Dr.   ₹1,20,000

C’s Capital A/c     Dr.      ₹30,000

To A’s Capital A/c    ₹1,50,000

Question 4:

P, Q and R, are partners sharing profits in the ratio of 4:3:2. Q retires and his capital after making adjustments for reserves and gain (profit) on revaluation stands at ₹89,200. P and R agreed to pay him ₹1,00,000 in full settlement of his claim. Record necessary Journal entry for adjustment of goodwill the new profit-sharing ratio is decided at 5:3.

Answer with hints:

(a) Q’s share of Hidden Goodwill: ₹10,800

(b) Gaining Ratio: 13:11

(c) P’s Capital A/c     Dr.   ₹5,850

R’s Capital A/c     Dr.      ₹4,950

To Q’s Capital A/c    ₹10,800

Class 12 Accountancy MCQs Retirement of Partner

Payment to Retiring Partner

The post Treatment of Goodwill on Retirement of Partner appeared first on Commerceatease - Website for 11th & 12th Commerce.

Meaning 

Hidden Goodwill also called inferred goodwill is there when the value of Goodwill is not specifically given in the question but is implied from the capital brought by new partner for his share in the firm.

Calculation of Hidden Goodwill on Admission of Partner

The value of goodwill is calculated on the basis of the capital of the firm by taking the following steps:

1. Calculate the total capital of the firm on the basis of the capital brought by the new partner.

Total capital of the new firm = New Partner's capital × reciprocal of new partner’s share

2.  Find out the combined capital of all the partners including new partner.

Combined Capital of all Partners = Old Partners’ Adjusted Capitals + New Partner's Capital

3. Hidden Goodwill = Total Capital of the new firm (step 1) - Combined Capital of all Partners (step 2)

Following journal entry should be passed for hidden goodwill:

New Partner's Current A/c (share in hidden goodwill) Dr.

To Sacrificing Partner's Capital A/c (in sacrifice ratio)

Practice Questions 

Hidden Goodwill on Admission of Partner

Question 1:

P and Q are partners in a firm with capital of ₹2,60,000 and ₹4,00,000. R was admitted for 1/3rd share in profit and brings 6,80,000 as capital, calculate the amount of goodwill.

Answer: ₹7,00,000

Question 2:

P and Q were partners in a firm sharing profits and losses equally. Their capitals were ₹3,00,000 and ₹4,00,000 respectively. R was admitted as a new partner for 1/4th share in the profits of the firm for which he brought ₹3,00,000 as his capital. Calculate the amount of goodwill.

Answer: ₹2,00,000

Question 3:

P and Q were partners in a firm sharing profits and losses in the rate 2:1. Their fixed capitals were ₹4,00,000 and ₹5,00,000 respectively. On 1st April, 2024 R was admitted as a new partner for 1/4th share in the profits, R brought ₹4,00,000 for his capital which was to he kept fixed like the capitals of P and Q. R acquired his share of profit from P only. Pass necessary Journal entries for the treatment of Goodwill on R's admission.

Answer with hints:

(a) Hidden Goodwill : ₹3,00,000

(b) New Profit Sharing Ratio: 5:4:3

(c) Sacrifice Ratio: Only P sacrifices.

(d) R’s Current A/c                     Dr. ₹75,000

To P’s Current A/c ₹75,000

Question 4:

A and B were partners in a firm sharing profits in the ratio of 2:3. Their capitals were ₹2,60,000 and ₹2,00,000 respectively. They admitted C on 1st April, 2024 as a new partner for 1/5th share in the future profits, C brought ₹2,40,000 as his capital. Record Journal entries for Goodwill on C's admission.

Answer with hints:

(a) Hidden Goodwill: ₹5,00,000

(b) Sacrifice Ratio of A and B: 2:3

(c) C’s Capital/Current A/c            Dr. ₹100,000

To A’s Capital A/c ₹40,000

To B’s Capital A/c ₹60,000

Question 5:

A and B are partners in a firm. They admit C as a partner with 1/4th share in the profits of the firm. Chetan brings ₹3,00,000 as his share of capital. Value of the total assets of the firm is ₹7,00,000 and outside liabilities are valued at ₹1,25,000 on that date. Give necessary entry to record goodwill at the time of C's admission.

Answer with hints:

(a) Hidden Goodwill: ₹3,25,000

(b) Sacrifice Ratio: 1:1

(c) C’s Capital/Current A/c     Dr. ₹81,250

To A’s Capital A/c ₹40,625

To B’s Capital A/c ₹40,625

Hidden Goodwill on Admission of Partner

Question 6:

A and B are partners with capitals of ₹1,00,000 each. They admit C as a partner for 1/4th share in the profits of the firm. C brings in ₹1,20,000 as his share of capital. Profit & Loss Account showed a credit balance of ₹60,000 as on date of admission of C. Record Journal entries on C’s admission.

