Accounting

1
.

• Accounting Finance for BankersFinal A/cs. Of
  Banks Cos.JAIIB-MODULE-D
• PRESENTATION BY
• Ravi Ullal
• 24-o4-2008

2
Topics

• Partnership accounts
• Final accounts of banking companies
• Company accounts
• Balance sheet equation
• Accounting in a Computerized environment

3
PARTNERSHIP ACCOUNTS

• Introduction
• Definition
• Partnership deed

4
In the absence of partnership deed/if deed is
silent

• Profit sharing ratio Equal
• No interest on capital
• No interest on drawings
• interest_at_6 on loan given by partner
• No salary /no commission/ no remuneration
• Capital accounts under fluctuating capital method

5
Methods of capital accounts

• Fixed
• Capital account-transactions relating to capital
• Current account
• Other transactions such as Interest, profit,
  goodwill, past profits/losses adjustments
• Fluctuating
• One account- all transactions

6
GOODWILL

• Its reputation, super profit earning capacity of
  a firm
• Necessity
• change in profit sharing ratio
• Admission, retirement, death
• Sale of business
• Methods
• Average profit
• Super profit
• capitalization of profit

7
Methods of goodwill
Average profit (AP) Super profit (SP) Capitalization of profit
AP x Multiplier SP x multiplier SP AP less NP NPnormal profit (Capitalised value) less Actual Capital
Multiplier is given Multiplier is given
8
GOODWILL IMPORTANT ENTRIES

• ADMISSION
• When goodwill is raised and written off
• Debit goodwill and credit old partners capital
  a/c (old ratio)
• Debit All partners capital a/c
• credit goodwill (new ratio)

9
GOODWILL IMPORTANT ENTRIES

• RETIREMENT
• When goodwill is raised and written off
• Debit goodwill and credit old partners capital
  a/c (old ratio)
• Debit Continuing partners capital a/c credit
  goodwill (new ratio)

10
ADMISSION

• revaluation of assets/ liabilities,
• goodwill,
• capital adjustments,
• balance of reserves,
• past losses (if any)

11
RETIREMENT

• As per Act of 1932, retirement by consent,
  partnership deed provision, at will by giving
  proper notice
• Revaluation of assets/ liabilities, goodwill,
  capital adjustments, balance of reserves, past
  losses

12
examples

• Let us say A and B are partners sharing profits
  equally. They take C as partner with equal share.
  The position will be as under
• Partners Old Ratio New Ratio Loss(Sacrifice)/
• Gain
• A 1/2 1/3 1/6
• B 1/2 1/3 1/6
• C Nil 1/3 1/3
• Sacrificing Ratio Old ratio  ()  New ratio.

13
examples

• Entries to be passed for Goodwill
• 1. When the new partner pays the goodwill
  privately
• In this case, no entry is passed in the books
  of account.
• 2. When the new partner brings in his share of
  goodwill and cash brought in as goodwill is
  retained in the business
• (a) Cash/Bank a/c Dr.
•   To Goodwill a/c
• (b) Goodwill a/c Dr.
•   To Old partners capital a/c
• (In old profit sharing or sacrificing ratio)
• 3. If goodwill is brought in by way of cash and
  is withdrawn by old partners, then in addition to
  the two entries as above, the following third
  entry is passed
• (a) Cash/Bank a/c Dr.
•   To Goodwill a/c
• (b) Old partners capital a/c Dr.
•   To Cash/bank a/c

14
examples

• 4. When the new partner does not bring cash for
  goodwill and goodwill is raised by the old
  partners and shown as an asset in the balance
  sheet
• Goodwill a/c Dr.
•   To Old partners capital a/c
• (In old profit sharing ratio)
• 5. When new partner does not bring cash for
  goodwill but goodwill is raised and written off
  immediately
• (a) Goodwill a/c Dr.
•   To Old partners Capital a/c
• (In old profit sharing ratio)
• (b) All partners capital a/c Dr. (including new
  one)
•      To Goodwill a/c
• (In new profit sharing ratio)

15
examples

• Let us suppose A, B, and C are partners sharing
  profits and losses in the ratio of 5 3 2. A
  retires and B and C agree to continue at the
  ratio of 3 2. In this case, the position will
  be as follows
• Old Ratio New Ratio Net Gain/Loss
• A 5/10 Nil
• B 3/10 3/5 3/10 (3/5  3/10)
• C 2/10 2/5 2/10 (2/5  2/10)
• Gain ratio will be 3 2.
• (b) Let us now suppose B and C change their
  ratio to 5 3 then the position will be as
  follows
• Old Ratio New Ratio Net Gain/Loss
• A 5/10 () 5/10 i.e 1/2
• B 3/10 5/8 13/40 (5/8  3/10)
• C 2/10 3/8  7/40 (3/8  2/10)
• Gain ratio will be 13/40 7/40 i.e. 13 7.

