12th Accountancy Paper Solutions Set 1 : CBSE All India Previous Year 2008

General Instructions:
(i) This question paper contains three parts A, B and C.
(ii) Part A is compulsory for all candidates.
(iii) Candidates can attempt only one part of the remaining parts B and C.
(iv) All parts of the questions should be attempted at one place.
(v) Questions Nos. 1-5 and 17-19 carries 1 mark each.
(vi) Questions Nos. 6-8 and 20 carries 3 marks each.
(vii) Questions Nos. 9-11 and 27-22 carries 4 marks each.
(viii) Questions Nos. 12-14 and 23 carries 6 marks each.
(ix) Questions Nos. 15-16 carries 8 marks each.

Q1 :- Distinguish between Income and Expenditure Account and Receipt and Payment
Account on the basis of nature of items recorded therein.

Answer :-In Income and Expenditure Account only items of revenue nature are recorded.
On the other hand, items of both revenue as well as capital nature are recorded in the
Receipt and Payment Account.
Q2 :-Ram and Mohan are partners in a firm without any partnership deed. Their
capitals are Ram Rs 8,00,000 and Mohan Rs 6,00,000.
Ram is a active partner and looks after the business. Ram wants that profits should
be shared in proportion of capitals state with reason whether his claim is valid or not

Answer :-Ram’s claim is invalid. This is because in absence of a partnership deed or

where the deed is silent, profits of a partnership firm are distributed equally among all the
partners of the firm.
Q3 :-Define goodwill

Answer :-Goodwill is an intangible asset of a firm. It is the value of a firm’s reputation

and its good brand name in the market. A positive goodwill helps a firm to earn supernormal
profits compared to its competitors that earns normal profits.
In the words of Lord Eldon, “Goodwill is nothing more than the probability, that the old
customers will resort to the old place.â€
Q4 :-State any two reason for the preparation of ‘Revaluation Account’ on the
admission of a partners.

Answer :-The two reasons for the preparation of ‘Revaluation Account’ are given
below.
(i) To revalue the assets and liabilities of a partnership firm for ascertaining its true and fair
values. This is done because the value of assets and liabilities may have increased or
decreased and consequently their corresponding figures in the old balance sheet may either
be understated or overstated.
(ii) To determine the profit or loss due to the revaluation of assets and liabilities.
Q5 :-Given the meaning of ‘minimum subscription’.

Answer :
When shares are issued to the general public, the minimum amount that must be subscribed
by the public so that the company can allot shares to the applicants is termed as Minimum
Subscription. As per the Company Act of 1956, the Minimum Subscription of share cannot
be less than 90% of the issued amount. If the Minimum Subscription is not received, the
company cannot allot shares to its applicants and it shall immediately refund the entire
application amount received to the public.
Q6 :-Calculate the amount of sports material to be debited to the Income and
Expenditure Account of Capital Sports Club for the year ended 31.3.2007 on the basis
of the following information:
1.4.2006 31.3.2007
Particulars
Rs Rs
Stock of Sports Material 7,500 6,400
Creditors for Sports Material 2,000 2,600
Amount paid for sports material during the year was Rs 19,000.

Answer :-
An Extract of Income and Expenditure Account
for the year ended March 31, 2007
Dr. Cr.
Amount Amount
Expenditure Income
Rs Rs
To Sports Material Used (WN) 20,700

Working Note:
Amount
Particulars
(Rs)
Opening Stock of Sports Material 7,500
Add: Amount paid for Sports Material 19,000
Less: Closing Stock of Sports Material (6,400)
Add: Creditors for Sports Material at the end 2,600
Less: Creditors for Sports Material in the beginning (2,000)
Sports Material to be debited to Income and
20,700
Expenditure Account

Q7 : -Samta Ltd. forfeited 800 equity shares of Rs 100 each for the non-payment of
first call of Rs 30 per share. The final call of Rs 20 per
share was not yet made. Out of the forfeited shares 400 were re-issued at the rate of
Rs 105 per share fully paid up.
Pass necessary Journal entries in the books of Samta Ltd. for the above transaction.

