Transcript Accounting & Finance for Bankers JAIIB-MODULE-C

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Accounting & Finance for Bankers
Final A/cs. Of Banks & Cos.
JAIIB-MODULE-D
PRESENTATION BY
Ravi Ullal
24-o4-2008
1
Topics
 Partnership
accounts
 Final accounts of banking companies
 Company accounts
 Balance sheet equation
 Accounting in a Computerized
environment
2
PARTNERSHIP ACCOUNTS
 Introduction
 Definition
 Partnership
deed
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In the absence of partnership deed/if
deed is silent
Profit sharing ratio –Equal
 No interest on capital
 No interest on drawings
 interest@6% on loan given by partner
 No salary /no commission/ no
remuneration
 Capital accounts under fluctuating capital
method
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4
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
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GOODWILL
It’s reputation, super profit earning capacity of a
firm
 Necessity
 change in profit sharing ratio
 Admission, retirement, death
 Sale of business
 Methods:
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 Average profit
 Super profit
 capitalization
of profit
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Methods of goodwill
Average profit
(AP)
Super profit
(SP)
Capitalization of
profit
AP x Multiplier
SP x multiplier
SP = AP less NP
(Capitalised
value) less
Actual Capital
NP=normal profit
Multiplier is given Multiplier is given
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GOODWILL IMPORTANT ENTRIES
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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)
8
GOODWILL IMPORTANT ENTRIES
 RETIREMENT
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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)
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ADMISSION
revaluation
of assets/
liabilities,
goodwill,
capital adjustments,
balance of reserves,
past losses (if any)
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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
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examples
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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.
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examples
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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
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examples
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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)
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examples
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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.
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examples
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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 C’s share of goodwill is raised for above will be:
(a)
Goodwill a/c
Dr.
Rs 30,000
To C’s Capital a/c
Rs 30,000
(b)
A’s Capital a/c
Dr.
Rs 15,000
B’s 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.
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examples
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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(45:19).
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examples
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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 C’s capital a/c
20,000
(Being various assets brought by C
towards his capital recorded in books)
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examples
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Jan 2004
Stock a/c Dr.
5,200
Truck a/c Dr.
1,700
Building a/c
Dr.
2,600
To Revaluation a/c
(Being increase in value of
assets recorded)
Revaluation a/c
Dr.
1,500
To Others Assets a/c
To Provision for Doubtful Debts a/c
(Being decrease in other assets
and provision for doubtful debts recorded)
Revaluation a/c
Dr.
8,000
(9,500 – 1,500)
To A’s Capital a/c
To B’s Capital a/c
(Being profit on revaluation
distributed in old profit sharing ratio)
9,500
800
700
5,600
2,400
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examples
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General Reserve a/c Dr. 5,400
To A’s capital a/c
3,780
To B’s capital a/c
1,620
(Being general reserve distributed in
old profit sharing ratio)
Cash a/c
Dr
2,600
To A’s Capital a/c
1,620
To B’s Capital a/c
980
(Being cash brought in by old partners)
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examples
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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.
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examples
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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.
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examples
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11) Prepare the Profit and Loss account of Modern Bank Ltd. for
2003, from the following:
Rs
Interest on Fixed Deposits
Rebate on Bills discounted
Interest on Loans
45,000
Commission Charged to Customers
62,500
Establishment
15,000
Discount on Bills Discounted
Interest on Cash Credit
24,000
Amount Charged against Current Accounts
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
the year ended 31st March,
1,62,410
29,000
89,000
71,500
57,780
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examples
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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
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examples
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Schedules to be annexed with Profit and
Schedule13: Interest Earned
Interest on:
Loan
45,000
Cash Credit
Overdrafts
Discount on Bills discounted
Less: Rebate on Bill Discounted
Amount charged against current accounts
Schedule 14: Other Income
Commission charged to customer
Schedule 15: Interest Expended
Interest paid on
Fixed Deposits
Savings Bank Deposits
Loss Account
24,000
71,000
89,000
29,000
2,71,500
1,40,000
60,000
71,500
62,500
1,62,410
57,780
2,20,190
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examples
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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
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examples
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Schedule 16: Operating Expenses
Establishment Expenses
15,000
Director’s 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 Premium treated Premium
as expenses