16
examples

• A, B and C are equal partners. C dies. Goodwill
  on the date of his death is Rs 90,000. Then, C s
  Share 1/3 Rs 90,000 Rs 30,000
• The chart below depicts gain of the continuing
  partners.
• Partners Old Ratio New Ratio Gain
• A 1/3 1/2 1/6
• B 1/3 1/2 1/6
• C 1/3 Nil (1/3)
• Entries if only Cs share of goodwill is raised
  for above will be
• (a) Goodwill a/c Dr. Rs 30,000
•   To Cs Capital a/c Rs 30,000
• (b) As Capital a/c Dr. Rs 15,000
• Bs Capital a/c Dr. Rs
  15,000
•   To Goodwill a/c Rs 30,000
• . The ratio in which the continuing partners
  gain or benefit from the share of the retiring or
  dead partner is called the Gaining Ratio. Gaining
  ratio is equal to new ratio minus old ratio.
• law makes no difference between a sleeping
  partner and a working partner and the sleeping
  partner will be equally responsible to the third
  parties for all acts or omissions of a working
  partner.

17
examples

• A and B share profits in the ratio of 70 and 30
  respectively as on 31st December 2003. C was
  admitted as a partner with effect from January 1,
  2004 and he brought into business Sundry Debtors
  Rs 5,000 (subject to 10 provision for bad
  debts), Creditors Rs 1,600 and Goodwill Rs 4,000.
  He agreed to maintain his capital at Rs 20,000
  for 1/5th share in the profits of the firm.
• Creditors Rs 1,600 and Goodwill Rs 4,000
• Stock increased by Rs 5200, Building(Rs.26000/-)
  and Truck(Rs. 17000) were increased by 10, and
  other assets(Rs.7000) were decreased by Rs 800. A
  Reserve for doubtful debt was created at 5 on
  Debtors(Rs.14000/-). It was agreed to adjust the
  Partners Capital in Profit sharing ratio(4519).

18
examples

• Jan. 2004 Sundry debtors a/c   Dr. 5,000
• Goodwill a/c Dr. 4,000
• Cash a/c Dr. 13,100
• (balancing figure)
•   To Creditors a/c 1,600
•   To Provision for bad debt 500
•   To Cs capital a/c 20,000
• (Being various assets brought by C
• towards his capital recorded in books)

19
examples

• Jan 2004 Stock a/c Dr. 5,200
• Truck a/c Dr. 1,700
• Building a/c Dr. 2,600
•   To Revaluation a/c 9,500
• (Being increase in value of
• assets recorded)
• Revaluation a/c Dr. 1,500
•   To Others Assets a/c 800
•   To Provision for Doubtful Debts a/c 700
• (Being decrease in other assets
• and provision for doubtful debts recorded)
• Revaluation a/c Dr. 8,000
• (9,500 1,500)
•   To As Capital a/c 5,600
•   To Bs Capital a/c 2,400
• (Being profit on revaluation
• distributed in old profit sharing ratio)

20
examples

• General Reserve a/c Dr. 5,400
•   To As capital a/c 3,780
•   To Bs capital a/c 1,620
• (Being general reserve distributed in
• old profit sharing ratio)
• Cash a/c Dr 2,600
•   To As Capital a/c 1,620
•   To Bs Capital a/c 980
• (Being cash brought in by old partners)

21
examples

• Fill in the blanks
• (a) _________ is the value of an established
  business over and above the value represented by
  its tangible assets. It is also the value
  attached to the super profit earning capacity of
  business arising from its wide connections,
  reputation and long standing in the business.
• (b) _________ of a partner means joining of a
  new person into an existing partnership as a
  partner.
• (c) _________ of a partner means that a partner
  breaks off his relations with all other partners
  and withdraws himself from the firm.
• (d) Under the _________ capital method, all the
  transactions are recorded in the capital account
  only.
• (e) Under the _________ capital method, two
  accounts are maintained for each partner, viz.,
  Current Account and Capital Account.

22
examples

• State whether the following statements are True
  or False
• (a) If the Partnership Deed does not mention any
  method of maintaining capital accounts then the
  fixed capital Account Method has to be followed.
• (b) if the partnership firm is following the
  Fixed Capital Account Method salary payable to a
  partner is credited to the partners current
  account.
• (c) drawings made by partners are never entered
  in the Profit and Loss Appropriation Account.
• (d) Old firms must have goodwill account in
  their books of account.
• (e) While calculating average profit of previous
  years , loss incurred in one of those years is to
  be ignored.
• (f) The share which the new partner is entitled
  to is called the Sacrifice ratio.
• (g) adjustment for goodwill can be made
  privately by the partners without passing any
  entries in books of account.
• (h) the additional share in the profits by the
  continuing partners is called Gain Ratio.
• (i) The deceased partner cannot be given share
  in the profits till his death.

23
examples

• 11) Prepare the Profit and Loss account of Modern
  Bank Ltd. for the year ended 31st March, 2003,
  from the following
•   Rs
• Interest on Fixed Deposits 1,62,410
• Rebate on Bills discounted 29,000
• Interest on Loans 45,000
• Commission Charged to Customers 62,500
• Establishment 15,000
• Discount on Bills Discounted 89,000
• Interest on Cash Credit 24,000
• Amount Charged against Current Accounts 71,500
• Directors Fees 10,000
• Audit Fees 20,000
• Postage and Telegram 2,000
• Printing and Stationery 4,000
• Rent and Taxes 22,500
• Interest on Overdrafts 71,000
• Sundry Charges 1,500
• Interest on Savings Bank Deposits 57,780