Answer :-
In the books of Samta Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Share Capital A/c (800 shares × Rs 80) Dr. 64,000
To Share Forfeiture A/c (800 shares × Rs 50) 40,000
 To Share First Call A/c (800 shares × Rs 30) 24,000
(Forfeiture of 800 shares for non-payment of first call
of Rs 30)

Bank A/c (400 shares × Rs 105) Dr. 42,000

To Share Capital A/c (400 shares × Rs 100) 40,000
To Securities Premium (400 shares × Rs 5) 2,000
(re-issue of 400 shares at Rs 105)

Share Forfeiture A/c Dr. 20,000

To Capital Reserve 20,000
(Profit on re-issue transferred to Capital Reserve)

Working Note:
Calculation of Amount transferred to Capital Reserve

Particulars Amount (Rs)

Amount forfeited on 800 shares 40,000
∴ Amount forfeited on 400 shares

20,000

Less: Discount allowed on re-issue of 200 shares Nil

Amount transferred to Capital Reserve 20,000

Q8 :-Deepak Ltd. purchased furniture Rs 2,20,000 from M/s Furniture Mart. 50% of the
amount was paid to Furniture Mart by accepting a
bill of exchange and for the balance the company issued 9% debentures of Rs 100
each at a premium of 10% in favour of Furniture
Mart.
Pass necessary Journal entries in the books of Deepak Ltd. for the above
transactions.

Answer :
Journal Entries
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Furniture A/c Dr. 2,20,000
To M/s Furniture Mart A/c 2,20,000
(Furniture purchased)

M/s Furniture Mart A/c Dr. 1,10,000

To Bills Payable A/c 1,10,000
(Bills of exchange drawn by purchaser for 50%
payment)

M/s Furniture Mart A/c Dr. 1,10,000

To 9% Debentures A/c 1,00,000
 To Securities Premium A/c 10,000
(Issue of 1,000 9% debentures of Rs 100 each
at a 10% premium)
Note:

Q9 :-Kumar and Raja were partners in a firm sharing profits in the ratio of 7 : 3. Their
fixed capitals were: Kumar Rs 9,00,000 and Raja Rs
4,00,000. The partnership deed provided for the following but the profit for the year
was distributed without providing for:
(i) Interest on capital @ 9% per annum.
(ii) Kumar’s salary Rs 50,000 per year and Raja’s salary Rs 3,000 per month.
The profit for the year ended 31.3.2007 was Rs 2,78,000.
Pass the adjustment entry.

Answer :
Journal Entries
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Kumar’s Current A/c Dr. 11,100

To Raja’s Current A/c 11,100

(Adjustment of profit made)
Working Notes:
WN 1 Calculation of Interest on Capital

WN 2 Salary to Partners
Salary to Kumar = Rs 50,000
Salary to Raja (3,000 x 12) = Rs 36,000
Total Amount of Salary = 50,000 + 36,000 = Rs 86,000
WN 3 Calculation of Profit available for Distribution
Profit available for distribution = Net Profit - Interest on Capital - Salary to Partners
= 2,78,000 - 1,17,000 - 86,000 = Rs 75,000
Right Distribution of available Profit

WN 4
Statement Showing Adjustment
Particulars Kumar Raja Total
Interest on Capital to be credited (WN 1) 81,000 36,000 1,17,000
Salary to be credited (WN 2) 50,000 36,000 86,000
Right Distribution of Profit (WN3) 52,500 22,500 75,000
Wrong Distribution of Profit (7 : 3) (1,94,600) (83,400) (2,78,000)
Net Effect 11,100 (Dr.) 11,100 (Cr.) NIL

Q10 : - P, Q and R were partners in a firm sharing profits in 2 : 2 : 1 ratio. The firm
closes its books on 31 March every year. P died three
months after that last accounts were prepared. On the date the goodwill of the firm
was valued at Rs 90,000. On the death of a partner
his share of profit in the year of death was to be calculated on the basis of the
average profits of the last four years. The profits of last
four years were:
Year ended 31.3.2007 Rs 2,00,000
Year ended 31.3.2006 Rs 1,80,000
Year ended 31.3.2005 Rs 2,10,000
Year ended 31.3.2004 Rs 1,70,000 (Loss)
Pass the necessary journal entries for the treatment of goodwill and P’s shares of
profit on his death. Show clearly the calculation of
P’s share of profit.

