Afb Formula + Qs Short

INDEX
Sr. No. Particular Page No.
1. Simple/Compound Interest calcualation 1

2. Annuity 5
3. EMI/Loan sanction/pension calcualation 10
4. Bond calcualation 21
5. Current Yield 26
6. Yield to Maturity 29
7. Capital Budgeting 32
8. Basic Accountancy 37
9. Depreciation 44
10. Inventory valulation 47
11. Bills of Exchange 49
12. Subsidiary Books 57
13. Bank Reconcilation 61
14. Petty cash 65
15. Partnership Account 66
16. Retirement of partner 76
17. Dealth of Partner/Dissolution of firm 80
18. Company Account (Share) 82
19. Capital & Revenue Expenditure 88
20. Non Trading Organisation 92
21. Consignment 95
22. Joint Venture 100
23. Hire Purchase 105
24. Banking company final accounts 107
SIMPLE / COMPOUND INTEREST CALCULATION
i) Simple Interest = Px R xT
100
P = Product Product is nothing but amount consider for interest calculation.

R.I.= Rate of Interest Rate of interest consider for calculation
N = no. of year No of years the amount is invested of used.
M = frequency Frequency of compounded Interest in a year
e.g. 1) Samir invested Rs.10,000 for 6 years @ 12% p.a. Calculate the simple interest
amount he would get at the maturity ?
S.I. = P x R x T = 10,000 x 12 x 6 = 7,200/-

100 100
n
ii) Compound Interest = P ( 1 + R. I. ) -P
100
e.g. 1) Customer deposit Rs.10,000 for 2 years @ 10% p.a. Calculate the maturity value ?
C.I. = P ( 1 + R. I. ) n = 10,000 ( 1 + 10 )2 = 12,100/-

100 100
iii) Frequency of = P ( 1 + R .I . )nxm

100 x m
= P ( 1 + R.I.. ) n x 4 Quarterly - 12 = 4
100 x 4 3
Monthly - 12 = 1
1
Bi - monthly- 12 = 6
2
Half yearly 12 = 2
6
e.g. 1) Customer deposit Rs.10,000 for 2 years @ 10% p.a. At frequency is quarterly
compounding, calculate the maturity value ?
= P ( 1 + R.I.. )nxm = 10,000 ( 1 + 10 )2x4

100 x m 100 x 4
= 12,184/-
..2..
e.g. 2) Calculate the maturity value of Rs.11,000 for 4 years @ 6% p.a a) If frequency of C.I. Is
semi- annualy B) if If frequency of C.I is quarterly
a) = P ( 1 + R.I.. )nxm = 11,000 ( 1 + 6 )4 x 2

100 x m 100 x 2
= 13,934/-
b) = P ( 1 + R.I.. )nxm = 11,000 ( 1 + 6 )4 x 4

100 x m 100 x 4
= 13,958-
e.g. 3) Sachin deposit Rs.1200/- p.m for a year the rate of int is 7% Calculate the int. Amt after a year
= n (n + 1) = 12 (12 + 1 ) = 12 x 13 = 93600 x 7 = 546/=

2 2 2 1200
e.g. 4) Dhoni deposit Rs.1500/- p.m for a year the for 18 months, the rate of int is 9% Calculate the
int amt after a year
= n (n + 1) = 18 (18 + 1 ) = 18 x 19 = 256500 x 9 = 1923.75

2 2 2 1200
iv) Monthly Discounted = P x R.I.

1200 + R.I.
e.g. 1) Customer deposit Rs.10,000 @12% p.a at monthly discounted rate calculate the discounted amt.
Monthly Discounted = P x R.I. = 10000 x 12 = 1,20,000 = 99/-

1200 + R.I. 1200 +12 1212
Rule of 72 :
Period for double the principal = 72

R.I.
e.g.1) Rs.10000 becomes 20000 in 6 years under C.I. What is the rate of interest under C.I. ?

R.I.
6 = 72
R.I.
R.I. = 72 = 12%
6
..3..
e.g.1) The rate of interest is 09% how many year it will take to double the amount under C.I. ?

R.I.
= 72
9
= 8 years
e.g.1) The rate of interest is 09% how many year it will take to double the amount under S.I.?

R.I.
= 100
9
= 11.11 years
Rule of 69 :
Period for double the principal = .35 + 69

R.I.
e.g. 1) The rate of int. 4% calculated the period in which principal becomes double under rule of 69 ?
Period = .35 + 69 = .35 + 69 = 17.6 years

R.I. 4
If nothing is mention specifically about rule 69 then please calculate as per rule 72.
e.g. 2) Calculate the rate of int. Under formular of 69 where amt becomes double with in 8 years ?
Period = .35 + 69
R.I.
8 = .35 + 69
R.I.
R.I. = .35 + 69
8
= 8.97%
Discounting formula
Maturity or Future value
Present Value = --------------------------------
(1 + R. I. ) n
100
Customer want to get 1,00,000/- after 5 years the R.I is 10% how much amt. he should invest today ?
Present Value = --------------------------------
( 1 + R. I. ) n
100
= 1,00,000 = 1,00,000/- = 62,091/-
( 1 + 10 ) 5 (1.10)5
100
..4..
Witout formula sum i.e. On trial & error
Sum – 1) Under the C.I. Certain amt becomes 8780 after 2 years and 9834 after 3 years, what is the int
rate & what is the principal amount ?
S + 2 = 8780
S + 3 = 9834
Difference bet two is 9834 - 8780 = 1054
Rate of interest = 1054 x 100 = 12%

8780
= 12%
Principal PV = FV
(1 + R ) n
100
PV = 8780
(1.12)2
= 7000/-
2) Bank offer you int @ 12% cumulative quarterly find out the effective rat of int.
Effective Rate of Interest = [ (1 + RI )nxm -1]