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examples

• Profit Loss Account for the year ended 31st
  March 2003
• Schedule No. Rs
• I. Income
• Interest Earned 13 2,71,500
• Other Income 14 62,500
• Total 3,34,000
• II. Expenditure
• Interest Expended 15 2,20,190
• Operating Expenses 16 75,000
• Provision for Contingencies
• Total 2,95,190
• III. Profit
• Net Profit for the year 38,810

25
examples

• Schedules to be annexed with Profit and Loss
  Account
• Schedule13 Interest Earned
• Interest on
• Loan 45,000
• Cash Credit 24,000
• Overdrafts 71,000 1,40,000
• Discount on Bills discounted 89,000
• Less Rebate on Bill Discounted 29,000 60,000
• Amount charged against current accounts
  71,500
• 2,71,500
• Schedule 14 Other Income
• Commission charged to customer 62,500
• Schedule 15 Interest Expended
• Interest paid on
•       Fixed Deposits 1,62,410
•       Savings Bank Deposits 57,780
• 2,20,190

26
examples

• Schedule 14 Other Income
• Commission charged to customer 62,500
• Schedule 15 Interest Expended
• Interest paid on
•       Fixed Deposits 1,62,410
•       Savings Bank Deposits 57,780
• 2,20,190

27
examples

• Schedule 16 Operating Expenses
• Establishment Expenses 15,000
• Directors Fees 10,000
• Audit Fees 20,000
• Rent and Taxes 22,500
• Postage and Telegrams 2,000
• Printing and Stationery 4,000
• Sundry Expenses 1,500
• 75,000

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Joint life policy
Premium treated as expenses Premium treated as asset Premium treated as reserves
At the end of each year, premium w/o to P L A/c Each year difference between surrender value and Book value is w/o to P L A/c difference between SV and BV is w/o to Jt. Policy Reserve A/c
receipt of policy amt. Amount received is credited to partners receipt of policy amt. If amount is gt SV, the excess is credited to partners receipt of policy amt. Policy amount credited to partners
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Types of partners

• Active
• Sleeping
• Quasi
• nominal

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FINAL ACCOUNTS OF BANKING COMPANIES

• Definition
• Requirements Accounts audit
• Third Schedule annexed to BRA
• Form A- Balance sheet
• Form B- Profit Loss Account
• Audit
• Submission of accounts- RBI- within 3 months
• Publication of accounts- within 6 months
• Auditor-prior approval of RBI for appt/removal

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Balance sheet-Form A
Capital Liabilities Assets
1.Capital 6.Cash Bank Bal. RBI
2. Reserves surplus 7.Balances with Banks Money at call and SN
3.Deposits 8.Investments
4.Borrowings 9Advances
5 Other Liabilities Provisions 10.Fixed Assets
11.Other Assets
32
Demand deposits

• Credit balances in OD and CC
• Deposits payable at call
• Overdue deposits
• In-operative current accounts
• Matured time deposits
• Matured cash certificates
• Matured certificate of deposits

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Contingent liabilities

• Schedule-12
• Claims against bank not acknowledged as debts
• Liability for partly paid shares
• Liability on account of outstanding forward
  exchange contracts
• Acceptances ,endorsement other obligations
• Other items for which bank is contingently
  liable.

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PROFIT LOSS ACCOUNT-FORM B
Income Interest Earned Other Income Schedule.13 Schedule.14
Expenditure Interest Expended Operating Expenses Provision for contingencies Schedule.15 Schedule.16
Profit /Loss
Appropriations Transfer to Reserves Proposed dividend Balance carried to Balance sheet
35
NOTES TO ACCOUNTS
Significant Accounting Policies Schedule.17
Notes forming part of Accounts Schedule.18
36
Other Income

• Profit on exchange transactions
• Profit on sale of investments
• Profit on revaluation of investments
• Profit on sale of fixed assets
• Letting of locker (income from locker charges )
• Misc. income -Godown rent

37
Ponder over these points

• Govt. securities shown at book value and diff.
  between MV and BV is given in the notes
• If some fixed assets are w/o on revaluation of
  assets/reduction of capital every B/S after wards
  should. show the revised figure for next 5 yrs.
  With the date amt. revised
• Other fixed assets includes vehicles, furniture
  and fixtures. Lockers and safe deposit vaults are
  included in furniture

38
Ponder over these points

• 20 to reserve fund before declaring dividend
• Gold is treated as investment
• Silver is treated as other assets
• Income from performing assets is recognized on
  accrual basis while in r/o non-performing assets
  it is on cash basis
• In r/o NPA, if income is already recognized, then
  make provision

39
ASSET CLASSIFICATION ETC

• Asset Classification
• Performing and
• non performing ( remain out of order)
• Income Recognition
• Performing-accrual basis
• Non performing-cash basis
• Asset Classification
• Std-0.40 (revised from 0.25)
• Sub-Std.lt18 months-10
• Doubtfulgt18 months-usl-100-secured.3yrs-50,gt1lt3
  -30-upto 1year-20
• Loss assets-100

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SLR NON SLR DEPOSITS
Held to maturity Available for sale Held for trading
Investment should not exceed 25 of total investment Freedom available Freedom available
-no marked to market. Profit on sale treated as cap. Reserve -Marked to market -profit on sale of investment. taken to PL a/c Marked to market
To be sold within 90 days
41
COMPANY ACCOUNTS

