Solution

Class 12 - Accountancy
ACCOUNTANCY
Section A

1. (c)
Legacy

Explanation:
It is like donation. It is the amount given to a non-trading concern as per the
will of deceased person. It is taken to the Receipts and Payments Account as
Capital Receipts. This will appear in Balance Sheet on liability side.

2. (a)
Owner’s equity

Explanation:
NPO doesnt have any owners equity , they can take debt.

3. (a)
Deficit

Explanation:
NPO make income and expenditure account which shows surplus if income
exceeds exp. or Surplus if Exp. exceeds income.

4. (c)
Income

Explanation:
By selling old newspapers, NPO will receive revenue hence it will be an
income for NPO which is to shown in Income and expenditure account on
income side.

5. (b)
Quality of product.

Explanation:

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 A firm producing qualitative products can easily have name and fame in the
market. This lead to increase in the value of goodwill. The business firms
which enjoys good commercial reputation for the quality of their products,
they have a high value of goodwill.

6. (d)
Arpit A/c Dr 75
Naman A/c Dr 50
To Manik A/c 125

Explanation:
Calculation of Interest on drawings:
Manik = 20,000 ×10/100 × 6/12 = 1,000 (Dr.)
Arpit = 15,000 ×10/100 × 6/12 = 750 (Dr.)
Naman = 10,000 ×10/100 × 6/12 = 500 (Dr.)
Profit = 1,000 + 750 + 500 = 2,250 (they should get this profit in 5:3:2 Ratio)
Profit should be credited as below
Manik = 2,250 x 5/10 = Rs. 1,125 (Cr.)
Arpit = 2,250 x 3/10 = Rs. 675 (Cr.)
Naman = 2,250 x 2/10 = Rs. 450 (Cr.)
Hence Adjustment:
Manik 125 (Cr.)
Arpit 75 (Dr.)
Naman 50 (Dr.)

7. (a)
After calculating Net Profit

Explanation:
Profit and Loss Account is prepared after calculating the net profit. Profit and
loss appropriation account shows the distribution of net profit amongst the
partners in the form of interest on capital, salary, commission and
remuneration etc. and transfer of profit to various reserves. profit and loss
appropriation account is prepared after the preparation of profit and loss
account.

8. (b)
10,000

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 Explanation:
Minimum guarantee of profit to a partner means, that partner will not get the
less amount than the guarantee amount. If there is any deficiency, it will borne
by the existing partners who have given guarantee. But it does not mean that
he will get only guarantee amount, if his profit exceeds the limit of guaranteed
amount, that will be paid to him. For example, in the above question
guaranteed amount of C is Rs. 8,000 but he is getting Rs. 10,000 as per the
profit sharing ratio. So he will get Rs. 10,000.

9. (d)
Rs.420

Explanation:
Calculation of interest on drawings:
1. When drawings during the year are given but it is not mentioned that
drawings are made in the beginning, middle or end, in such a case average
period should be used because per annum word is given with the rate of
interest.
2. Average Period = 6 Months
3. Interest on Drawings = 7,000 × 12/100 × 6/12 = Rs. 420

10. (d)
Opening capital

Explanation:
Calculation of interest on capital should be always done on the opening capital
first and after that on additional capital introduced (if any) by the partner
during the year. Interest on opening capital and additional capital should be
shown in a combined manner as total interest on capital during the year.

11. (d)
To strengthen the financial position

Explanation:
It is a good decision by the partners to create a reserve. A reserve is created
only out of profits when there is sufficient profit in the business. In case of

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 loss, a reserve cannot be created. The main purpose of creating a reserve is to
strengthen the financial position of the business firm.

12. (a)
Goodwill

Explanation:
Rule: Debit the Gainer partner and credit the sacrificing partner. Whenever
there is reconstitution of partnership the amount of compensation will be
equal to the proportionate amount of goodwill.