as asset
treated as
reserves
At the end of each Each year
year, premium w/o difference between
to P & L A/c
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.
receipt of policy
amt.
If amount is >
Policy amount
SV, the excess is credited to
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credited to partners
Types of partners
 Active
 Sleeping
 Quasi
 nominal
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FINAL ACCOUNTS OF BANKING
COMPANIES
Definition
 Requirements –Accounts & audit
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 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
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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
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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
Expenditure
Interest Expended
Operating Expenses
Provision for contingencies
Schedule.13
Schedule.14
Schedule.15
Schedule.16
Profit /Loss
Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to Balance sheet
34
NOTES TO ACCOUNTS
Significant
Accounting
Policies
Notes forming
part of
Accounts
Schedule.17
Schedule.18
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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
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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
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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
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ASSET CLASSIFICATION ETC
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Asset Classification
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Income Recognition
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Performing and
non performing ( remain out of order)
Performing-accrual basis
Non performing-cash basis
Asset Classification
Std-0.40% (revised from 0.25%)
Sub-Std.<18 months-10%
Doubtful>18 months-usl-100%-secured.3yrs-50%,>1&<330%-upto 1year-20%
 Loss assets-100%
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SLR & NON SLR DEPOSITS
Held to maturity Available for sale Held for trading
Freedom available
Investment
should not
exceed 25% of
total investment
Freedom available
-no marked to
market. Profit on
sale treated as cap.
Reserve
Marked to market
-Marked to market
-profit on sale of
investment. taken
to P&L a/c
To be sold
within 90 days
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COMPANY ACCOUNTS
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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 company’s name is engraved. The common seal is treated as
company’s 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.
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COMPANY ACCOUNTS
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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 company’s 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.
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Types of companies
On the basis of
incorporation
Chartered
company
Statutory
company
Registered
company
On the basis of On the basis of
ownership
liability
Private company Co.limited
by
shares
Public company Co. Ltd. by
guarantee
Government
Co. with
company
unlimited liability
Foreign
company
Holding
company
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SHARE CAPITAL
EQUITY
 PREFERENCE
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 CUMULATIVE
 REDEEMABLE
 PARTICIPATING
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SHARE CAPITAL
AUTHORISED CAPITAL
 ISSUED CAPITAL
 SUBSCRIBED CAPITAL
 CALLED CAPITAL
 PAID UP CAPITAL
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ISSUE OF SHARE AT PAR
-BANK
- SHARE APPLICATION
-SHARE
APPLICATION
-SHARE
CAPITAL
Over subscription
-share application
-share capital
-bank (refund)
-share allotment
Debited
Debited
-
credited
Debited
-
Credited
Credited
Credited
Credited
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SHARE ALLOTMENT/SHARE CALL
Share allotment a/c
Share capital a/c
Debited
-
Credited
Bank a/c
Debited
-
Credited
Debited
-
Credited
Debited
-
Credited
Debited
-
Credited
-
Credited
Share allotment a/c
Share call a/c
Share capital a/c
Bank a/c
Share call a/c
Calls in arrears a/c
Share allotment a/c
Share call a/c
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Issue of shares at premium
Share application/
allotment a/c
Share capital A/c
Share premium A/c
Debited
-
-
Credited
Credited
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Issue of shares at discount
Share allotment A/c
Discount on issue of
shares A/c
Share capital A/c
Debited
Debited
-
-
Credited
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Forfeiture of shares
Share capital A/c
Call in arrears A/c
Forfeited shares A/c
Debited
-
Credited
Credited
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Re-issue of shares
Bank A/c
Forfeited shares A/c
Share capital A/c
Capital reserve A/c
Debited
Debited
-
Credited
Credited
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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
Bonus to shareholders A/c
Equity share capital A/c
Debited
Debited
Debited
Debited
Debited
Debited
credited
credited
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Balance sheet equation
LIABILITIES
ASSETS
Capital
300.00
Fixed assets 700.00
Reserves
200.00
Current
assets
300.00
Total
1000.00
Term Loans 300.00
Current
Liabilities
Total
300.00
1000.00
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Balance Sheet Equation
Assets
=
Liabilities
Assets
=
Liabilities (+)
Capital
Liabilities
=
Assets (-)
Capital
Capital
=
Assets (-)
Liabilities
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BALANCE SHEET EQUATION
Assets = Liabilities
Assets = Capital + Liabilities
Assets =Net worth + Liabilities
Net worth = Capital + Reserves&
Surplus
Net worth = Assets Less Liabilities
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1. The Assets of a business are
Rs.500000 and its capital is
Rs.115000. Its liabilities on that date
would be------
Rs.615000
b) rs.385000
c) Rs.500000
d) Rs. 115000
a)
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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?
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Rs. 1300l
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Rs. 500
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rs.200
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Rs. Nil
(2) Identify the wrong pair
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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
57
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

