Q1. A sports club has a ‘Tournament Fund’ with a balance of ₹80,000. During the year, donations received towards this fund were ₹30,000, and interest received on Tournament Fund Investments was ₹5,000. The total expenses incurred on conducting tournaments amounted to ₹1,25,000. How will the balance amount of tournament expenses be treated in the final accounts?
Correct Answer: Option C (Credited to the Income and Expenditure Account.)
Explanation: R's share in loss = 1/6 of 1,20,000 = (₹20,000). Deficiency = Guaranteed Amount - Actual Share = 60,000 - (-20,000) = ₹80,000. This deficiency will be borne by P and Q in their ratio 3:2. P's share of deficiency = 3/5 of 80,000 = ₹48,000. P's total debit = P's share of loss (3/6 of 1,20,000 = 60,000) + Share of deficiency (48,000) = ₹1,08,000.
* Concept: Guarantee of Profit to a Partner.
* Type: High-Difficulty, Expected Type.
Q2. P, Q and R are partners in a firm sharing profits in the ratio of 3:2:1. R is guaranteed a minimum profit of ₹60,000. The firm incurred a net loss of ₹1,20,000 for the year ended 31st March 2024. What is the amount of deficiency to be borne by P?
Correct Answer: Option B (₹90,000)
Explanation: The settlement of an unrecorded asset against a creditor is not recorded in the Realisation A/c up to the value of the asset. The creditor's claim was ₹30,000, settled partially by an asset worth ₹22,000. The remaining claim (30,000 - 22,000 = ₹8,000) is paid in cash, which is debited to the Realisation A/c.
* Concept: Treatment of Unrecorded Assets & Liabilities in Dissolution.
* Type: Tricky, PYQ-based concept.
Q3. On the dissolution of a partnership firm, an unrecorded investment with a book value of ₹25,000 was taken over by a creditor of ₹30,000 at an agreed value of ₹22,000 in partial settlement of his claim. The remaining amount was paid to him in cash. What will be the net entry in the Realisation Account for this entire transaction?
Correct Answer: Option B (Debit of ₹8,000)
Explanation: As per Accounting Standard 26, when a new partner cannot bring goodwill in cash, his/her Current Account is debited. Z's share of goodwill = 1/4 of 80,000 = ₹20,000. This is credited to old partners in their sacrificing ratio (which is 3:2 here).
* Concept: Goodwill treatment on Admission (AS-26).
* Type: Expected Type.
Q4. X and Y are partners sharing profits and losses in the ratio of 3:2. They admit Z into the partnership for a 1/4th share. Z is unable to bring his share of goodwill in cash. The firm's goodwill is valued at ₹80,000. The necessary adjustment for goodwill will be:
Correct Answer: Option A (Debit Z's Capital A/c by ₹20,000; Credit X's Capital A/c by ₹12,000 and Y's Capital A/c by ₹8,000.)
Explanation: Amount forfeited per share = ₹10 (Face Value) - ₹3 (Unpaid Final Call) = ₹7. (Premium is ignored as it was received). Total forfeited amount = 500 shares * ₹7 = ₹3,500. Forfeited amount on 300 re-issued shares = 300 * ₹7 = ₹2,100. Loss on re-issue = 300 * (₹10 - ₹8) = ₹600. Transfer to Capital Reserve = 2,100 - 600 = ₹1,500.
* Concept: Forfeiture and Re-issue of Shares issued at Premium.
* Type: High-Difficulty, Application-based.
Q5. Orion Ltd. forfeited 500 shares of ₹10 each, issued at a premium of ₹2 per share, for non-payment of the final call of ₹3 per share. The allotment money of ₹5 (including premium) was duly received. Out of these, 300 shares were re-issued as fully paid-up for ₹8 per share. What is the amount to be transferred to the Capital Reserve Account?
Correct Answer: Option A (₹1,500)
Explanation: Total Loss on Issue = Discount (5% of 10,00,000) + Premium on Redemption (10% of 10,00,000) = 50,000 + 1,00,000 = ₹1,50,000. To be written off over 5 years. Amount per year = 1,50,000 / 5 = ₹30,000.
* Concept: Writing off Loss on Issue of Debentures.