Answer :
(i) Calculation of Profit Share of P

P’s Share of Profit =

P’s Share of profit =
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Profit and Loss Suspense A/c Dr. 10,500
To P’s Capital A/c 10,500
(P’s share of profit credited)

Q’s Capital A/c Dr. 24,000

R’s Capital A/c Dr. 12,000
To P’s Capital A/c 36,000
(P’s share of goodwill adjusted)
Working Note:
Adjustment of Goodwill
Old Ratio (P, Q and R) = 2 : 2 : 1
P retires from the firm.
∴New Ratio (Q and R) = 2 : 1 and
Gaining Ratio = 2 : 1
Goodwill of the firm = Rs 90,000

This share of goodwill is to be distributed between remaining partners in their gaining ratio
(i.e. 2 : 1).

Q11 :-Sagar Ltd. was registered with an authorized capital of Rs 1,00,00,000 dividend
into 1,00,000 equity shares of Rs 100 each. The
company offered for public subscription 60,000 equity shares. Application for 56,000
shares were received and allotment was made to
all the applicants. All the calls were made and were duly received except the second
and final call of Rs 20 per share on 700 shares.
Prepare the Balance Sheet of the company showing the different types of shares
capital.
Answer :
Balance Sheet of Sagar Ltd.

Amount Amount
Liabilities Assets
Rs Rs
Share Capital
Authorised Capital:
1,00,000 Equity Shares of Rs 100 each 1,00,00,000
Issued Capital:
60,000 Equity Shares of Rs 100 each 60,00,000
Subscribed, Called-up and paid-up Capital:
56,000 equity shares of Rs 56,00,000
100 each fully called up
Less: Calls-in-Arrears (700 (14,000) 55,86,000
shares of Rs 20 each)

Q12 :
Following is the Receipt and Payment Account of Indian Sports Club for the year
ended 31.12.2006:
Amount Amount
Receipts Payments
Rs Rs
Balance b/d 10,000 Salary 15,000
Subscriptions 52,000 Billiards Table 20,000
Entrance Fees 5,000 Office Expenses 6,000
Tournament Fund 26,000 Tournament Expenses 31,000
Sale of old newspapers 1,000 Sports Equipment 40,000
Legacy 37,000 Balance c/d 19,000
1,31,000 1,31,000

Other Information:
On 31.12.2006 subscription outstanding was Rs 2,000 and on 31.12.2005 subscription
outstanding was Rs 3,000. A salary outstanding
on 31.12.2006 was Rs 1,500.
On 1.1.2006 the club had building Rs 75,000, furniture Rs 18,000, 12% investment Rs
30,000 and sports equipment Rs 30,000.
Depreciation charged on those items including purchased was 10%.
Prepare Income and expenditure account of the Club for the year ended 31.12.2006
and ascertain the Capital Fund 31.12.2005.

Answer :
Income and Expenditure
for the year ended December 31, 2006
Dr.
Amount Amount
Expenditure Income
Rs Rs
Salary 15,000 Subscription 52,000
Add: Outstanding (31.12.06) 1,500 16,500 Add: Subscription Outstanding 2,000
(31.3.2006)
Office Expenses 6,000 Less: Subscription Outstanding (3,000)
(31.3.2005)

Tournament Expenses (31,000 – 5,000

26,000)*
Depreciation on: Entrance Fees 5,000
Furniture (10% of Rs 18,000) 1,800 Sale of Old Newspapers 1,000
Billiards Table (10% of Rs 2,000 Accrued Interest on 3,600
20,000) Investment (12% on Rs
30,000)
Building (10% of Rs 75,000) 7,500
Sports Equipment (10% of Rs 7,000 18,300
70,000)
Excess of Income over Expenditure 14,800
(Surplus)
60,600 60,600

* Funds available in Tournament Funds are Rs 26,000 whereas Tournament expenses are
Rs 31,000. So, the excess of Tournament
expenses over Tournament Funds, i.e., Rs 5,000 are adjusted through Income and
Expenditure Account.
Balance Sheet
as on December 31, 2005
Amount Amount
Liabilities Assets
Rs Rs
Capital Fund (Balancing Figure) 1,66,000 Cash in Hand 10,000
Outstanding Subscription 3,000
Building 75,000
Furniture 18,000
12% Investment 30,000
Sports Equipment 30,000
1,66,000 1,66,000

Q13 :
K and Y were partners in a firm sharing profits in 3 : 2 ratio. They admitted Z as a new
partners for 1/3 rd share in the profits of the firm. Z acquired his share from K and Y in
2 : 3 ratio. Z brought Rs 80,000 for his capital and Rs 30,00 for his 1/3rd shares as
premium. Calculate the new profit sharing ratio of K, Y and Z and pass necessary
journal entries for the above transaction in the books of the firm.