100 x m
= [ ( 1 + 12 ) 1 x 4
400
= [ (1.03)4 m+ -1
= 0.1255 since it is decimal & find out int rate multiply by 100
= 12.55 %
n
Effective Interest Rate = ( 1 + Stated Annual interest Rate) - 1 x 100
m
..5..
ANNUITY
Annuity means essentially series of fixed payment required from you or paid to you at a specified
frequency over the course of fixed period of times.
There are two basic types of Annuites
1) Ordinary Annuity - Under this annuity the payment are required under the each period (end
of the period) e.g. - Telephone/electricity bill.
2) Annuity Due - Under this annuity the payment are required at the beggining of each
period e.g. Prepaid bills.
Formulaes :
n
i) FV (Ordinary Annuity) =C x [(1+i) -1]
i
-n
ii) PV (Ordinary Annuity) = C x [1- (1 + i ) ]
i
n
iii) FV (Annuity Due) i) = C x [ (1 + i) - 1 ] x ( 1 + i )
i
ii) = FV ( O/A) x ( 1 + i )
-n
iv) PV (Annuity Due) i) = C x [1-(1+i) ] x (1+i)
i
Simplify as C x 1 - 1
( 1 + i )n
-----------------
i
n
C x (1 + i ) - 1
(1+i)n
-----------------
i
or Simple method is (1 + i )6 xx = = = = = m+ -1
-----------------------------
MRC
-------------------------------------------------
( R.I.)
e.g. R.I. = 6% i.e. 6 = 0.06

100
..6..
(1 + 0.07)6 twice put multiple sign twice (as it fix the value) then put = sign 5
time (i.e period 6 – 1 = 5) obtained amt keep in M+ the – 1 as
per sum and divide by MRC and again divide by rate of int. i.e
0.06
(1.07)6 1.06 xx = = = = = M+ - 1
MRC
0.06
ii) = FV (O/A) x ( 1 + i )
C = Cash Flow N = No. of years

PV = Present value FV = Future value
i = Int. Rate in execption in fraction e.g. 6 = 0.06
100
Important Notes :
 Maturity Value is also called as Future Value and Principal Value is called Present Value
 Future value of Ordinary Annuity is the total Cash flow
 Coupan rate is nothing but the interest rate.
 Market interest rate increases coupan rate does not change.
 The Future Value of Annuity Due is always greater than Future Value of Annuity Ordinary i.e. [
FV (A/D) > FV (O/A) ]
 Under Ordinary Annuity - Payment are required under the each period
 Under Annuity Due – Payment are required at the beginning of each period.
 Face value of ordinary annuity is total cash flow.
Example of Ordinary Annuity
Ex-1) Customer deposited Rs.1,000/- (i.e. Cash flow) in the year 2001 for further 5 years
interest rate is 6% find the future value of ordinary annuity?
1st year 2001 1000 x 4 year (1.06)4 = 1262.47

2nd year 2002 1000 x 3 year (1.06)3 = 1191.01
3rd year 2003 1000 x 2 year (1.06)2 = 1123.60
4th year 2004 1000 x 1 year (1.06)1 = 1060.00
5th year 2005 1000 x 0 year (1.06)0 = 1000.00
------- ----------
5000 5,637.08
Another way to calculate the anuuity is n
i) FV (Ordinary Annuity) = C x [(1+i) -1]
i
= 1000 x [ (1 + 0.06) n -1 ]
0.06
= 1000 x (1.06)5 m+ -1
0.06
= 1000 x (1.338 - 1 )
0.06
= 5,637/-
..7..
Ex-2) Cash flow is 1200 rate of interest is 10% and maturiry period is 4 years, what will be future
value of ordinary annuity
n
FV (Ordinary Annuity) = C x [ ( 1 + i ) - 1 ]
i 4
= 1200 x [ (1 + 0.10) -1 ]
0.10
= 1200 x (1.10)4 m+ -1
0.10
= 1200 x 4.64
= 5,568/-
Example with Annuity Due
1) e.g. Customer deposited Rs.1,000/- (i.e. Cash flow) in the year 2000 for further 5 years
interest rate is 6% find the future value of annuity due?
1st year 2000 1000 x 5 year

(1.06)5 = 1338.22
2nd year 2001 1000 x 4 year
(1.06)4 = 1262.00
3rd year 2002 1000 x 3 year
(1.06)3 = 1191.01
4th year 2003 1000 x 2 year
(1.06)2 = 1124.00
5th year 2004 1000 x 1 year
(1.06)1 = 1060.00
------- ----------
5000 5,975.23
n
FV (Annuity Due) i) = C x [ (1 + i) - 1 ] x ( 1 + i )
i
5
= 1000 x [ (1 + 0.06) n -1 ] x ( 1 + 0.06)
0.06
5
= 1000 x (1.06 ) (xx= = = = m+ -1
0.06
= 1000 x 0.338 x ( 1 + 0.06)
0.06
= 1000 x 5.633 x 1.06
= 5,637 x 1.06
= 5,975.22
..8..
interest rate is 6% find the present value of ordinary annuity?
-n
PV (O /A) = C x [1- (1 + i ) ] i
-5
= 1000 x [ (1 -(1+ 0.06) ]
0.06
= 1000 x (1.06)5 m+ -1
MRC
0.06
= 1000 x 4.21
= 4,210/-
PV (Annuity Due) = PV (O/A) x ( 1 + i )