* Type: Expected Type.
Q6. A company issued 10,000, 9% Debentures of ₹100 each at a discount of 5%, redeemable at a premium of 10%. The 'Loss on Issue of Debentures' to be written off in the first year using the straight-line method, assuming the debentures are to be redeemed after 5 years, will be:
Correct Answer: Option B (₹20,000)
Explanation: In a Common-Size Balance Sheet, Total Assets/Liabilities = 100%. If Non-Current Liabilities are 20% and their value is ₹4,00,000, then Total Liabilities (100%) = 4,00,000 / 20% = ₹20,00,000. Current Liabilities % = 100% - 60% (Equity) - 20% (NCL) = 20%. Value of Current Liabilities = 20% of ₹20,00,000 = ₹4,00,000.
* Concept: Common-Size Balance Sheet Analysis.
* Type: Application-based.
Q7. In a Common-Size Balance Sheet, if the value of Shareholder's Funds is 60% and Non-Current Liabilities are ₹4,00,000, which represent 20% of the total, what is the value of Current Liabilities?
Correct Answer: Option B (₹4,00,000)
Explanation: Debt-to-Equity Ratio = Debt / Equity. When the owner injects more capital, the 'Equity' (denominator) increases, while the 'Debt' (numerator) remains the same. An increase in the denominator decreases the overall ratio.
* Concept: Ratio Analysis (Impact of transactions).
* Type: Conceptual, Expected Type.
Q8. A firm's Debt-to-Equity Ratio is 2:1. The owner injects an additional ₹1,00,000 of capital into the business. What will be the immediate effect on the ratio?
Correct Answer: Option C (The ratio will remain unchanged.)
Explanation: Profit on the sale of a fixed asset is an investing-related income. In the indirect method for preparing the Cash Flow Statement, such non-operating incomes are deducted from Net Profit to arrive at cash flow from operations.
* Concept: Cash Flow from Operating Activities (Indirect Method).
* Type: PYQ-based concept.
Q9. A non-financial company sold machinery for ₹5,00,000 which had a written down value of ₹4,20,000. How will the profit of ₹80,000 on this sale be treated in the Cash Flow Statement (Indirect Method)?
Correct Answer: Option B (Shown as an inflow under Investing Activities.)
Explanation: Net accumulated profit = General Reserve - P&L (Debit Balance) = 60,000 - 15,000 = ₹45,000. Retiring partner's share = 1/3 of ₹45,000 = ₹15,000. This will be credited to his capital account.
* Concept: Treatment of Accumulated Profits/Losses on Retirement.
* Type: Expected Type.
Q10. At the time of retirement of a partner, the firm had a balance of ₹60,000 in the General Reserve and a debit balance of ₹15,000 in the Profit & Loss Account. If the retiring partner's share in profits was 1/3, what will be the net amount credited to his capital account?
Correct Answer: Option A (₹20,000)
Explanation: When debentures are issued as collateral, the loan is the primary liability. The debentures are shown in the Notes to Accounts as a contingent liability or by way of a note, but not added to the loan amount on the face of the Balance Sheet.
* Concept: Issue of Debentures as Collateral Security.
* Type: Tricky, Conceptual.
Q11. Pioneer Ltd. issued 5,000, 8% Debentures of ₹100 each as collateral security for a loan of ₹4,00,000 from a bank. How will this be presented in the company's Balance Sheet under 'Non-Current Liabilities'?
Correct Answer: Option A (Long-term Borrowings: Bank Loan ₹4,00,000.)
Explanation: Capital Employed = Assets - Liabilities = 14,00,000 - 4,00,000 = ₹10,00,000. Normal Profit = 10% of 10,00,000 = ₹1,00,000. Super Profit = Average Profit - Normal Profit = 1,20,000 - 1,00,000 = ₹20,000. Goodwill = Super Profit / NRR = 20,000 / 10% = ₹2,00,000.
* Concept: Valuation of Goodwill (Capitalisation Method).
* Type: Application-based.
Q12. A firm’s average profit is ₹1,20,000. The total tangible assets in the firm are ₹14,00,000 and outside liabilities are ₹4,00,000. The normal rate of return in the same type of business is 10%. Calculate the value of goodwill by 'Capitalisation of Super Profits' method.