58
EXAMPLES
1.
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

59
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

60
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.
61
EXAMPLES
2.
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

62
EXAMPLES
3.
Select from the following a sentence
which is wrong
If assets increase and liabilities do not , the
capital will increase
b. If assets increase and liabilities also
increase by same sum , the capital will
remain same
c. A reduction in the amount of assets will
amount to equivalent reduction in the net
worth
d. An increase in the amount of assets with no
corresponding increase in liabilities will
increase the amount of capital
a.
63
EXAMPLES
4.
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----a. increases by Rs.50000
b. reduces by Rs.40000
c. increases by Rs. 20000
d. reduces by Rs. 20000
64
EXAMPLES
5.
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?
a.
b.
c.
Rs. 36000
Rs.70000
Rs.53000
65
EXAMPLES
6.
One of the pairs given below is
wrong. Select the wrong pair.
a. Outstanding expenses - Nominal
account
b. Profit and Loss Account (Dr.
balance) – Application of funds
c. Net worth less reserves & surplus
- Capital
d. Balance sheet - Financial
position
66
EXAMPLES
7.
From the following ,find a sentence
which is false in respect of partnership
a.
b.
c.
d.
If the partnership is following the “Fixed Capital
Account Method” salary payable to a partner is
credited to the partner’s 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
67
EXAMPLES
8.
From the account given below,
select the account which is
wrongly included in Profit & Loss
Appropriation Account at the debit
side
a.
b.
c.
d.
Drawings Account
Partners Salary Account
Interest on Loan Account
Commission to Partners Account
68
EXAMPLES
10.
A and B are two partners in a firm
sharing profits and losses as 2:1.
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 ----15:15:10
b. 20:10:10
c. 3:1:1
d. None of the above
a.
69
EXAMPLES
11.
Mr. Q and Mr. R were partners of a firm sharing
profit and losses in the ratio of 3:2. 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
b. Debit cash and credit S’s Capital for
Rs.3,00,000
c. Debit Goodwill for Rs.1,00,000 and credit
Q’s Capital by Rs. 60000 & R’s Capital by
Rs. 40,000
70
d. Debit Stock and credit Profit & Loss
Adjustment A/c by Rs.9,000
a.
EXAMPLES
12.
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, A’s Capital A/c.Rs.20000, B’s Capital A/c.
Rs.20,000 and C’s 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.
a.
b.
c.
d.
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
71
EXAMPLES
13.
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.
a.
b.
c.
d.
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
72
EXAMPLES
14.
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, A’s Capital A/c.Rs.20000, B’s Capital A/c.
Rs.20,000 and C’s 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.
a.
b.
c.
d.
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
73
EXAMPLES
15.
Select the incorrect statement in
respect of companies.
a.
b.
c.
d.
16.
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
a.
b.
c.
d.
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.
74
EXAMPLES
17.
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)
b. Debit share application account and credit
share capital account (application transferred
to share capital account)
c. Debit share capital and credit share allotment
account ( for recording allotment money being
fallen due )
d. Debit bank account and credit share allotment
account ( for receipt of allotment money)
a.
75
EXAMPLES
18. 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
b. The article of association must permit
such acceptance of advance call money
c. Interest on calls in advance can be paid
but the maximum is upto 6%
d. The amount of calls in advance is part
of the paid up share capital
a.
76
EXAMPLES
19.
Select the incorrect statement in respect of
utilization of share premium
a.
b.
c.
d.
20.
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.
a.
b.
c.
d.
Debit bank account by Rs.900
Debit forfeited shares by Rs.500
Credit share capital by Rs.1000
Credit forfeited shares by Rs.400
77
EXAMPLES
21.
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.
a.
b.
c.