= 4,210 x 1.06
= 4462.60
interest rate is 7% find the present value of ordinary annuity?
-n
PV (O /A) = C x [1- (1 + i ) ]
i
-6
= 4000 x [ (1 -(1+ 0.07) ]
0.07
= 4000 x (1.07)6 m+ -1
MRC
0.06
= 4000 x 4.76
= 19,040/-
PV (Annuity Due) = PV (O/A) x ( 1 + i )

= 19,040 x 1.07
= 20,3273/-
..9..
4) Cash flow = 3,000/- Rate of interest = 7%, Period = 4 years
calculate a) F.V. Ordinary Annuity b) F.V. Annuity Due c) P.V. Ordinery Annuity?
n
a) FV (O/A) = C x [ (1 + i) - 1 ]
i
= 3000 x (1 + 0.07)4
0.07
= 3000 x 3.38
= 10,140/-
n
b) FV (A/ D) = C x [ (1 + i) - 1 ] x ( 1 + i )
i
= 10,140 x (1.07)
= 10,850/-
-n
c) PV (O/A) = C x [ 1- (1 + i) ]
i
= 3000 x [1 - (1.07)4]
0.07
= 10,162/-
5) Rs.1,500/- is Cash flow Rate of interest = 7%, Period = 4 years

calculate a) F.V. Ordinary Annuity b) F.V. Annuity Due c) P.V. Ordinery Annuity and
d) P.V. Annuity Due
n
a) FV (O/A) = C x [ (1 + i) - 1 ]
i
= 1500 x (1 + 0.07)4
0.07
= 1500 x 1.31
= 6660
b) FV (A/D) = 6660 x (1.07)
= 7126
-n
c) PV (O/A) = C x [ 1 - (1 + i) ]
i
= 1500 x 3.38
= 5081
d) PV (A/D) = PV (O/D) x (1+i)
= 5081 x (1.07)
= 5437
..10..
EMI / LOAN SANCTIONS /PENSION
( DISBURSEMENT / PART DISBURSEMENT)
BODMAS Rule apply while solving such problem (give the priority like)
1) B=Bracket, 2) Off = % , 3) D = Division, 4) M=Multification, 5) A= Addition, 6)S=Subtraction
EMI
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
Ex-1 Bank of Maharashtra sanction a loan of Rs.10,00,000 to Mr.Sudesh, rate of interest is 10%
it has to be paid in 4 equal annual instalment. Calculate the instalment amount or EMI ?
Loan sanction = 10,00,000 Rate of int. 10% Period – 4 years Cash flow - ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
-4
10,00,000 = C x [ 1 - (1.10) ]
0.10
10,00,000 = C x (1.10)4 m+ -1
MRC
0.10
10,00,000 = C x 3.17
C = 10,00,000
3.17
C = 3,15,457/- (EMI/Cash flow is Rs.3,15,457/-)
Note : Loan eligible amt/loan sanction amt/disbursement amt/PV (O/A) is having same meaning.
Ex-2 New India Bank sanction a housing loan of Rs.20,00,000 to Mr.Sudhir Lad @ interest rate
10% , which has to be paid within next 6 years by semi-annual instalments. Calculate the
instalment amount or EMI ?
Loan sanction = 20,00,000

Rate of int. = 10 /2 = 5 % i.e. 0.05
Period = 6 years x 2 = 12 (Since it is semi-annual i.e. twice in a year)
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
-12
20,00,000 = C x [ 1 - (1.05) ]
0.05
20,00,000 = C x (1.05)12 m+ -1
MRC
0.05
..11..
20,00,000 = C x 8.86
C = 20,00,000
8.86
EMI or C = 2,25,734/-
Ex-3) SBI sanction a loan of Rs.12,00,000 to Mr.Rajiv @ rate 12% , it has to be paid within next
3 years Calculate the instalment or EMI ?
a) If instalment is yearly b) If instalment is half-yearly (semi-anuualy)
c) If instlament is quarterly d) If instlament is monthly.
Loan sanction = 12,00,000

Rate of int. Period
Yearly 12 3
Half yearly 6 6 (twice in a year)
Quarterly 3 12 (four time in a year x 3)
Monthly 1 36 ( twelve time in a year x 3)
-n
a) annualy PV (O/A) = C x [ 1 – (1 + i ) ]
i
-3
12,00,000 = C x [ 1 - (1.12) ]
0.12
12,00,000 = C x (1.12)3 m+ -1
MRC
0.12
12,00,000 = C x 2.40
C = 12,00,000 EMI or C = 5,00,000/-
2.40
-n
b)semi-ann PV (O/A) = C x [ 1 – (1 + i ) ]
i
-6
12,00,000 = C x [ 1 - (1.06) ]
0.12
12,00,000 = C x (1.06)6 m+ -1
MRC
0.06
12,00,000 = C x 4.91
C = 12,00,000 EMI or C = 2,44399/-
4.91
..12..
-n
c)quarterly PV (O/A) = C x [ 1 – (1 + i ) ]
i
-12
12,00,000 = C x [ 1 - (1.03) ]
0.03
12,00,000 = C x (1.03)12 m+ -1
MRC
0.03
12,00,000 = C x 9.95
C= 12,00,000
9.95
EMI or C = 1,20,603/-
-n
d)monthly PV (O/A) = C x [ 1 – (1 + i ) ]
i
-36
12,00,000 = C x [ 1 - (1.01) ]
0.01
12,00,000 = C x (1.01)36 m+ -1 ( 36 mean 9 x4 so xx= = = = = = = = xx = = =).
MRC
0.01
12,00,000 = C x 30.10
C= 12,00,000
30.10
EMI or C = 39,867/-
4) Mr. Rahul has sanctioned the hsg. loan of Rs.20,00,000/- & it has been repaid in 20 anuual
instalments when rate of int is 9% you have to calculate the instalement amt or EMI ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
-20
2000000 = C x (1.09 ) m+ -1 (20 may 5 x 4 so xx= = = = xx = = = )
MRC
0.09
2000000 = C x (9.128)
C = 2000000 therefore C = 2,19,106/= (EMI)