• Features of a Joint Stock Company
• 1. Incorporated association
• A company is a registered body of individuals.
  According to the Companies Act, 1956, it is
  compulsory to register a joint stock company.
• 2. Artificial person
• It is an artificial person created by law. It is
  different from its members It can enter into
  contracts, purchase and sell the properties, can
  sue and be sued upon. Even a member can enter
  into contract with the company.
• 3. Perpetual succession
• A company has a perpetual succession. Death, or
  insolvency of any shareholder does not affect
  existence of the company.
• 4. Common seal
• As the company is an artificial person created
  by law, it cannot sign its name. So it has a
  common seal on which the companys name is
  engraved. The common seal is treated as companys
  signature and is affixed in all important
  documents and contracts as per the resolutions
  passed by the Board.
• 5. Limited liability
• The liability of the members of the joint stock
  company is limited to the face value of shares
  held by them. Companies (Amendment) Bill 2003
  states that if a company, private or public,
  fails to enhance its minimum paid up capital (
  i.e. One Lakh rupees or Five Lakh rupees, as the
  case may be) each director or manager or
  shareholder will have unlimited liability.

42
COMPANY ACCOUNTS

• 6. Separation of management from ownership
• Even though the shareholders are true owners,
  they do not participate in the management of the
  company. They elect their representatives known
  as Board of Directors.
• 7. Transferability of shares
• The shares of a company are freely transferable
  subject to restrictions placed on transfer of
  private limited companys shares.
• 8. Separate legal status
• A company has an independent legal status and as
  such, the shareholders or the owners are not
  liable for the acts of the company.
• 9. Large membership
• A company is owned by a large number of members.
  In the case of private limited company the
  minimum number of members is 2 and the maximum is
  50. In the case of public limited company, the
  minimum number of members is 7 and there is no
  maximum limit on the number of members.

43
Types of companies
On the basis of incorporation On the basis of ownership On the basis of liability
Chartered company Private company Co.limited by shares
Statutory company Public company Co. Ltd. by guarantee
Registered company Government company Co. with unlimited liability
Foreign company Holding company
44
SHARE CAPITAL

• EQUITY
• PREFERENCE
• CUMULATIVE
• REDEEMABLE
• PARTICIPATING

45
SHARE CAPITAL

• AUTHORISED CAPITAL
• ISSUED CAPITAL
• SUBSCRIBED CAPITAL
• CALLED CAPITAL
• PAID UP CAPITAL

46
ISSUE OF SHARE AT PAR
-BANK - SHARE APPLICATION Debited - - credited
SHARE APPLICATION SHARE CAPITAL Debited - - Credited
Over subscription -share application -share capital -bank (refund) -share allotment Debited - - - - Credited Credited Credited
47
SHARE ALLOTMENT/SHARE CALL
Share allotment a/c Share capital a/c Debited - - Credited
Bank a/c Share allotment a/c Debited - - Credited
Share call a/c Share capital a/c Debited - - Credited
Bank a/c Share call a/c Debited - - Credited
Calls in arrears a/c Share allotment a/c Share call a/c Debited - - - Credited Credited
48
Issue of shares at premium
Share application/ allotment a/c Share capital A/c Share premium A/c Debited - - - Credited Credited
49
Issue of shares at discount
Share allotment A/c Discount on issue of shares A/c Share capital A/c Debited Debited - - - Credited
50
Forfeiture of shares
Share capital A/c Call in arrears A/c Forfeited shares A/c Debited - - - Credited Credited
51
Re-issue of shares
Bank A/c Forfeited shares A/c Share capital A/c Capital reserve A/c Debited Debited - - - - Credited Credited
52
Issue of Bonus shares
Cap. Red. Reserve A/c Share premium A/c Capital reserve A/c Gen Reserve A/c Profit Loss A/c Bonus to shareholders A/c Debited Debited Debited Debited Debited - - - - - - credited
Bonus to shareholders A/c Equity share capital A/c Debited - credited
53
Balance sheet equation
LIABILITIES LIABILITIES ASSETS ASSETS
Capital 300.00 Fixed assets 700.00
Reserves 200.00 Current assets 300.00
Term Loans 300.00
Current Liabilities 300.00
Total 1000.00 Total 1000.00
54
Balance Sheet Equation
Assets Liabilities
Assets Liabilities () Capital
Liabilities Assets (-) Capital
Capital Assets (-) Liabilities
55
BALANCE SHEET EQUATION

• Assets Liabilities
• Assets Capital Liabilities
• Assets Net worth Liabilities
• Net worth Capital Reserves Surplus
• Net worth Assets Less Liabilities

56

• 1. The Assets of a business are Rs.500000 and its
  capital is Rs.115000. Its liabilities on that
  date would be------
• Rs.615000
• rs.385000
• Rs.500000
• Rs. 115000

57
B/s Equation Examples

• (1) If the net worth of the business is
  Rs.1100,fixed assets are Rs. 600, current assets
  Rs.400, investments Rs.300, current liabilities
  Rs. Nil, what is the amount of claim to
  outsiders?
• Rs. 1300l
• Rs. 500
• rs.200
• Rs. Nil
• (2) Identify the wrong pair
• Outstanding expenses - Personal Account
  account
• Profit and Loss Account (Dr. balance)
  Application of funds
• net worth less reserves surplus - Balance in
  P L Account
• Balance sheet - Financial position