13. (c)
P= Rs.35000, Q= Rs.30,000, R= Rs.25,000

Explanation:
New Profit Sharing Raio = 3:2:1
P’s Share of Profit = 90,000 × 3/6 = 45,000
Q’s Share of Profit = 90,000 × 2/6 = 30,000
R’s Share of Profit = 90,000 × 1/6 = 15,000
R should get 25,000 but he is getting only Rs.15,000 (deficiency Rs.10,000 will
be met by P)
Now P’s Share will be = 45.000 – 10,000 = Rs. 35,000

14. (b)
Super Profit

Explanation:
Goodwill is the capitalized value of super profits. To find out the super profits,
we deducted normal profits from the actual average profits (average profits –
normal profits). To find out the value of goodwill, super profit should be
capitalised i.e. super profits × 100/Normal Rate of Return.

15. (a)
Contingency Reserve

Explanation:
At the time of reconstitution of a partnership firm partners can distribute only
free and accumulated reserves and profits. In the given question, only

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 contingency reserve is a free reserve which partners can distribute in their old
profit sharing ratio.

16. (b)
Sneh Dr.2,000; Sudha and Pushpa Cr.1,000 each

Explanation:
There is a gain of 2/24th to Sneh and Sudha. Pushpa will sacrifice 1/24th each
of their share. Hence Sudha’s and Pushpa’s capital account should be credited
each by 1/24th of the balance in profit and loss account, i.e. 1/24 × 24,000 = Rs.
1,000 each and Sneh’s capital account should be debited by Rs. 2,000.

17. (b)
Employees Provident Fund

Explanation:
Employees provident fund is not a free reserve. Partners cannot distribute
employees provident fund. Partners can distribute only free reserves and
accumulated profits at the time of reconstitution of a partnership firm. In the
above question partners will distribute all reserves and retained earnings
except employees provident fund.

18. (b)
Revaluation account

Explanation:
Revaluation account is prepared to record any increase/decrease in the value
of assets and liabilities. The value of some assets may increase or decrease
with the passage of time. Similarly some liabilities may also show an
increase/decrease in the value. The Revaluation account is credited if there is
an increase in the value of assets or decrease in the value of liabilities. On the
other hand it is debited if there is any decrease in the value of assets or an
increase in the value of liabilities.

19. (a)
Revaluation of assets

Explanation:

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 When reconstitution of a firm takes place, it is necessary to revalue the assets
and re-assess the liabilities. The process of recording change in the value of
assets and liabilities is called revaluation. Profit or loss calculated through
revaluation is distributed among the partners in their profit sharing ratio.

20. (a)
Horizontal analysis

Explanation:
Comparative financial statement is an example of Horizontal analysis because
it requires comparative financial statements of two or more accounting
periods.
Section B
Rate months.as.per.Average.M ethod
21. Interest on Drawing = Amount × 100
×
12
Rate 6.5
Case (i) Interest on Drawing = Amount × 100
×
12
10 6.5
1, 000 × 12 ×
100
×
12
= Rs. 650
Rate 6
Case (ii) Interest on drawing = Amount × 100
×
12
10 6
1, 000 × 12 × × = Rs. 600
100 12

Case (iii) Interest on drawing = Amount × Rate

×
5.5

100 12
Rate 5.5
1, 000 × 12 ×
100
×
12
= Rs. 550
=

22. a. If interest on Capital and Partners’ salaries and interest on drawings is

charged against profit, the solution will be as:

Profit and Loss Appropriation Account

Dr. . Cr.

Particulars Amount Rs Particulars Amount Rs

Profit transferred to Profit and Loss 30,000

Tripathi's Current Account 18,000

Chauhan’s Current Account 12,000

30,000 30,000

Partners’ Capital Account

Dr. Cr.

Particulars Tripathi Chauhan Particulars Tripathi Chauhan

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 Balance b/d 60,000 40,000

Balance c/d 60,000 40,000

60,000 40,000 60,000 40,000

Partners’ Current Account

Dr. Cr.

Particulars Tripathi Chauhan Particulars Tripathi Chauhan

Drawings 12,000 8,000 Interest on Capital 3,000 2,000

Interest on
600 400 Partners’ Salaries 12,000 12,000
Drawings

Profit & Loss

Balance c/d 20,400 17,600 18,000 12,000
Appropriation

33,000 26,000 33,000 26,000

b. If interest on Capital and Partners’ salaries and interest on drawings is

distributed out of profit, the solution will be as:

Profit and Loss Appropriation Account

Dr. Cr.