9.128
5) Dinesh want to purchase a motor car amount of Rs.4,00,000/- the rate of interest is 18% is ready to
pay the loan within next 5 annual instalment. Calculate the annual inst or EMI ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
..13..
-5
400000 = C x (1.18 ) m+ -1 (20 may 5 x 4 so xx= = = = xx = = = )
MRC
0.18
400000 = C x (3.127)
400000 = C
3.127
C = 1,27,918/=
PART DISBURSEMENT
Ex-1 State Bank of India sanction a loan of Rs.15,00,000 to Mr.Sandesh Dhok for 10 years and it
has to be repaid on next 10 annual instalment, the rate of inerest is 8% , initial
disbursement is of Rs.10,00,000 & reminaing 5,00,000 after 2 years. Calculate the EMI
amount. ?
in this type of problem first discount the remaining amt. i.e. Not disbursed
Present Value = --------------------------------
( 1 + R. I. ) n
100
= 5,00,000
(1+ 8 )2
100
= 500000
(1.08)2
= 4,28,669
Initial disbursed amt + discounted amt = Total loan amt.

10,00,000 + 4,28,669 = 14,28,669
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
14,28,669 = C x (1.08) 10 M+ -1
MRC
0.08
C = 14,28,669
6.71
EMI or C = 2,12,916/-
..14..
Ex-2 NIC Bank sanction a loan of Rs.12,00,000 to Mr.Rakesh Patil @ rate of int. 7% and it has
to be repaid in 12 annual instalment. Initial disbursement is of Rs.8,00,000 & reminaing
amt after 4 years. Calculate the EMI amount. ?
Discounted amt. = 4,00,000 = 3,05,158/-
( 1.07)4
8,00,000 + 3,05,158 = 11,05,158/-

-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
11,05,158 = C x ( 1.07 ) -12 m+ -1
MRC
0.07
11,05,158 = C x 7.94
C = 11,05,158
7.94
EMI or C = 1,39,189/-
Ex-3) Sumit Raghavan has sanctioned loan of Rs.30,00,000/- on intrest rate of %10% it has to be
repaid in 15 annual instalement. Initially disbursed 20,00,000 after 2 years Rs.6,00,000 is
disbursed & remaing 4,00,000 is disbursed after 4 years. Calculate the EMI
1. Discounted amt. = 6,00,000 = 4,95,868/-

( 1.10)2
1. Discounted amt. = 4,00,000 = 2,73,205/-

( 1.10)4
20,00,000 + 4,95,868 + 2,73,205 = 27,69,073/-

-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
27,69,073 = C x ( 1.10) -15
MRC
0.10
= C x 7.60
C = 27,69,073
7.60
EMI or C = 3,64,352/-
..15..
4) Nilesh is sanctioned Rs.20,00,000/- hsg. Loan @ 8% and it has to be repaid in 15 annual
instalments. The terms of disbursement are 16,00,000/- initially & remaining amt after 3 years calculate
the annual instalment?
Discounted = MV = 4,00,000
(1+ RI )n (1.08)3
100
= 3,17,532
Total disbursement = Initial amt + Discounted amt

= 16,00,000 + 3,17,532
= 19,17,532/-
PV = C X [ 1 - (1 + i) n ]
i
-15
1 917532 = C x (1.08) m+ -1
MRC
0.08
1917532 = C X (8.559)
C = 1917532
8.559
C = 2,24,036
5) Loan is sanction for Rs.2000000 & int rate is 9% it has to be 15 instalment & terms of
disbursement are 70% inittially disbursment & 30% after 4 years calculate the EMI or instalement ?
As per terms of disbursement - 30% of Rs.2000000 is Rs.600000 inti
Discounted = MV = 6,00,000
( 1 + RI )n (1.09)4
100
= 3,17,532
Total disbursement = Initial amt + Discounted amt

= 14,00,000 + 425055
= 1825055
PV = C X [ 1 - (1 + i) n ]
i
-15
1825055 = C x (1.09) m+ -1
MRC
0.08
1825055 = C X (8.060)
C = 1825055
8.060
C = 2,26,415/-
..16..
6) Rs.1000000/- loan sanction int rate 12% it has to be repaid within next 4 years calculated equeted
monthly instalment ?
Here mentioned monthly equited instalement I = 0. 12 = 0.01
12
n = 4 x 12 = 48
PV = C X [ 1 - (1 + i) n ]
i
1000000 = C x ( 1.01)48 m+ -1 xx= = = = = = = xx = = = = =
MRC
0.12
1000000 = C x (18.986)
C = 1000000
37.973
C = 26,336/-
Eligibility Criteria
Ex-3) Sudhir Lad is ready to pay 80,000/- yearly installment for next 12 years when the interest
rate is 11%. calculate the loan eligible amt. ?
C = 80,000 N= 12 I= 11%
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 80000 x ( 1.11 ) -12
MRC
0.11
= 80000 x 6.49
Eligible amt = 5,19,388/-
Future Value
Ex-1) Sachin wants to purchase a Scoda car after 5 years for Rs.13,00,000/-. The int rate is 8%
how much he should invest yearly for next 5 years to purchase this car ?
n
FV (O/A) = C x [ (1 + i ) + 1 ]
i
5
13,00,000 = C x [ ( 1.08) - 1 ]
0.08
13,00,000 = C x 5.86
C = 13,00,000
5.86
C = 2,21,843/-
..17..
Ex-2) Sudhir wants to purchase a Tata Nano car for Rs.1,00,000/- after 3 years . The int rate is
9% , how much sudhir should annually save to purchse this car ?
n
FV (O/A) = C x [ (1 + i ) + 1 ]
i
3
1,00,000 = C x [ ( 1.09) - 1 ]
0.09
1,00,000 = C x 3.27
C = 1,00,000
3.27
C = 30,581/-
Ex-3) You have choice for buying the car for Rs.3,50,000/- or paying instalment Rs.90,000/- of a
year for 5 years for the same car. The rate of int is 9%. What will be your decision for
buying the car. ?
paying today = Rs.3,50,000/-