58
Computerized accounting

• Computer language cobol, foxpro,unix etc
• Analog computers scientific and mech. Field
• Digital computers computerized accounting
• Data fact
• Record group of data
• Data file data records

59
EXAMPLES

• Select from the following , a statement which
  speaks about liabilities of an entity.
• The liabilities consist of claims of the owners
• The liabilities consist of claims of the owners
  and outsiders
• The liabilities consist of claims of the
  outsiders
• None of the above

60
EXAMPLES

• ) Sudhir had the following transactions. Use
  balance sheet equations to show their effect on
  his assets, liabilities and capital.
• (a) Invested Rs 1,50,000 in cash.
• (b) Purchased securities for cash Rs 10,000
• (c) Purchased a building for Rs 2,00,000, giving
  Rs 50,000 in cash and balance by way of a loan
  from Canara Bank.
• (d) Sold securities costing Rs 2,000 for Rs
  3,000.
• (e) Paid Salaries of Rs 2,000
• (f) Paid interest of Rs 10,000 and paid Rs
  10,000 towards Canara Bank Loan
• (g) Received dividend of Rs 1,000 on securities

61
EXAMPLES

• Point out whether the following statements are
  True or False.
• (a) The balance sheet represents an expansion of
  the equations as
• Assets Liabilities Capital.
• (b) Assets Original Capital Liabilities.
• (c) Rehman has assets of Rs 10,000 and
• liabilities of Rs 5,000. His
  capital therefore
• would be Rs 15000.
• (d) Assets will be equal to Capital if there are
  no
• liabilities of the business.
• (e) If a firm borrows a sum of money, its
  capital would be
• reduced.

62
EXAMPLES

• If the net worth of the business is Rs.500, fixed
  assets are Rs. 500, current assets Rs.300,
  investments Rs.300, current liabilities Rs. Nil,
  what is the amount of claim to outsiders?
• Rs. Nil
• Rs. 1100
• Rs.500
• Rs.600

63
EXAMPLES

• Select from the following a sentence which is
  wrong
• If assets increase and liabilities do not , the
  capital will increase
• If assets increase and liabilities also increase
  by same sum , the capital will remain same
• A reduction in the amount of assets will amount
  to equivalent reduction in the net worth
• An increase in the amount of assets with no
  corresponding increase in liabilities will
  increase the amount of capital

64
EXAMPLES

• The firm sells goods on credit for Rs.50000, the
  cost of the goods sold is Rs.30000.The effect of
  the transaction is that, the capital of the
  firm-----
• increases by Rs.50000
• reduces by Rs.40000
• increases by Rs. 20000
• reduces by Rs. 20000

65
EXAMPLES

• Mr.Ghatge commenced his business on 1st April,
  2006 with Capital of Rs.1,00,000. He did good
  business during the year and earned handsome
  profit. At the end of 31st March, 2007, his
  financial position was Fixed Assets Rs.1, 20,000
  and bank balance of Rs.33000 and Creditors Rs.
  17000. What was his net profit for the year
  05-06?
• Rs. 36000
• Rs.70000
• Rs.53000
• None of the above

66
EXAMPLES

• One of the pairs given below is wrong. Select the
  wrong pair.
• Outstanding expenses - Nominal account
• Profit and Loss Account (Dr. balance)
  Application of funds
• Net worth less reserves surplus - Capital
• Balance sheet - Financial position

67
EXAMPLES

• From the following ,find a sentence which is
  false in respect of partnership
• If the partnership is following the Fixed
  Capital Account Method salary payable to a
  partner is credited to the partners current
  account
• Drawings made by partners are never entered in
  the Profit and Loss Appropriation Account.
• In the Fluctuating Capital Account Method the
  balance in the capital account always remains
  the same
• The capital account of a partner is required to
  be opened in both the Fixed Capital Account
  Method and Fluctuating Capital Account Method

68
EXAMPLES

• From the account given below, select the account
  which is wrongly included in Profit Loss
  Appropriation Account at the debit side
• Drawings Account
• Partners Salary Account
• Interest on Loan Account
• Commission to Partners Account

69
EXAMPLES

• A and B are two partners in a firm sharing
  profits and losses as 21. they admitted C as a
  partner with 25 share in the profits of the
  firm. Hence , the new profit sharing ratio ,
  after admission of C would be -----
• 151510
• 201010
• 311
• None of the above

70
EXAMPLES

• Mr. Q and Mr. R were partners of a firm sharing
  profit and losses in the ratio of 32. They take
  S into partnership. It was agreed that S will pay
  Rs.1,00,000 as his share of goodwill which will
  be retained in business and also bring
  Rs.3,00,000 as capital for one fourth share in
  the future profits. The book value of the stock
  was 41,000 but was to be revalued at Rs.50,000,
  Accountant has passed following entries, but Mr.
  Q feels that one of the entry is wrong. Select
  the wrong entry from the following.
• Debit cash and credit Goodwill for Rs.1,00,000
• Debit cash and credit Ss Capital for
  Rs.3,00,000
• Debit Goodwill for Rs.1,00,000 and credit Qs
  Capital by Rs. 60000 Rs Capital by Rs. 40,000
• Debit Stock and credit Profit Loss Adjustment
  A/c by Rs.9,000