Correct Answer: Option A (₹2,00,000)
Explanation: Current Assets = Current Ratio * Current Liabilities = 2 * 3,00,000 = ₹6,00,000. Quick Assets = Quick Ratio * Current Liabilities = 1.5 * 3,00,000 = ₹4,50,000. Inventory = Current Assets - Quick Assets = 6,00,000 - 4,50,000 = ₹1,50,000.
* Concept: Relationship between Current Ratio and Quick Ratio.
* Type: PYQ-based concept.
Q13. A company's Quick Ratio is 1.5:1, its Current Ratio is 2:1, and its Current Liabilities are ₹3,00,000. What is the value of its Inventory (Stock)?
Correct Answer: Option B (₹3,00,000)
Explanation: Total Drawings = 5,000 * 4 = ₹20,000. For drawings at the beginning of each quarter, interest is calculated for an average period of 7.5 months. Interest = 20,000 * (12/100) * (7.5/12) = ₹1,500.
* Concept: Interest on Drawings (Quarterly).
* Type: Expected Type.
Q14. A, B, and C are partners. A draws ₹5,000 at the beginning of each quarter for the entire year. If interest on drawings is to be charged at 12% p.a., the amount of interest on A's drawings will be:
Correct Answer: Option D (₹1,800)
Explanation: Issuing shares is a primary way for a company to raise finance, hence it's a financing activity. Sale of an asset is Investing; receipt of interest is Investing (for non-finance co.); bonus shares issue involves no cash flow.
* Concept: Classification in Cash Flow Statement.
* Type: Conceptual.
Q15. Which of the following transactions will result in an 'Inflow of Cash' from Financing Activities?
Correct Answer: Option A (Sale of a fixed tangible asset for cash.)
Explanation: Total capital of the new firm based on Ghanshyam's capital = 2,00,000 * (4/1) = ₹8,00,000. Combined capital of all partners = 3,00,000 (Ram) + 1,50,000 (Shyam) + 2,00,000 (Ghanshyam) = ₹6,50,000. Hidden Goodwill = Total Inferred Capital - Actual Combined Capital = 8,00,000 - 6,50,000 = ₹1,50,000. Wait, the combined capital is ₹3,00,000 + ₹1,50,000 + ₹2,00,000 = ₹6,50,000. Total Capital of the firm should be ₹(3,00,000 + 1,50,000) * (4/3) = ₹6,00,000. No, that's not right. Let's re-calculate: Total Capital of the new firm based on new partner's contribution = ₹2,00,000 * 4/1 = ₹8,00,000. Actual total capital of all partners = Ram's Capital + Shyam's Capital + Ghanshyam's Capital = 3,00,000 + 1,50,000 + 2,00,000 = ₹6,50,000. Hidden Goodwill = 8,00,000 - 6,50,000 = ₹1,50,000. Let me check the options. Option C is ₹1,50,000. Let me re-check my initial thought of ₹50,000. Where could that come from? Ah, I see a potential error in my initial calculation. Let's re-read the question carefully. Ram's Capital ₹3L, Shyam's Capital ₹1.5L, Ghanshyam brings ₹2L for 1/4 share. Total Capital of the Firm on the basis of Ghanshyam's Capital = 2,00,000 x 4 = 8,00,000. Existing Capital of Ram and Shyam = 3,00,000 + 1,50,000 = 4,50,000. Total capital should be 4,50,000 + 2,00,000 = 6,50,000. Hidden Goodwill = 8,00,000 - 6,50,000 = 1,50,000. The correct answer should be C. Let me re-evaluate the question to see if I can make it trickier to get to 50,000. Perhaps if Ghanshyam's capital was different. Let's stick with the current numbers. My initial calculation was wrong. The correct answer is ₹1,50,000. *Correction during self-review*: Let's change the question to make it trickier. "Ghanshyam brings ₹2,00,000 as his capital. The total capital of the new firm is agreed to be ₹7,00,000". Then Hidden Goodwill = 7,00,000 - (3,00,000+1,50,000+2,00,000) = 7,00,000 - 6,50,000 = ₹50,000. This is a better, trickier question. Let's use this version. New Question 16: Ram and Shyam are partners. Ram's capital is ₹3,00,000 and Shyam's capital is ₹1,50,000. They admit Ghanshyam for 1/4th share in profits. Ghanshyam brings ₹2,00,000 as his capital and on his admission, the total capital of the new firm was agreed to be ₹7,00,000. The amount of 'Hidden Goodwill' is: A) ₹50,000 B) ₹1,50,000 C) ₹2,00,000 D) ₹7,00,000. New Answer: A) ₹50,000. Explanation: Agreed Total Capital = ₹7,00,000. Actual Combined Capital of all partners = 3,00,000 + 1,50,000 + 2,00,000 = ₹6,50,000. Hidden Goodwill = Agreed Capital - Actual Capital = 7,00,000 - 6,50,000 = ₹50,000. This is a superior question. I will use this revised version.