buying after 5 year = Rs.90,000 /- @ 12% int.
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
-5
= 90000 x ( 1.12) m+ -1
MRC
0.12
= 90000 x 3.60
= 3,24,000/-
Answer : If go for loan Rs.3,24,459 is bette option than Rs.3,50,000/-
Ex-3) I want to purchase car Rs.3,50,000/- @ 12% int rate after 5 years. How much I should
invest yearly for next 5 years to purchase this car.
n
FV (O/A) = C x [ (1 + i ) + 1 ]
i
3,50,000 = C x (1.12) -5
MRC
. 0.12
3,50,000 = C x 6.355
C = 3,50,000
6.355
C = 35,094/-
Ex-4) I want to purchase car Rs.10,00,000/- @ 12% int rate after 8 years. How much invest today.
Use the discounted formula
Discounted amt. = 10,00,000 = 4,03,383/-
( 1.12)8
..18..
Pension scheme
Ex-1) I want to get yearly pension of Rs.12,000/- for next 10 years the rate of interest is 12% ,
how much I should invest today ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 12,000 x ( 1.12) -10 m+ -1
MRC
0.12
= 12,000 x 5.65
= 67,800/-
..25..
Ex-2) I want to get pension of Rs.1,000/- a month for next 3 years, the int. rate is 8%, how
much I should invest today ?
Since required monthly pension = 3 years x 12 = 36

Rate of interest also be divided by 12 = 8/100/12 = 0.006
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 1,000 x ( 1.006) -36 ( xx = = = = = = = = xx = = = m+ -1)
MRC
0.006
= 1,000 x 32.29
= 32,290/-
Ex-3) My present age is 52 years I am going to retired after completing of 60 years. I want to get
a pension of Rs.50,000/- every year for next 10 years after my retirement, the rate of
interest is 10% Calculate how much amount I should invest yearly upto my retirement age
to get a desired amt of pension. ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 50,000 x [ (1.10)-10 ] m+ -1
MRC
0.10
= 50,000 x 6.14
= 3,07,000/-
n
FV (O/A) = C x [ (1 + i ) + 1 ]
i
3,07,000 = C x (1.10)8
MRC
C = 3,07,000
11.43
C = 26,859/-.
..19..
Ex-4) My present age is 48 years I am going to retired after at a age of 60 years. I want to get
a pension of Rs.60,000/- for next 8 year after my retirement, the interest rate is 12% how
much amt I shuld invest yearly upto the age of retirement so that I can get desire amt of
pension.
-n
PV (O/A) = 60000 x [ 1 – (1 + i ) ]
i
= 60000 x [ (1.12)8 m+ -1 ]
MRC
0.12
= 60000 x 12.29
= 2,98.058/-
n
FV (O/A) = C x [ (1 + i ) + 1 ]
i
2,98,058 = C x ( 1.12)12 m+ -1
0.12
2,98,058 = C x 24.13
C = 298058 = 12,352
24.13
5) I want to get yearly pention of Rs.1,00,000/- for next 10 years when interest rate is 8% how much
amt I should invest today to get required amt of pension for the required period ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 100000 X (1.08)10 m+ -1
MRC
0.08
= 100000 X 6.710
= 6,71,008/-
6) I want to get yearly pention of Rs.1,50,000/- for next 15 years when interest rate is 11% how much
amt I should invest today ?
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 150000 X (1.08)10 m+ -1
MRC
0.08
= 150000 X 7.190
= 10,78,620/-
..20..
7) Sachin is going to retired after 10 years and after retirement he want to get pension of Rs.1,00,000/-
every year for next 12 years how much amt he should invest yearly upto the date of retirement so that
he can get the desired amt of pension upto desired period int rate is 10%
-n
PV (O/A) = C x [ 1 – (1 + i ) ]
i
= 100000 X ( 1.10)12 m+ -1
MRC
0.10
= 1050000 X ( 6.8136)
= 6,81,369/-
n
FV (OA) =C x [ (1 + i ) - 1 ]
i
6,81,369 = C x ( 1.10) 10 m+ -1
0.10
681369 = C x ( 15.93)
C = 681369
15.93
C = 42,754/-
..21..
BOND CALCULATION :
There ae two types of bonds namely,
1) Ontop Option – It means first come first basis
2) Auction option – Bid / Auction basis
 Major factor for decided bond price is Market Interest Rate.
 For taking decision for purchasing or selling of the bond the face value & cash flow are
compared with Market Interest Rate.
 Whatever interest rate in the market there will no change in coupan rate or the cash flow
 When Market Interest Rate increases bond price falls (decreaes) and when Market interest rate
decreases bond price increases.
 The decision of purchase rate are depend upon Market Interest Rate.
 If there is any change in Market Interest Rate there will be no change in cash flow.
Purchase price of Bond = Present value of cash flow (O/A) flow at change interest rate /market interest
rate + Present value of the face of the Bond at market interest rate.
Purchase of Bond = PV cash flow + PV of face value
-n
1. Present Value (PV) = C x [ 1 - (1 + R .I .) ]
100
F.V.
2. Face Value (FV) = ----------
(1 + i)n
-n F.V.
Price of Bond = C x [ 1 - (1 + R .I .) ] + --------
100 (1 + i) n
..22..
Ex-1) RBI Issued Rs.100/- face value bond @ coupan rate of 8% for 5 years as on 01.04.2002.
(coupan rate is nothing but interest rate) calcualte the purchase price of the bond ?
1.4.2002 8
1.4.2002 8 x 1 year 1 = 7.40