Amount Amount
Particulars Particulars
Rs Rs

Profit and Loss

Partners’ Salary 30,000
(Profit)

Tripathi 1,000 × 12 Interest on

12,000
= Drawings

Chauhan 1,000 × 12
12,000 24,000 Tripathi 600
=

Chauhan 400 1,000

Interest on Capital

Tripathi 3,000

Chauhan 2,000 5,000

Profit Transferred

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 to

Tripathi’s Current 1,200

Chauhan’s Current 800 2,000

31,000 31,000

Partners’ Capital Account

Dr. Cr.

Particulars Tripathi Chauhan Particulars Tripathi Chauhan

Balance b/d 60,000 40,000

Balance c/d 60,000 40,000

60,000 40,000 60,000 40,000

Partners’ Current Account

Dr. Cr.

Particulars Tripathi Chauhan Particulars Tripathi Chauhan

Drawings 12,000 8,000 Partners’ Salaries 12,000 12,000

Interest on
600 400 Interest on Capital 3,000 2,000
Drawings

Profit and Loss

Balance c/d 3,600 6,400 1,200 800
Appropriation

16,200 14,800 16,200 14,800

23. Goodwill = Super Profit × Number of Years' Purchase

60,000 = Super profit × 4
60,000
Super profit = 4
= 15,000
Capital Employed
⇒ Total Assets - Current Liabilities
⇒ (1,00,000 + 20 ,000) - 10,000
⇒ Rs 1,10,000
Normal Profit = Capital Employed × Normal Rate of Return
8
= 1,10,000× = Rs 8,800
100

Super Profit = Average Profit - Normal Profit

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 15,000 = Average profit - 8,800
Average profit = 15,000 + 8,800 = Rs 23,800
24. Gaining Ratio : The ratio in which the partners have agreed to gain their shares
in profit from the other partner or partners is known as gaining ratio.
Sacrificing Ratio : Ratio in which the old partners sacrifice their share in favour
of new partner is called sacrificing ratio.
Section C
25. Books of Sports Club
Income and Expenditure Account
For the year ended 31.03.2016

Dr. Cr.

Expenditure Amount Rs Income Amount Rs

By Interest on General Fund Investments 8,000

Balance Sheet
as at 31.03.2016

Amount Amount
Liabilities Assets
Rs Rs

Sports Fund
Sports Fund : 35,000 35,000
Investments

Add: Interest on Sports Fund General Fund

4,000 80,000
Investment Investments

Add: Donations for Sports

15,000
Fund

Less: Expenses on Sports Event (4,000)

Less: Prize Awarded (10,000) 40,000

General Fund 80,000

26. Adjustment Entry

Date Particulars LF Amt(Dr) Amt(Cr)

Binay's capital A/c 2,000

Ajay's Capital A/c 6,400

To Chetan's Capital A/c 8,400

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 (Being the adjustment entry passed)

Table showing adjustments to be made

Particulars Ajay(Rs) Binay(Rs) Chetan(Rs) Total

I. Amount already Recorded

Share of Profit to be debited i.e. Rs 60,000 60,000 30,000 1,50,000
1,50,000 in 2 : 2 : 1

II. Amount which should have

been Recorded

Commission 8,000 8,000

Salary to Ajay and Binay

8,000 8,000 16,000
(2000 × 4 = 8, 000)

Guarantee to Binay -------- 50,000 ---------- 50,000

Share of Profit to be credited i.e., Rs

45,600 ---------- 30,400 76,000
76,000 in 3: 2

53,600 58,000 38,400 1,50,000

Balance to be adjusted Net Effect

6,400(Dr) 2,000(Dr) 8,400(Cr) Nil
[I - II]

Working Notes:
Calculation of Adjusted Profits
Adjusted Profit = Given Profit - Salary - Commission - Guarantee to Binay
= 1,50,000 - 16,000 (8,000 + 8,000) - 8,000 - 50,000 = Rs 76,000
Distribution Of Profit
Ajay's share of profit = 76000 × 3/5 = 45600