71
EXAMPLES

• In the books of ABC Enterprises, a partnership
  firm, when Mr. C, a partner decided to resign
  from the firm, a revaluation of assets and
  liabilities was done and Revaluation account was
  prepared which showed the following position At
  the credit side of Revaluation Account, Stock
  A/c Rs.25000, Premises A/c Rs.52000 and Creditors
  A/c Rs. 8000 were shown while at debit side of
  Revaluation Account, Reserve for Doubtful Debts
  A/c. Rs.15000, As Capital A/c.Rs.20000, Bs
  Capital A/c. Rs.20,000 and Cs Capital A/c.
  Rs.20000 were shown. Accountant has interpreted
  the Revaluation Account as follows. One of the
  interpretations by him is incorrect. Select the
  incorrect sentence.
• Stock is revalued upwardly by Rs. 25000
• Creditors are revised upwardly by Rs.8000
• Premises are revised upwardly by Rs.52000
• A provision on debtors of Rs. 15,000 is made for
  doubtful debts

72
EXAMPLES

• Read the following four journal entries which are
  passed to consider revaluation of assets and
  liabilities at the time of admission of a
  partner. One of the journal entries is wrong,
  choose the entry which is wrong.
• For increase in the value of assets-Debit Asset
  Account and Credit Revaluation Account.
• For decrease in the value of liabilities- Debit
  Liabilities Account and Credit Revaluation
  Account.
• For Profit on revaluation of assets and
  liabilities Debit Old Partners Capital Account
  in old profit sharing ratio and Credit
  Revaluation Account
• For decrease in the value of assets -Debit
  Revaluation Account and Credit Asset Account

73
EXAMPLES

• In the books of ABC Enterprises, a partnership
  firm, when Mr. C, a partner decided to resign
  from the firm, a revaluation of assets and
  liabilities was done and Revaluation account was
  prepared which showed the following position At
  the credit side of Revaluation Account, Stock
  A/c Rs.25000, Premises A/c Rs.52000 and Creditors
  A/c Rs. 8000 were shown while at debit side of
  Revaluation Account, Reserve for Doubtful Debts
  A/c. Rs.15000, As Capital A/c.Rs.20000, Bs
  Capital A/c. Rs.20,000 and Cs Capital A/c.
  Rs.20000 were shown. Accountant has interpreted
  the Revaluation Account as follows. One of the
  interpretations by him is incorrect. Select the
  incorrect sentence.
• Stock is revalued upwardly by Rs. 25000
• Creditors are revised upwardly by Rs.8000
• Premises are revised upwardly by Rs.52000
• A provision on debtors of Rs. 15,000 is made for
  doubtful debts

74
EXAMPLES

• Select the incorrect statement in respect of
  companies.
• A member of a company can enter into contract
  with a company
• It is compulsory to register a joint stock
  company
• If all but one member of a private company
  becomes insolvent ,it affects the existence of
  the organisation
• Shareholders are not liable for the acts of the
  company
• Select the incorrect statement
• Authorized capital is the capital with which the
  company is registered
• Issued capital is equal to its authorized capital
• Authorized capital, issued capital, subscribed
  capital, called up capital and paid up capital
  cannot be same
• The amount which the company has asked its
  shareholders to pay is called up capital of the
  company.

75
EXAMPLES

• Following are the journal during the process of
  application to allotment stage . One of the
  entries is wrong. Select the wrong entry.
• Debit bank account and credit share application
  account ( when application money is received)
• Debit share application account and credit share
  capital account (application transferred to
  share capital account)
• Debit share capital and credit share allotment
  account ( for recording allotment money being
  fallen due )
• Debit bank account and credit share allotment
  account ( for receipt of allotment money)

76
EXAMPLES

• Select the incorrect statement in respect of
  calls in advance
• The company may accept from shareholders , the
  uncalled amount on shares even before it is
  fallen due
• The article of association must permit such
  acceptance of advance call money
• Interest on calls in advance can be paid but the
  maximum is upto 6
• The amount of calls in advance is part of the
  paid up share capital

77
EXAMPLES

• Select the incorrect statement in respect of
  utilization of share premium
• it is used for the purpose of buy back of shares
• it used for payment of dividend in case of
  inadequacy of profits
• it is used for writing off preliminary expenses
• it is used for issue of fully paid bonus shares
• Mr. X was issued 100 shares of Rs.10 each. He
  failed to pay call money of Rs. 5 per share. The
  shares were forfeited and re-issued to Mr. Y at
  Rs.9. When the entry recording the re-issue of
  shares was passed in all, four accounts were
  affected. The debit and credit effect of these
  four accounts is given below. One of the accounts
  is given wrong effect. Select that account from
  the following.
• Debit bank account by Rs.900
• Debit forfeited shares by Rs.500
• Credit share capital by Rs.1000
• Credit forfeited shares by Rs.400