(1.08)1
1.4.2003 8 x 1 year 1 = 6.85

(1.08)2
1.4.2004 8 x 1 year 1 = 6.35

(1.08)3
1.4.2005 8 x 1 year 1 = 5.86

(1.08)4
1.4.2006 8 x 1 year 1 = 5.44

40 (1.08)5 32
Answer is Rs.32/- Face value is : Rs.100/- Coupan rate is for 5 year : Rs. 40/-
another method calculate the purchase price

-n
PV (O/A) = C x [ 1 – (1 + i )
i
= 8 x [ 1 ( 1 + 0.08)-5]
0.08
= 8 x ( 1.08 ) 5 m+ -1
MRC
0.08
= 8 x 3.99
= 32/-
FV = Face Value
(1+i)n
= 100
( 1.08)5
= 68
Bond price = PV + FV
= 32 + 68
= 100
..23..
Ex-2) RBI Issued Rs.100/- face value bond @ coupan rate of 8% for 6 years as on 01.04.2002.
a) Calcualte the purchase price if MIR is 9% &
b) Purchase price of bond is MIR of bond is 7% ?
-n
a) PV (O/A) = C x [ 1 – (1 + i )
i
= 8 x [ 1 ( 1 + 0.09)-6]
0.08
= 8 x ( 1.09 ) 5 m+ -1
MRC
0.09
= 8 x 4.48
= 35.84
FV = Face Value
(1+i)n
= 100
( 1.09)5
= 59.62
= 35.84 + 59.62
= 95.50
b) PV (O/A) = C x [ 1 – (1 + i )
i
= 8 x [ 1 ( 1 + 0.07)-6]
0.07
= 8 x ( 1.07 ) 6 m+ -1
MRC
0.07
= 8 x 4.76
= 38.13
FV = Face Value
(1+i)n
= 100
( 1.07)5
= 66.63
= 38.13 + 66.63
= 104.76
Ex-3) RBI Issued Rs.100/- face value bond @ coupan rate of 9% duration of the bond is 3 years
a) Calcualte the purchase price if MIR is 10%
options : a) 103.50 b) 102.75 c) above 100 d) below 100
..24..
Purchase price of Band = c x [ 1 – (1+i) -n + FV
i (1+i)-n
= 9 x [ 1 - (1 + 0.10) -3 + 100
0.10 (1.10)-3
= 22.93 + 75.13
= 98.06
Therefore answer is option d) Below 100.
Ex-4) RBI Issue Rs.500/- face value bond @ coupan rate of 7% duration of the bond is 3 years. NIC
Bank purchasing it Rs.495/- when the MIR is 9% . Calcualte the profit or loss on this transaction to
NIC Bank.

i (1+i)-n
= 35 x [ 1 - (1 + 0.09) -3 + 500
MRC (1.09)-3
0.09
= 88.59 + 389.09
= 477.68 ( loss is Rs.17.32 i.e 495- 477.68 = 17.32)
Price of bond is 408.87 and Bank purchsed it on 495 it means suffer loss of Rs.88.20
Ex-5) SBI purchase Rs.100/- face value bond @ coupan rate of 7% maturity period is 4 year, after a
year when MIR is 5% they sold this bond to Canara Bank for Rs.107/-. Calcualte the profit or loss to
Canara Bank on this transaction.
f.v. Coupan period C = 7, MIR = 5%, N=3, FV=100
100 7% 4
107 7% 3

i (1+i)-n
= 7 x [ 1 - (1 + 0.05)-3 + 100
MRC (1.05)-3
0.05
= 7 x (1.05)-3 m+ -1 + 100
MRC (1.157)
0.05
= 19.06 + 86.38
105.44
Canara Bank suffer loss of Rs.1.56
..25..
Ex-6) RBI issue Rs.100/- face value bond @ coupan rate of 6% and period is 8 year after 2 year BOI
sold bond to the secondary market for Rs.97/= MIR is 7%.Calcualte the profit or loss to BOI.
F.V. Coupan period C = 6, N=8, FV=100 MIR – 7%
100 6% 8
97 6% 6 (after 2 year)

i (1+i)n
= 6 x [ 1 - (1 + 0.07)-6 + 100
MRC (1.07)6
0.07
= 6 x (1.076)-6 m+ -1 + 100
MRC ( 1.50)
0.07
= 28.59 + 66.63
= 95.22
Answer : Rs.97 - Rs.95.22 = 1.78 loss to BOI in this transaction.
..26..
CURRENT YIELD
1. Current yield = Coupan interest x 100
Current Intrest Rate
2. Rate of return = Sale Price – Purchase Price x 100

Purchase price
Statements :
1. When price of the bond is increase the current yield will decrease and the price of the bond is
decrease the current yield will increase.
Problem – 1) RBI issue Rs.100 FV bond at coupan rate of 7% and maturity period is 3 years. The bond
is purchased for Rs.110 find out the current yield.

= 7 x 100
110
= 6.36%
Problem – 2) RBI issue Rs.100 FV bond at coupan rate of 7% and maturity period is 3 years. The
market price of the bond Rs.97 find out the current yield.