22.
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
a.
b.
c.
d.
Share premium
Revaluation reserve created by revaluation of fixed assets
Capital reserve
Capital redemption reserve
78
EXAMPLES
23.
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 1:1 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.
a.
b.
c.
d.
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 (79
Rs. 1 Lakh), General Reserve Account (4 Lakh) & Profit & Loss
Account by Rs. 15 Lakh
EXAMPLES
24.
Select the incorrect statement in case of
Share Capital and Reserves and Surplus as
shown in the balance sheet.
a.
b.
c.
d.
25.
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).
a.
b.
c.
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
80
EXAMPLES
26.
Select the incorrect statement in
respect of form of balance sheet of
companies ( Asset side).
a.
b.
c.
d.
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’
81
EXAMPLES
27.
One of the accounts is wrongly debited to
“Profit and Loss Appropriation A/c” of a
company. Name the wrong account debited
a.
b.
c.
d.
28.
Interim dividend
Proposed dividend
Provision for tax
Capital redemption reserve
Select the false statement in respect of
assets
a.
b.
c.
d.
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
82
EXAMPLES
29.
THE FINANCIAL STATEMENT OF BANK CONSISTS OF ------- SCHEDULES
a.
b.
c.
d.
30.
16 SCHEDULES
17 SCHEDULES
12 SCHEDULES
INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER ASSETS ARE
PART OF SCHEDULE NOS.--RESPECTIVELY
a.
b.
c.
d.
31.
18 SCHEDULES
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----a.
b.
c.
d.
INVESTMENTS
OTHER ASSETS
OTHER LIABILITIES AND PROVISIONS
CONTINGENT LIABILITIES
83
EXAMPLES
32.
One of the items is a misfit in a group namely
‘other income’ of a banking company. Select
this item from the following
a.
b.
c.
d.
33.
INCOME ON INVESTMENTS
PROFIT ON SALE OF INVESTMENTS
PROFIT ON REVALUATION OF INVESTMENTS
PROFIT ON EXCHANGE TRANSACTIONS
Depreciation on bank’s 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.
a.
b.
c.
d.
depreciation on
depreciation on
depreciation on
depreciation on
motor cars
stationary and stamps
furniture
non-banking assets
84
EXAMPLES
34.
The provisional requirement for
standard asset is----a.
b.
c.
d.
35.
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
bank’s total investment.
a.
b.
c.
d.
25%
75%
5%
None of the above
85
EXAMPLES
Acceptances, endorsements and guarantees
are shown as-----
36.
a.
b.
c.
d.
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
37.
a.
b.
c.
d.
Reserves & surplus - Share premium
Time deposits - Matured time deposits
Borrowings in India - Refinance from NABARD
Other Liabilities & Provisions - Inter office/branch
adjustments(net
86
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
38.
a.
b.
c.
d.
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
39.




Miscellaneous Expenditure – Preliminary Expenses
Contingent Liabilities – footnote to balance sheet
Debentures – Unsecured Loans
Outstanding Expenses – Current Liabilities
87
EXAMPLES
Identify a pair which is mismatch from
the following pairs in respect of
Company Accounts
a. Miscellaneous Expenditure –
Preliminary Expenses
b. Contingent Liabilities – footnote to
balance sheet
c. Debentures – Unsecured Loans
d. Outstanding Expenses – Current
Liabilities
40.
88
EXAMPLES
41.
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
a.
b.
c.
d.
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
89
EXAMPLES
42.
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.
a.
b.
c.
d.
Debit side of partner’s current account
Credit side of partner’s capital account
Debit side of partner’s current account
Credit side of partner’s current account
90
Example
43.
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)
a. K is right .L must pay Rs.29,000 to the firm
b. P is right . Firm should bear profit as well as losses.
c.
d.
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.
91
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.
a. Rs.52,000
b. Rs.1,00,000
c. Rs.28,000
d. Nil
43.
92
Example
44.
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
b. All partners in their new profit sharing ratio
c. The old partners in their old profit sharing ratio
d. None of the above
a.
93
Example
45.
Choose the correct treatment for premium
paid on ‘Joint Life Policy’ when premium paid
is treated as an expense.
a.
b.
c.
d.
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.
94