Chetan's share of profit = 76, 000 × 2/5 = 30400

27. i. Calculation of Goodwill of the Firm

4,00,000+4,80,000+7,33,000−33,000+2,20,000 18,00,000
Average profits = 5
=
5
=
3,60,000
Goodwill = Average Profits × Number of Years' Purchase
= 3,60,000 × 2 = Rs 7,20,000
Amt Amt
Date Particulars LF
(Dr) (Cr)
ii.
Gupta's Capital A/c Dr 1,20,000

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 To Kumar's Capital A/c 60,000

To Kavita's Capital A/c

(Being the adjustment of goodwill among 60,000
partners on the change in profit sharing ratio )
Working Note:
Calculation of Sacrifice or Gain of Each Partner Due to a change in profit-
sharing Ratio
Sacrificing/(Gaining) Share = Old Share - New Share
1 1 4−3 1
Kumar's = − = = Sacrifice
3 4 12 12
1 2 4−6 2
Gupta's = 3
−
4
=
12
= (
12
) Gain
4−3
Kavita's = 1
−
1
= =
1
Sacrifice
3 4 12 12

Calculation of Share of Goodwill

Kumar = 7, 20, 000 ×
1
= Rs.60, 000
12
2
Gupta = 7, 20, 000 × = Rs. 1, 20, 000
12
1
Kavita = 7, 20, 000 × 12
= Rs.60, 000

iii. Gupta has gained so he will be debited by 1,20,000 and Kumar and Kavita
have sacrificed , so they will be credited by 60,000 each.
28. Keshav; Meenakshi; Mohit
Old ratio 1/5 : 2/5 : 2/5
New ratio 1/3 : 1/3 : 1/3
Sacrifice or Gain
3 5 2
Keshav = 1/5 – 1/3 = 15
−
15
= −
15
(gain)
6 5
Meenakishi = 2/5 – 1/3 = (Sacrifice)
1
− =
15 15 15
6 5 1
Mohit = 2/5 – 1/3 = − = (Sacrifice)
15 15 15

Journal

Debit Credit
Date Particulars L.F.
(Rs.) (Rs.)

2015 2
Keshav’s capital A/c (2, 40, 000 × ) Dr. 32,000
Apr. 1 15

1
To Meenakshi capital A/c (2, 40, 000 × ) 16,000
15

1
To Mohit’s capital A/c (2, 40, 000 × ) 16,000
15

(Adjustment for General reserve on change in

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 profit sharing ratio)

32,000 32,000
Total
===== ======

Any reserves or accumulated profits/losses appearing on the balance sheet

should be transferred to the partner’s capital accounts. If the partners decide to
leave them undisturbed it is necessary to make an adjustment entry in the books
of the firm. In that case, gaining partner must compensate the sacrificing
partner the share of proportionate profits and reserves.
29. Comparative Statement of Profit and Loss
for the year ended 31st March, 2015

Absolute Percentage
Change Change
Particulars 2014 2015 (Increase or (Increase or
Decrease) Decrease)
(Rs.) (Rs.)

(I) Revenue from Operations 8,00,000 12,00,000 4,00,000 50.00

(II) Total Income 8,00,000 12,00,000 4,00,000 50.00

(III) Expenses

a) Purchases of Stock-in-trade 5,20,000 7,80,000 2,60,000 50.00

b) Changes in Inventories of
80,000 40,000; (40,000) (50.00)
Stock-in-trade

c) Other Expenses 48,000 82,000 34,000 70.83

(IV)Total Expenses (a+b+c) 6,48,000 9,02,000 2,54,000 39.20

(V) Profit before Tax (II - IV) 1,52,000 2,98,000 1,46,000 96.05

(VI) Tax (60,800) (89,400) (28,600) (47.04)

(IV) Profit after Tax (V-VI) 91,200 2,08,600 1,17,400 128.73

Working Note

2014 2015

Purchases of stock-in-trade 5,20,000 7,80,000

Changes in investors of
80,000 40,000
stock-in-trade

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 Cost of revenue from 6,00,000 8,20,000
operations