Answer :
Calculation of New Profit Sharing Ratio
Old Ratio (K and Y) = 3 : 2
Z is admitted as a new partner for 1/3rd share of profits.
∴New Ratio (K, Y and Z) = 7 : 3 : 5
Sacrificing Ratio( K and Y) = 2 : 3
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Cash A/c Dr. 1,10,000
To Z’s Capital A/c 80,000
To Premium for Goodwill A/c 30,000
(Cash brought in by C as his share of capital and
goodwill)

Premium for Goodwill A/c Dr. 30,000

To K’s Capital A/c 12,000
To Y’s Capital A/c 18,000
(Z’s share of goodwill credited to K and Y in their
sacrificing ratio)

Q14 :
Pass the necessary journal entries in the books of Varun Ltd. for the following
transaction:
(i) Issued 58,000, 9% debentures of Rs 1,000 each at premium of 10%.
(ii) Converted 350, 9% debentures of Rs 100 each into equity shares of Rs 10, each
issued at a premium of 25%.
(iii) Redeemed 450, 9% debentures of Rs 100 each by draw of lots.

Answer :
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
(i) (a) Bank A/c Dr. 63,80,00,000
To Debentures Application A/c 63,80,00,000
(Debentures application money received)

(b) Debentures Application A/c Dr. 63,80,00,000

To 9% Debentures A/c 58,00,00,000
To Securities Premium A/c 5,80,00,000
(Debenture application money transferred to
 9% debentures account)

(ii) 9% Debentures A/c Dr. 35,000

(a)
To Debentureholders’ A/c 35,000
(Amount due to the debenturesholders on
conversion)

(b) Debentureholders’ A/c Dr. 35,000

To Equity Share Capital A/c (Note) 28,000
To Securities Premium A/c 7,000
(Issued 2,800 shares of Rs 10 each at a
premium of 25%)

(iii) 9% Debentures A/c Dr. 45,000

(a)
To Debentureholders’ A/c 45,000
(Amount due to debentureholders on
redemption)

(b) Debentureholders’ A/c Dr. 45,000

To Bank A/c 45,000
(Payment made to debentureholders on
redemption)
Note:

Q15 :
R, S and T were partners in a firm sharing profits in 2 : 2 : 1 ratio. On 1.4.2004 their
Balance Sheet was as follows:
Amount Amount
Liabilities Assets
Rs Rs
Bank Loan 12,800 Cash 51,300
Sundry Creditors 25,000 Bills Receivable 10,800
Capitals: Debtors 35,600
R 80,000 Stock 44,600
S 50,000 Furniture 7,000
T 40,000 1,70,000 Plant and Machinery 19,500
Profit and Loss A/c 9,000 Building 48,000
2,16,800 2,16,800

S retired from the firm on 1.4.2004 and his share was ascertained on the revaluation of
assets as follows:
Stock Rs 40,000; Furniture Rs 6,000; Plant and Machinery Rs 18,000; Building Rs
40,000; Rs 1,700 were to be provided for doubtful
debts. The goodwill of the firm was valued at Rs 12,000.
S was to be paid Rs 18,080 in cash on retirement and the balance in three equal yearly
instalments.
Prepare Revaluation Account, Partner’s Capital Accounts, S’s Loan Account
and Balance Sheet on 1.4.2004.
OR
D and E were partners in a firm sharing profits in 3 : 1 ratio. On 1.4.2007 they admitted
F as a new partner for 1/4th share in the firm which he acquired from D. Their Balance
Sheet that date was as follows:
Amount Amount
Liabilities Assets
Rs Rs
Creditors 54,000 Land and Building 50,000
Capitals Machinery 60,000
D 1,00,000 Stock 15,000
E 70,000 1,70,000 Debtors 40,000
General Reserve 32,000 Less: Provision for bad 3,000 37,000
debts
Investment 50,000
Cash 44,000
2,56,000 2,56,000