78
EXAMPLES

• DT Ltd. issued shares of Rs.10 each at 10
  premium, payable on application Rs.2, on
  allotment Rs.3 (including premium), on first call
  Rs.2 and on final call Rs.4. One of the
  shareholders, applied for 100 shares but fail to
  pay allotment and first call money. At this
  stage, the said shares were forfeited. Select the
  account which was wrongly credited.
• Credit Forfeited shares Account by Rs.200
• Credit Share allotment Account by Rs.200
• Credit share premium Account by Rs.100
• Credit Share first call Account by Rs.200
• Select the source which is not valid for issue of
  bonus shares
• Share premium
• Revaluation reserve created by revaluation of
  fixed assets
• Capital reserve
• Capital redemption reserve

79
EXAMPLES

• The liability side of the balance sheet of ABC
  International Ltd. is showing following position
  Paid up share capital Rs.25 Lakh ( 25,000
  shares of Rs.100 each fully paid up)Share premium
  Rs.5 Lakh, Capital Reserve Rs. 3 Lakh, General
  Reserve Rs. 15 Lakh and Profit Loss account Rs.
  15 Lakh .It was decided to use minimum free
  reserve for issue of 11 bonus shares.. The
  accounts and the amount with which the account is
  debited are given below in sets. One of the set
  is correct. Select the same.
• Share Premium Account (Rs.5 Lakh), Capital
  Reserve Account ( Rs. 1 Lakh), General Reserve
  Account (15 Lakh) Profit Loss Account by
  Rs. 4 Lakh
• Share Premium Account (Rs. Nil Lakh), Capital
  Reserve Account ( Rs. Nil Lakh), General Reserve
  Account (10 Lakh) Profit Loss Account by
  Rs. 15 Lakh
• Share Premium Account (Rs.5 Lakh), Capital
  Reserve Account ( Rs. 3 Lakh), General Reserve
  Account (15 Lakh) Profit Loss Account by
  Rs. 2 Lakh
• Share Premium Account (Rs.5 Lakh), Capital
  Reserve Account ( Rs. 1 Lakh), General Reserve
  Account (4 Lakh) Profit Loss Account by
  Rs. 15 Lakh

80
EXAMPLES

• Select the incorrect statement in case of Share
  Capital and Reserves and Surplus as shown in the
  balance sheet.
• Under share capital, the following order is
  maintained Authorised capital, issued capital,
  subscribed capital
• The called up amount per share is indicated and
  in the amount column total amount i.e. number of
  shares multiplied by amount called up per share
  is shown
• The amount of unpaid calls is deducted from (b)
  above
• The amount of forfeited shares account is shown
  under Reserves surplus
• Select the incorrect statement in respect of form
  of balance sheet of companies(Liabilities side).
• sinking fund is shown under unsecured loans
• Loans from banks are grouped under the head
  Secured Loans
• Unclaimed Dividend is grouped under the head
  current liabilities
• Proposed dividend is grouped under provisions.

81
EXAMPLES

• Select the incorrect statement in respect of form
  of balance sheet of companies ( Asset side).
• Live Stock is grouped under the head current
  Asset
• Balance of unutilized monies raised by issue is
  grouped under the head Investments
• Interest paid out of capital during construction
  is grouped under the head Miscellaneous
  Expenditure
• Vehicles are grouped under the head Fixed
  Asset

82
EXAMPLES

• One of the accounts is wrongly debited to Profit
  and Loss Appropriation A/c of a company. Name
  the wrong account debited
• Interim dividend
• Proposed dividend
• Provision for tax
• Capital redemption reserve
• Select the false statement in respect of assets
• a banking company is allowed to acquire assets
  for its own use
• a banking company is allowed to grant loans
  against the security of assets belonging to its
  customers
• a banking company is allowed to take possession
  of such assets in case of default committed by
  the borrower
• a banking company is not allowed to sale the
  assets against the security of which it has
  granted loans

83
EXAMPLES

• THE FINANCIAL STATEMENT OF BANK CONSISTS OF
  ------- SCHEDULES
• 18 SCHEDULES
• 16 SCHEDULES
• 17 SCHEDULES
• 12 SCHEDULES
• INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER
  ASSETS ARE PART OF SCHEDULE NOS.--RESPECTIVELY
• 6,7,8,9
• 7,8,9,10
• 8,9,10,11
• 9,10,11,12
• LIABILITY FOR PARTIALLY PAID INVESTMENTS IN
  RESPECT OF BANKING COMPANIES IS GROUPED UNDER THE
  HEAD-----
• INVESTMENTS
• OTHER ASSETS
• OTHER LIABILITIES AND PROVISIONS
• CONTINGENT LIABILITIES

84
EXAMPLES

• One of the items is a misfit in a group namely
  other income of a banking company. Select this
  item from the following
• INCOME ON INVESTMENTS
• PROFIT ON SALE OF INVESTMENTS
• PROFIT ON REVALUATION OF INVESTMENTS
• PROFIT ON EXCHANGE TRANSACTIONS
• Depreciation on banks property is part of
  Operating Expenses. Some of the items included
  under this category are listed below. One of the
  expenses is wrongly included. Identify that item
  of expense.
• depreciation on motor cars
• depreciation on stationary and stamps
• depreciation on furniture
• depreciation on non-banking assets