= 7 x 100
97
= 7.21%
Problem – 3) Find out current yeirld of face value of bond Rs.100 coupan rate is 9% and the maturirty
peirod is 7 years
a) Market price of the bond is 102 ?

= 9 x 100
102
= 8.82%
Say True or false
1. Where there is change in MIR Cash flow will increase (F).

2. When the MIR decreases there will be change in Coupan Rate (F)
3. Market price of the bond increases the current yield also increases (F)
4. If there is fall in MIR there will be no change in coupan rate (T)
5. If the current yield decreases the MIR of the bond will increases (T)
..27..
Problem-1) SBI bank purchase bond in a secondary market for Rs.107/- and sold it for Rs.112/-.
Calculate the rate of return on this transaction.
Rate of return = Sale Price – Purchase Price x 100
Purchase price
= 112 - 107 x 100
107
= 4.67 %
Problem-2) NIC bank purchase bond in a secondary market for Rs.107/- and sold it for Rs.103/-.
Calculate the rate of return on this transaction.
Rate of return = Sale Price – Purchase Price x 100

Purchase price
= 103 - 107 x 100
107
= 3.73 %
Problem-3) BOI purchase a bond of 9% coupan rate for Rs.98/- after a year ir has been sold for Rs.96/-
calculate the rate of return.
Rate of return = Sale Price – Purchase Price + cash flow x 100

Purchase price
= 9 + (96 - 98 x 100
98
= 9 + 2 x 100
98
= 7.14 %
Problem-4) RBI issue a bond of coupan rate 8% fave value of Rs.100 for the period 3 years RBI
paying coupan semi-annually (half -yeral) the MIR is 10%. Calculate the purchase price of the bond ?
C=8%, MIR = 10%, N= 3 years, FV = 100

c=4 mir = 5% n= 6
-n
Price of the Bond = c x [ 1 – (1+i) ] + FV
i (1+I)n
= 4 x [1 – (1.05)-6 + 100
MRC (1.05)6
0.05
= 20.30 + 74.62
= 94.92
Problem-5) RBI issue Rs.100 fave calue bond at coupan rate of 10% and maturity period of 2 yeraa
the MIR is 12%. Calcualte the price of the bond ?
a) if coupan is paid anuually

b) if coupan is paid half-yearly
c) if coupan is paid quarterly
..28..
C MIR N FV
Annualy 10 12 2 100
Half-yearly 5 6 4 100
Quarterly 2.5 3 8 100
-n
a) Price of the Bond = c x [ 1 – (1+i) ] + FV
i (1+i)n
= 10 x [1 – (1.12)-2 + 100
MRC (1.12)2
0.12
= 12.54 + 79.71
= 92.25
-n
b) Price of the Bond = c x [ 1 – (1+i) ] + FV
i (1+i)n
= 5 x [1 – (1.06)-4 + 100
MRC (1.06)4
0.06
= 6.31 + 84.20
= 90.51
-n
b) Price of the Bond = c x [ 1 – (1+i) ] + FV
i (1+i)n
= 2.5 x [1 – (1.03)-8 + 100
MRC (1.03)8
0.03
= 3.16 + 81.44
= 84.60
..29..
YIELD TO MATURITY
Statements:
1. When price of bond decrease YTM increases.

2. When price of bond increases YTM decreases.
Yield to Maturity is the rate of return earn by an investor who purchase a bond & hold till maturiy. The
YTM is a discount rate which equals to present value of promise cash flow to the Current Market Price
or Purchase Price.
Yield to Maturity = [ I + ( F - P ) ] / (F + P ) x 100

n 2
There are two types of maturity
1. AFS = Available for Sale

2. HTM = Held to Maturity
e.g. 1) The Market price per bond is Rs.90/- & Par value of the bond is Rs.100/-, coupan rate is 14% a
maturity period is 6 year what is the YTM ?
I= Annual interest rate/coupan rate n= Year to maturity

F= Par value of bond P= Present value of the bond

n 2
= [ 14 + (100 - 90) / (100 + 90) x 100
6 2
= 14 + 10 / 190 x 100
6 2
= 14 + 1.66 / 95 x 100
= 15.66 x 100
95
= 16.48
e.g. 2) Coupan rate is 14% , maturity is 6 year, pruchase price is 85, calcualte the YTM ?

n 2
= [ 14 + (100 - 85) / (100 + 85) x 100
6 2
= 14 + 15 / 185 x 100
6 2
= 14 + 1.66 / 95 x 100
= 16.5 x 100
92.5
= 17.83
..30..
e.g. 3) RBI issued in the year 2002 Rs.100/- face value of a coupan rate of 7% and duration of 7 year.
In the year 2004 it has been purchase for Rs.93/- Calculate the YTM ?
I or C = 7% N= 7 (but after 2 year = 5 years)
F= 100 P= 93
yield to Maturity = [ I + ( F - P ) ] / (F + P ) x 100

n 2
= [ 7 + (100 - 93) / (100 + 93) x 100
5 2
= 7 + 7 / 193 x 100
5 2
= 7 + 1.4 / 96.5 x 100
= 8.4 x 100
96.5
= 8.70%
e.g. 4) RBI issued 14% coupan bond of 6 year maturity & Par Value Rs.100/- it has been sold Rs.103/-
Calculate the YTM ?
I or C = 14% N= 6 years
F= 100 P= 103
yield to Maturity = [ I + ( F - P ) ] / (F + P ) x 100