F will bring Rs 40,000 as his capital and the other terms agreed upon were:
(i) Goodwill of the firm was valued at Rs 24,000
(ii) Land and Building were valued at Rs 70,000
(iii) Provision for bad debts was found to be in excess by Rs 800
(iv) A liability, for Rs 2,000 included in sundry creditors was not likely to arises.
(v) The capital of the partners be adjusted on the basis of F’s contribution of
capital to the firm.
(vi) Excess or shortfall, if any, to be transferred to current accounts.
Prepare Revaluation Account, Partners’ Capital Account and the Balance Sheet of
the new firm.

Answer :
Revaluation account
Dr. Cr.
Amount Amount
Particulars Particulars
Rs Rs
Stock 4,600 Loss on Revaluation transferred to:
Furniture 1,000 R’s Capital A/c 6,720
Plant and Machinery A/c 1,500 S’s Capital A/c 6,720
Building 8,000 T’s Capital A/c 3,360 16,800
Provision for Doubtful Debts 1,700
16,800 16,800

Partners’ Capital Accounts

Dr. Cr.
Particulars R S T Particulars R S T
Revaluation A/c 6,720 6,720 3,360 Balance b/d 80,000 50,000 40,000
(Loss)
S’s Capital 3,200 – 1,600Profit and Loss 3,600 3,600 1,800
A/c (Goodwill) A/c
To Cash A/c – 18,080 – R’s Capital – 3,200 –
A/c (Goodwill)
To S’s Loan – 33,600 – T’s Capital – 1,600 –
A/c (Goodwill)
To Balance c/d 73,680 – 36,840 – – –
83,600 58,400 41,800 83,600 58,400 41,800

Balance Sheet
as on April 01, 2004
Amount Amount
Liabilities Assets
Rs Rs
Bank Loan 12,800Cash (51,300 – 18,080) 33,220
Sundry Creditors 25,000Bills Receivable 10,800
S’s Loan 33,600Debtors 35,600
Capital A/cs: Less: Provision for Doubtful (1,700) 33,900
Debts
R 73,680 Stock 40,000
T 36,840 1,10,520 Furniture 6,000
Plant & Machinery 18,000
Building 40,000
1,81,920 1,81,920

S’s Loan Account

Dr. Cr.
Amount Amo
Date Particulars Date Particulars
Rs Rs
1st Year 1st Year
31.3.05 Cash A/c 11,200 1.4.04 S’s Capital A/c 33,6
Balance c/d 22,400
33,600 33,6

2nd Year
Q16 :
Janata Ltd. invited application for issuing 70,000 equity shares of Rs 10 each at a
premium of Rs 2 per share. The amount was payable
as follows:
On application Rs 4 per share (including premium)
On allotment Rs 3 per share
On First and final call - Balance.
Application for 1,00,000 share were received. Applications for 10,000 shares were
rejected. Shares were allotted to the remaining
applicants on pro-rata basis. Excess money received with applications were adjusted
towards sums due in allotment. All calls were
made and were duly received except first and final call on 700 shares allotted to
Kanwar. His shares were forfeited. The forfeited
shares were re-issued for Rs 77,000 fully paid up.
Pass necessary journal entries in the books of the company for the above
transactions.
OR
Shubham Ltd. invited applications for the allotment of 80,000 equity shares of Rs 10
each at a discount of 10%. The amount was payable as follows:
On application Rs 2 per share
On allotment Rs 3 per share
On first and final - Balance
Applications for 1,10,000 shares were received. Application for 10,000 shares were
rejected. Shares were allotted on pro-rata basis to the remaining applicants. Excess
application money received on application was adjusted towards sums due on
allotment. All calls were made and were duly received. Manoj who had applied for
2,000 shares failed to pay the allotment and first and final call. His shares were
forfeited. The forfeited shares were re-issued for Rs 24,000 fully paid up.
Pass necessary Journal entries in the books of the company for the above
transaction.