85
EXAMPLES

• The provisional requirement for standard asset
  is-----
• 0.40(revised) of total outstanding
• 10(revised) of total outstanding
• 40(revised) of total outstanding
• 100(revised) of total outstanding
• The investment under held to maturity should
  not exceed -----of banks total investment.
• 25
• 75
• 5
• None of the above

86
EXAMPLES

• Acceptances, endorsements and guarantees are
  shown as-----
• other assets
• contingent liabilities
• advances
• other liabilities and provisions
• Choose the wrong pair from the following. The
  information given in the pair is pertaining to
  banking companies
• Reserves surplus - Share premium
• Time deposits - Matured time deposits
• Borrowings in India - Refinance from NABARD
• Other Liabilities Provisions - Inter
  office/branch adjustments(net

87
EXAMPLES

• The name of the accounts with the coverage of
  various items in building that account is given
  below. One of the items covered in on of the
  accounts is wrong. Select this account
• Closing balance of provisions held towards NPA
  - Opening Balance plus provisions made during
  the year less write off of bad debts/write back
  of excess provisions
• Interest Earned - interest on advances plus
  income on investments plus interest on deposit
  with RBI plus income earned by way of dividends
  from subsidiaries plus discount on bills less
  unexpired discount
• Reserves surplus - Opening balance plus
  additions during the year less deductions during
  the year
• Term deposits - from banks and from Others
• Identify a pair which is mismatch from the
  following pairs in respect of Company Accounts
• Miscellaneous Expenditure Preliminary Expenses
• Contingent Liabilities footnote to balance
  sheet
• Debentures Unsecured Loans
• Outstanding Expenses Current Liabilities

88
EXAMPLES

• Identify a pair which is mismatch from the
  following pairs in respect of Company Accounts
• Miscellaneous Expenditure Preliminary Expenses
• Contingent Liabilities footnote to balance
  sheet
• Debentures Unsecured Loans
• Outstanding Expenses Current Liabilities

89
EXAMPLES

• While preparing the final accounts of the
  company, the adjustments (i) to (iv) are to be
  made by passing necessary entries. One of the
  entries passed is wrong entry. Select the wrong
  entry.(i) Provide dividend 5 of paid up share
  capital (Share capital of Rs. 5,00,000 consisting
  of shares of Rs. 10 each fully paid) (ii)
  Insurance for unexpired period is Rs.2000 (iii) A
  provision of Rs. 25,000 is to be made for income
  tax (iv) a provision of Rs. 5000 is to be made
  for doubtful debts
• Debit Dividend by Rs.25000 Credit Bank by
  Rs.25000
• Prepaid Insurance by Rs.2000 Insurance by
  Rs.2000
• Debit Profit Loss Account by Rs.25,000 Credit
  Provision for Tax by Rs.25,000
• Debit Profit Loss by Rs.5,000 Credit
  Provision for doubtful debts by Rs.5,000

90
EXAMPLES

• If the partners capital accounts are fixed, where
  will you record (either debit side or credit side
  of which account ) the following transactions
  (i) Salary payable to partner (ii) Fresh capital
  introduced by a partner (iii) Drawing made by a
  partner (iv) Share of profit earned by a partner.
  The effect to one of the journal entries is
  wrongly given. Identify that account from the
  following.
• Debit side of partners current account
• Credit side of partners capital account
• Debit side of partners current account
• Credit side of partners current account

91
Example

• L,K and P are partners. The following differences
  as listed at (i) to (iv) have arisen due to
  misunderstanding. The answer to each point is
  given at (a) to (d). One of the solutions is
  incorrect. Identify the wrong solution. (i) L
  used Rs.25,000 belonging to the firm and made a
  profit of Rs.4,000. K wants the amount to be
  given to the firm (ii) P used Rs.10,000
  belonging to the firm and suffered a loss of Rs.
  3000. He wants the firm to bear the loss (iii) L
  K wishes to appoint S as new partner. P does
  not agree (iv) L has given loan of Rs. 50,000 to
  the firm, he wants interest at 6 ( there is no
  partnership deed)
• K is right .L must pay Rs.29,000 to the firm
• P is right . Firm should bear profit as well as
  losses.
• P is right. No new partner can be admitted
  without the consent of all.
• L is right. He is entitled for interest at 6 in
  the absence of partnership agreement.

92
Example

• A firm earns Rs.10,000 as its normal profits. The
  rate of normal return being 10. The assets of
  the firm amount to Rs.72,000 and liabilities to
  Rs.24,000. Find out the value of goodwill.
• Rs.52,000
• Rs.1,00,000
• Rs.28,000
• Nil

93
Example

• If the adjustment in the values of assets at the
  time of the admission of a partner shows a
  profit, it should be credited to the capital
  accounts of-----
• The old partners in their new profit-sharing
  ratio
• All partners in their new profit sharing ratio
• The old partners in their old profit sharing
  ratio
• None of the above

94
Example

• Choose the correct treatment for premium paid on
  Joint Life Policy when premium paid is treated
  as an expense.
• Premium amount is debited to P L account every
  year and when claim becomes due then to be shared
  by all partners
• Every year amount debited to Joint Life Policy
  Account and balance is shown on asset side at
  surrender value . The difference between
  surrender value and premium paid is written off
  to Profit and Loss account
• Joint Life Policy and Joint Life reserve Account
  are adjusted to bring them down to surrender
  value of policy.
• None of the above.