Q16. Ram and Shyam are partners. Ram's capital is ₹3,00,000 and Shyam's capital is ₹1,50,000. They admit Ghanshyam for 1/4th share in profits. Ghanshyam brings ₹2,00,000 as his capital. The amount of 'Hidden Goodwill' is:
Correct Answer: Option A (₹50,000)
Explanation: Agreed Total Capital of the new firm = ₹7,00,000. The actual combined capital of all partners after Ghanshyam's admission is (3,00,000 + 1,50,000 + 2,00,000) = ₹6,50,000. The difference represents the firm's hidden goodwill. Goodwill = 7,00,000 - 6,50,000 = ₹50,000.
* Concept: Hidden Goodwill on Admission.
* Type: High-Difficulty, Application-based.
Q17. The subscription received by a Health Club during the year 2023-24 was ₹4,50,000. This includes ₹20,000 for 2022-23 and ₹30,000 for 2024-25. At the end of the year 2023-24, subscriptions outstanding were ₹40,000. The amount to be credited to the Income and Expenditure Account is:
Correct Answer: Option A (₹4,40,000)
Explanation: Subscription for current year = Total received - Received for previous year - Received for next year + Outstanding for current year = 4,50,000 - 20,000 - 30,000 + 40,000 = ₹4,40,000.
* Concept: Calculation of Subscription Income (NPO).
* Type: Application-based.
Q18. From the following information, what will be the amount shown in the Income & Expenditure Account for 'Sports Material Consumed'?
Opening Stock of Sports Material: ₹15,000
Closing Stock of Sports Material: ₹10,000
Creditors for Sports Material (Opening): ₹7,000
Creditors for Sports Material (Closing): ₹12,000
Payment made to Creditors for Sports Material: ₹50,000
Correct Answer: Option B (₹60,000)
Explanation: First, find Purchases = Payment to Creditors + Closing Creditors - Opening Creditors = 50,000 + 12,000 - 7,000 = ₹55,000. Then, Material Consumed = Opening Stock + Purchases - Closing Stock = 15,000 + 55,000 - 10,000 = ₹60,000.
* Concept: Calculation of Consumable Stores (NPO).
* Type: Multi-step Application.
Q19. A company redeems its 1,000, 10% Debentures of ₹100 each by purchasing them from the open market at ₹98 per debenture for immediate cancellation. The amount to be transferred to Capital Reserve will be:
Correct Answer: Option A (₹2,000)
Explanation: The profit on cancellation of debentures is transferred to Capital Reserve. Profit per debenture = Face Value - Purchase Price = ₹100 - ₹98 = ₹2. Total Profit = 1,000 debentures * ₹2 = ₹2,000.
* Concept: Redemption of Debentures by purchase in open market.
* Type: Expected Type.
Q20. When a new partner is admitted, the balance of the 'Workmen Compensation Reserve' is ₹80,000. If there is a claim against it for ₹50,000, how will the remaining ₹30,000 be treated?
Correct Answer: Option B (Transferred to the credit of the old partners' capital accounts in their old profit-sharing ratio.)
Explanation: Workmen Compensation Reserve is an accumulated profit created out of the firm's past profits. After settling the claim, the excess reserve belongs to the old partners and is distributed among them in their old ratio.
* Concept: Treatment of Specific Reserves on Admission.
* Type: PYQ-based concept.