Other expenses 48,000 82,000

(8% of cost of (10% of cost of revenue from

revenue) operations)

Section D
30. Balance Sheet

as on 31st March, 2014

Liabilities Amount Assets Amount

Cash 28,260

Subscriptions Outstanding 1,200

Capital Fund (Bal. Fig.) 1,01,060 Books 60,000

Furniture 11,600

1,01,060 1,01,060
.
======= =======

Income & Expenditure A/C

For the year ended on March 31, 2015

Expenditure ... Amount Income Amount

To Rent & Taxes ... 17,220 By Subscription 44,000

To Salaries 18,800 ... Add: Outstanding (End) 1,400

Add: Outstanding 3,000 21,800 45400 ...

To Electricity Less: Outstanding

840 ... 1,200 44,200
Charges (Beginning)

Add: Outstanding 400 1,240 By Entrance Fees ... 11,040

To General
... 2,500 By Donations ... 21,220
Expenses

To Office Expenses ... 9,000 By Interest ... 820

To Depreciation By Profit from

... ... ... 1,640
on: Entertainment

Books 6,000 ... . ... ...

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 Furniture 1,000 7,000 . ... ...

To Surplus ... 20,160 . ... ...

. ... 78,920 . ... 78,920

Balance Sheet
as on 31st March 2015

Liabilities Amount Assets Amount

Capital Fund 1,01,060 Cash 24,380

Subscriptions
Add: Surplus 20,160 1,21,220 1,400
o/s

Salaries outstanding 3,000 Furniture 11,600

Electricity charges Less

400 1,000 10,600
outstanding Depreciation

Book 60,000

Add Addition 62,40

Less
6,000 60,240
Depreciation

Investments 28,000

Total 1,24,620 Total 1,24,620

Dr Revaluation Account Cr
31.
Amount Amount
Particulars Particulars
(Rs) (Rs)

To Building A/c 3,000 By Land A/c 30,000

To Profit Transferred to Capital By Creditors

6,000
A/cs A/c

R (33,000×1/6) 5,500

S (33,000×2/6) 11,000

T (33,000×3/6) 16,500 33,000

36,000 36,000

Dr Capital A/c Cr

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Particulars R (Rs) S (Rs) T(Rs) Particulars R (Rs) S (Rs) T (Rs)

To T's Capital
25,000 - - By Balance b/d 1,00,000 50,000 25,000
A/c (Goodwill)

By Revaluation
5,500 11,000 16,500
A/c (Profit)

By R's Capital
To Balance c/d 85,500 71,000 81,500 - - 25,000
A/c(Goodwill)

By General
5,000 10,000 15,000
Reserve A/c

1,10,500 71,000 81,500 1,10,500 71,000 81,500

Balance Sheet
as at 31st March, 2015

Liabilities Amount (Rs) Assets Amount (Rs)

Creditors 50,000 Land 50,000

(-) Written-off (6,000) 44,000 (+) Appreciation 30,000 80,000

Bills Payable 20,000 Building 50,000

Capital A/Cs (-) Depreciation (3,000) 47,000

R 85,500 Plant 1,00,000

S 71,000 Stock 40,000

T 81,500 2,38,000 Debtors 30,000

Bank 5,000

3,02,000 3,02,000

Working Note
Journal entry in respect of General Reserve
General Reserve will be distributed among old partners in their old profit
sharing ratio .
R's share = 30,000×1/6 = 5,000; S's share = 30,000×2/6 = 10,000 ; T's share=
30,000×3/6 = 15,000
Calculation of Sacrifice or Gain of Each Partner
Sacrificing/(Gaining) Share = Old Share - New Share

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 1 1 1−2 1
R = − = = ( ) Gain
6 3 6 6

2 1 2−2
S = − = = Nil
6 3 6
3 1 3−2 1
T =
6
−
3
=
6
=
6
Sacrifice
Firm's goodwill = Rs.1,50,000
R will pay his share for goodwill to the sacrificing partner T
1
= 1, 50, 000 × = Rs.25, 000
6

R's Capital A/c Dr 25,000

To T's Capital A/c

25,000
(being R gave his share of goodwill to T in sacrificing ratio)

Section E
32. The profit and loss appropriation account is an extension of the profit and loss
account. The main intention of preparing a profit and loss appropriation
account is to show the distribution of profits among the partners. So as per the
particulars available in this question the Profit & Loss Appropriation A/c is
prepared as follows:-
Profit and Loss Appropriation Account
for the year ended 31.3.2010

Dr. Cr.