Answer :
In the books of Janata Ltd.
Journal
Debit Credit
Date Particulars L.F. Amount Amount
Rs Rs
Bank A/c (1,00,000 shares × Rs 4) Dr. 4,00,000
To Share Application A/c 4,00,000
(Applications money received on 1,00,000 shares at Rs 4 per
share including premium)

Share Application A/c (1,00,000 shares × Rs 4) Dr. 4,00,000

To Share Capital A/c (70,000 shares × Rs 2) 1,40,000
To Securities Premium A/c (70,000 shares × Rs 2) 1,40,000
To Share Allotment A/c (20,000 shares × Rs 4) 80,000
To Bank A/c (10,000 shares × Rs 4) 40,000
(Application money adjusted towards share capital and share
allotment and balance refunded)

Share Allotment A/c Dr. 2,10,000

To Share Capital A/c 2,10,000
(Allotment money made due on 70,000 shares)

Bank A/c Dr. 1,30,000

To Share Allotment A/c 1,30,000
 (Being allotment money received (2,10,000 - 80,000)

Share First and Final Call A/c Dr. 3,50,000

To Share Capital A/c 3,50,000
(First and final call money due on 70,000 shares at Rs 5 each)

Bank A/c Dr. 3,46,500

To Share First and Final Call A/c 3,46,500
(First and final call money received with exception of call money
on 700 shares)

Share Capital A/c Dr. 7,000

To Share Forfeiture A/c 3,500
To Share First and Final Call A/c 3,500
(700 shares forfeited due to non-payment of first and final call)

Bank A/c Dr. 77,000

To Share Capital A/c 7,000
To Securities Premium A/c 70,000
(Forfeited shares reissued at Rs 77,000)

Share Forfeited A/c Dr. 3,500

To Capital Reserve A/c 3,500
(Profit on reissue transferred to Capital Reserve)
The stock turnover ratio of a company is 3 times. State, giving reason, whether the
ratio improves, declines or does not change
because of increase in the value of closing stock by Rs 5,000.

Answer :
Increase in the value of closing stock by Rs 5,000 will reduce the Stock Turnover Ratio. This
is because increase in the value of the closing stock will result in an increase of the average
stock. But simultaneously, the cost of goods sold reduces by Rs 5,000. This implies that the
numerator reduces more than the rise in the denominator, hence, the Stock Turnover Ratio
will fall.

Q18 :
State whether the payment of cash to creditors will result in inflow, outflow or no flow
of cash.

Answer :
The payment of cash to creditors involves an outflow of cash.
Q19 :
Dividend paid by a manufacturing company is classified under which kind of activity
while preparing cash flow statement?
Answer :
Dividend paid by a manufacturing company is classified under Financing Activity. Dividend
paid is always classified as financing
activity, irrespective of whether the company is a financial or non-financial in nature.
Q20 :
Show the major heading on the liabilities side of the Balance Sheet of a company as
per schedule VI Part I of the companies Act,
1956.

Answer :
The given below are the major heads on the Liabilities side of a Company’s Balance
Sheet as per Schedule VI, Part I of the
Companies Act 1956.
(I) Share Capital
(II) Reserves and Surplus
(III) Secured Loan
(IV) Unsecured Loan
(V) Current Liabilities and Provisions
However, the Company Act has prescribed a new format (Vertical Format) for preparing the
Balance Sheet of a company as per
Revised Schedule VI Part I of the Companies Act 1956 effective from April 01, 2011. This
format mainly consists of the following
two heads.
(I) Equity and Liabilities
(II) Assets
Equity and Liabilities are further comprises of-
(a) Shareholders’ Funds
(b) Share Application Money Pending Allotment
(c) Non-Current Liabilities and
(d) Current Liabilities
On the other hand, Assets are classified as-
(a) Non-Current Assets and
(b) Current Assets
Q21 :
From the following information prepare a Comparative Income Statement of Victor
Ltd.
2006 2007
Rs Rs
 Sales 15,00,000 18,00,000
Cost of goods sold 11,00,000 14,00,000
Indirect Expenses 20% of Gross Profit 25% of Gross Profit
Income Tax 50% 50%