Answer with hints:

(a) Hidden Goodwill: ₹1,00,000

(b) Sacrifice Ratio: 1:1

(c) Journal Entries:

(c1) Bank A/c   Dr. ₹1,20,000

To C’s Capital A/c   ₹1,20,000

(c2) Profit & Loss A/c     Dr. ₹60,000

To A’s Capital A/c ₹30,000

To B’s Capital A/c ₹30,000

(c3) C’s Capital/Current A/c     Dr. ₹25,000

To A’s Capital A/c ₹12,500

To B’s Capital A/c ₹12,500

Question 7:

A and B are partners in a firm. They admit C as a new partner with 1/5th share in the profits of the firm. C brings ₹5,00,000 as his share of capital. The assets of the firm consisted of cash ₹25,000, Bank Balance ₹4,20,000, Debtors ₹2,18,000 and Fixed Assets ₹8,37,000 whereas outside liabilities were ₹ 5,00,000 on that date. Give necessary Journal entry to record goodwill at the time of C's admission.

Answer with hints:

(a) Hidden Goodwill: ₹10,00,000

(b) Sacrifice Ratio: 1:1

(c) C’s Capital/Current A/c     Dr. ₹2,00,000

To A’s Capital A/c ₹1,00,000

To B’s Capital A/c ₹1,00,000

Question 8:

A and B are partners sharing profits in the ratio of 3:2. Their capitals on 1st April 2023 were ₹90,000 and ₹150,000 respectively. They admitted C into partnership on that date for 1/5th share in the future profits, which he acquires equally from A and B. C brings in ₹80,000 as his share of Capital. On the date of C's admission, Profit & Loss A/c (Credit) Balance ₹22,000, General Reserve ₹13,000, Advertisement Suspense ₹5,000. Show entries for goodwill.

Answer with hints:

(a) Hidden Goodwill: ₹50,000

(b) Sacrifice Ratio: 3:2

(c) C’s Capital/Current A/c     Dr. ₹10,000

To A’s Capital A/c ₹6,000

To B’s Capital A/c ₹4,000

Treatment of Goodwill on Admission of Partner

Revaluation of Assets and Liabilities

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It is a popular saying, "When Life Gives You Lemons, Make Lemonade".
Life is a journey filled with unexpected twists and turns. Sometimes, it seems as though challenges and obstacles are thrown our way, leaving us with a choice: to succumb to these difficulties or to rise above them. The phrase "When life gives you lemons, make lemonade" embodies the spirit of turning adversity into opportunity, and it has been a guiding light for many who strive to maintain a positive outlook despite life's challenges.

This phrase was initially coined by writer Elbert Hubbard in a 1915 obituary he penned for dwarf actor Marshall Pinckney Wilder. Hubbard praised Wilder's optimistic attitude and achievements in the face of his disabilities, highlighting how Wilder chose to make the best out of his situation, rather than letting it define him.

Make the Best of Every Situation

You can make Make the Best of Every Situation, good or bad, keeping the following in view.

Cultivating Positive Friendships
One of the most powerful ways to cope with life's challenges is by surrounding yourself with positive, supportive friends. These relationships provide emotional support, encouragement, and a sense of belonging. Friends who lift you up during tough times can help you see the silver lining in any situation.

Staying Physically Active
Physical activity is not just beneficial for your body, but also for your mind. Engaging in regular exercise can boost your mood, reduce stress, and increase your overall sense of well-being. When faced with challenges, staying active can help you maintain a positive outlook and cope more effectively.

Using Humor to Lighten the Mood
Laughter truly is the best medicine. Using humor to lighten the mood can help alleviate stress and create a more positive atmosphere. Finding joy in the little things and allowing yourself to laugh, even in difficult times, can make the burden feel lighter.

Leaning on Your Spirituality
Spirituality can be a source of strength and comfort during tough times. Whether through prayer, meditation, or other spiritual practices, leaning on your faith can provide a sense of peace and reassurance. It can help you find meaning and purpose, even in the midst of adversity.

Practicing Meditation
Meditation is a powerful tool for managing stress and fostering a positive mindset. By practicing mindfulness and focusing on the present moment, you can reduce anxiety and cultivate inner peace. Regular meditation can help you stay grounded and resilient in the face of challenges.

Escaping Reality Through Reading
Sometimes, escaping into the world of books can provide a much-needed break from reality. Reading allows you to explore new perspectives, gain knowledge, and immerse yourself in different experiences. It can be a therapeutic way to relax and rejuvenate your mind.

Pursuing a Range of Interests and Hobbies
Engaging in activities that bring you joy and fulfillment can be a great way to counterbalance life's challenges. Pursuing hobbies and interests allows you to express yourself, explore your passions, and find moments of happiness amidst adversity.

Spending Time with a Pet
The unconditional love and companionship of a pet can be incredibly comforting. Spending time with a pet can reduce stress, increase happiness, and provide a sense of purpose. Pets remind us of the simple joys in life and can be a source of unwavering support.

In conclusion, when life gives you lemons, it's up to you to decide how to respond. By cultivating positive friendships, staying active, using humor, leaning on your spirituality, practicing meditation, escaping through reading, pursuing hobbies, and spending time with a pet, you can turn life's challenges into opportunities for growth and happiness. Embrace the lemons, make lemonade, and enjoy the refreshing taste of resilience and optimism.

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