Particulars (Rs) Particulars (Rs)

To Interest on
By Net Profit 2,70,000
Capital

By Interest on
L's Current A/c 24,000
Drawings:

M's Current A/c 30,000 L's Current A/c 1,200

N's Current A/c 36,000 90,000 M's Current A/c 720

To Salary N's Current A/c 460 2,370

N's Current A/c 30,000

To Profit transferred
to

L's Current A/c 38,092.50

M's Current A/c 50,790.00

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 N's Current A/c 63,487.50 1,52,370

2,72,370 2,72,370

Working Notes:
i. As capitals are fixed, therefore interest, salary, and share of profit will be
transferred to partners’ current account.
ii. Calculation of interest on drawings
L = 10,000× 100
12
×1 = Rs 1,200
12 6
M = 12,000× × = Rs 720
100 12
12 3
N = 15,000× × = Rs 450
100 12

iii. Interest on capital

6
L = 4,00,000 × 100 = Rs 24,000
6
M = 5,00,000× 100 = Rs 30,000
6
N = 6,00,000× 100 = Rs 36,000

Books of Adult Literacy Organisation

Income and Expenditure Account
as on Dec. 31, 2017
33.
Dr. Cr.

Expenditure Amount(₹) Income Amount(₹)

Subscriptions
Loss on Sale of Old
1,300 received for 26,500 ...
Furniture(Note 3 )
2017

Add:
General Expenses 3,200 Outstanding for 1,500 28,000
2017

Newspapers 1,850 . ...

Sale of Old
Electricity ...... 3,000 1,250
Newspapers

Salary 3,600 ... Government Grant 12,000

Interest
Add: Outstanding for
600 4,200 received on 450 ...
2017
F.D.

....... ... Add: Accrued 450 900

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 Interest

Rent 6,500 ... . ...

Less: Prepaid for 2018

(500) 6,000 . ...
{6,500×(1/13)}

Postage Charges ........ 300 . ...

Surplus (Excess of
Income over 22,300 . ...
Expenditure)

42,150 . 42,150

Balance Sheet as on Dec. 31, 2016

Amount Amount
Liabilities Assets
(₹) (₹)

Capital Fund on Dec. 31, 2016 Subscription

38,550 2,000
(Balancing Figure) Outstanding

..... Cash in Hand 4,000

..... Cash at Bank 15,550

..... Furniture 12,000

..... Books 5,000

38,550 38,550

Balance Sheet as on Dec. 31, 2017

Liabilities Amount(₹) Assets Amount(₹)

Capital 38,550 ... Prepaid Rent 500

Add: Surplus 22,300 60,850 Books 5,000 ...

... Add: Purchases 7,000 12,000

Salary Outstanding 600 ...

Subscription
Received in Advance 500 Furniture 12,000 ...
for 2018

... Add: Purchases 10,500

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 ... Less: Sale (5,000) 17,500

10% Fixed
... Deposit with 18,000 ...
Bank

Add: Accrued
... Interest (Note 2 450 18,450
)

... Cash in Hand ..... 3,000

... Cash at Bank ..... 8,200

Subscription
... Outstanding for 1,500 ...
2017

Add:
... Outstanding for 800 2,300
2016 (Note 1 )

... . ...

61,950 . 61,950

Working Notes :
1. Subscriptions received for 2016 are Rs. 1,200. It means Rs. 800 are still in
arrears which are shown in the Balance Sheet of 2017.
2. Interest received on Fixed Deposits is Rs.450, whereas due interest as per the
rate of 10% p.a. is Rs. 900 for 6 months (from June to December). Therefore,
accrued interest is shown in the Balance Sheet.
3. Loss on sale of Furniture = Rs.5,000 - Rs. 3,700 = Rs. 1,300

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