Answer :
Comparative Income Statement of Victor Ltd.
Absolute
2006 2007 %
Particulars Change
Rs Rs Change
Rs
Sales 15,00,000 18,00,000 3,00,000 + 20%
Less: Cost of goods sold 11,00,000 14,00,000 3,00,000 + 27.27%
Gross Profit 4,00,000 4,00,000 – -
Less: Indirect Expenses 80,000 1,00,000 20,000 + 25%
Net Profit before Tax 3,20,000 3,00,000 – 20,000 – 6.25%
Less: Income Tax 50% 1,60,000 1,50,000 – 10,000 – 6.25%
Net Profit After tax 1,60,000 1,50,000 – 10,000 – 6.25%

Q22 :
From the following information calculate any two of the following ratios:
(i) Net Profit Ratio
(ii) Debt-Equity Ratio
(iii) Quick Ratio
Information:
Rs
Paid up Capital 20,00,000
Capital Reserve 2,00,000
9% Debentures 8,00,000
Net Sales 14,00,000
Gross Profit 8,00,000
Indirect Expenses 2,00,000
Current Assets 4,00,000
Current Liabilities 3,00,000
Opening Stock 50,000
Closing Stock- 20% more than opening stock

Answer :

(i)
Net Profit = Gross Profit - Indirect Expenses
= 8,00,000 - 2,00,000 = Rs 6,00,000
Net Sales = Rs 14,00,000
(ii)
Debt = Debentures = Rs 8,00,000
Equity (or Shareholders’ Funds) = Equity Share Capital + Capital Reserve
= Rs 20,00,000 + Rs 2,00,000 = Rs 22,00,000

(iii)
Liquid Assets = Current Assets - Closing Stock
= 4,00,000 - (50,000 + 20% of 50,000)
= 4,00,000 60,000 = Rs 3,40,000
Current Liabilities = Rs 3,00,000

Q23 :
From the following Balance Sheet of Som Ltd. as on 31.3.2006 and 31.3.2007 prepare
of Cash Flow Statement:
2006 2007 2006 2007
Liabilities Assets
Rs Rs Rs Rs
Equity Share Capital 2,00,000 5,00,000 Fixed Assets 3,00,000 4,50,000
Profit and Loss 1,25,000 25,000 Stock 1,00,000 1,50,000
10% Debentures 1,00,000 75,000 Debtors 75,000 1,25,000
8% Preference Share 50,000 75,000 Bank 45,000 65,000
Capital
General Reserve 45,000 1,15,000
5,20,000 7,90,000 5,20,000 7,90,000

During the year a machine costing Rs 70,000 was sold for Rs 15,000. Dividend paid Rs
24,000.

Answer :
Cash Flow Statement
for the year ended March 31, 2007
 Amount Amount
Particulars
Rs Rs
(A) Cash Flow from Operating Activities
Net Loss as per Profit and Loss A/c (25,000 – 1,25,000) (1,00,000)

Add: Debentures Interest (1,00,000 × 10%) 10,000

Transfer to General Reserve 70,000
Loss on Sale of Machinery 55,000
Dividend Paid 24,000 1,59,000
Operating Profit before Working Capital Changes 59,000

Less: Increase in Current Assets

Stock (50,000)
Debtors (50,000) (1,00,000)
Net Cash used in Operating Activities (A) (41,000)

(B) Cash Flow from Investing Activities

Sale of Fixed Assets (WN 1) 15,000
Purchases of Fixed Assets (WN 1) (2,20,000)
Net Cash used in Investing Activities (B) (2,05,000)

(C) Cash Flow from Financing Activities

Issue of Equity Share Capital 3,00,000
Issue of Preference Share Capital 25,000
Redemption of Debentures (25,000)
Dividend Paid (24,000)
Interest on Debentures (1,00,000 × 10%) (10,000)
Net Cash Flow from Financing Activities (C) 2,66,000

Net Increase in Cash and Cash Equivalents (A + B + C) 20,000

Add: Opening Cash and Cash Equivalents 45,000
Closing Cash and Cash Equivalents 65,000

Working Notes:
WN 1
Fixed Assets Account
Dr. Cr.
Amount Amount
Particulars Particulars
Rs Rs
To Balance b/d 3,00,000 By Bank A/c (Sale) 15,000
To Bank A/c (Purchases) (Bal. 2,20,000 By Profit and Loss A/c (Loss on 55,000
Fig) Sale)
By Balance c/d 4,50,000
5,20,000 5,20,000

WN 2 It is assumed that debentures had been redeemed at the end of the year.