n 2
= [ 14 + (100 - 103) / (100 + 103) x 100
6 2
= 14 + -3 / 203 x 100
6 2
= 14 + -0.5 / 96.5 x 100
= 13.5 x 100
101.5
= 13.30%
e.g. 4) RBI issued 8% coupan bond Par Value Rs.100/- for the period of 8 year after 3 years
Calculate YTM when a) bond is purchase for Rs.97/- b) Bond is purchae 104/- after 4 years.
a) I or C = 8% N= 8 ( after 3 years = 5 years) F= 100 P= 97
b) I or C = 8% N= 8 ( after 4 years = 4 years) F= 100 P= 103
a) YTM = [ I + ( F - P ) ] / (F + P ) x 100
n 2
= [ 8 + (100 - 97) / (100 + 97) x 100
5 2
= 8 + 3 / 197 x 100
5 2
= 8 + 0.60 / 98.5 x 100
= 8 + 0.60 x 100
98.5
= 8.60%
..31..
b) YTM = [ I + ( F - P ) ] / (F + P ) x 100
n 2
= [ 8 + (100 - 103) / (100 + 103) x 100
4 2
= 8 + -3 / 203 x 100
4 2
= 8 + -0.75 / 101.5 x 100
= 7.25 x 100
101.5
= 7.14%
..32..
CAPITAL BUDGETING
There are two methods of budgeting
1. Discounting Method -
2. Non-Discounting Method -
1. Discouting Method –
a) NPV (Net Present Value)

b) IRR (Internal Rate of Return)
Non-Discounting Method –
a) PBP (Pay Back Period) Method

b) ARR (Accounting Rate of Return) Method
a) Pay Back Period Method (PBP)
i) At what period your investment get back & lesser period is accepted.
Advantage: a) It is easy to apply

b) No. T.D.S. calculation
c) It is ready method for dealing with risk.
d) It famous the project which generate substantial cash flow in the early year.
e) It discreminate against projects which bring substantial cash flow in later
years but not in earlier years.
Disadvantages a) It fails to consider the time value of money which is the most basic principle
of financial analysis.
b) It ignors cash flow beyond the pay back period
c) Large capital invest are equated with small ones if they have safe pay back
period.
b) Accounting Rate of Return Method (ARR)
i) The project which is giving higher Accounting rate will be selected.

ii) If the cash flow are reverse there will be no change in accounting rate of return.
ARR = Average Profit X 100

Initial Investment
..33..
1) Problems on PBB :
Rules : 1) At what period your investment get back & lesser period is accepted.
Project A B
Initial investment 20,000 20,000
1st year return 6,000 7,000

2nd year return 8,000 6,000
3rd year return 12,000 7,000
4th year return 10,000 12,000
5th year retun 12,000 8,000
Now find out on which year your inital investment is geting back. Just go adding the investment retun
amount one by one year and find out wich year your initial investment is 20,000 getting back. So first
two years investment is 14,000 now we have required 6,000 to match 20,000 on third year after 6
months we will return the 6,000 back. It means for project A the PBP is 2 years & 6 months.
Project A B

rd
3 year return 12,000 2 yrs & 6 months 7,000 here full 3 years
As per rule lesser period is accepted i.e Project "A" will be accepted.
1) Problems on ARR (Accounting Rate of Return) :
Rule : The project which is giving higher Accounting rate will be selected.
Project A B

______ _______
Total investment return 48,000 40,000
Less : Initial investment 25,000 25000
______ _______
Profit 23,000 15,000
..34..
Avg. Profit = Profit 23,000 15,000

no. Years 5 5
Avg. Profit = 4,600 3,000
ARR = Average Profit X 100

Initial Investment
4,600 x 100 = 3,000 x 100
= 25,000 25,000
= 18.4 % = 12%
Answer : Project "A" will be accepted since the ARR is high.
Discounting Method –
a) NPV (Net Present Value)
i) Negative NPV is rejected

ii) Higher NPV is accepted/selected.
Iii) If cash flow is reverse there is no need to calculate the NPV
b) IRR (Internal Rate of Return)
i) IRR is a rate where NPV is zero & it will calculate on trial & error basis.
ii) When the inrterest rate increases NPV decreases. When interest rate decreases NPV
increases
Rate of High NPV + ( Difference between the rate ) x high NPV

Addition of NPV
Problem 1) Market interest rate is given i.e. 12%. calculate the NPV
Project A B

..35..
First you have discounted the base value (i.e.cost of return) by Market Interest Rate.
Project A B
1st year return 6,000 / (1.12)1 = 5,357 7,000 / (1.12)1 = 6,250
2nd year return 8,000 / (1.12)2 = 6.378 6,000 /(1.12)2 = 4,783
3rd year return 12,000 / (1.12)3 = 8,541 7,000 / (1.12)3 = 4,982
4th year return 10,000 / (1.12)4 =6,355 12,000/ (1.12)4 = 7,626
5th year retun 12,000 / (1.12)5 = 6,809 8,000 / (1.12)5 = 4,539
---------- ----------
Net Present Value 33,440 28,180
Less : Initial investment 20,000 20,000
---------- ----------
NPV 13,440 8,180
Answer : The higher NPV is accepted hence project A will be accepted.
Problem 2)
Project A B
1st year return 6,000 / (1.14)1 = 5,263 7,000 / (1.14)1 = 6,140
2nd year return 8,000 / (1.14)2 = 6,155 6,000 /(1.14)2 = 4,617
3rd year return 12,000 / (1.14)3 = 8,199 7,000 / (1.14)3 = 4,725
4th year return 10,000 / (1.14)4 =5,920 12,000/ (1.14)4 = 7,105
5th year retun 12,000 / (1.14)5 = 6,232 8,000 / (1.14)5 = 4,155
---------- ----------
Less : Initial investment 35,000 35,000
---------- ----------
NPV - 3,331 - 8,250
Answer : Both the project will be rejected because getting negative NPV
Problem 3) : MIR = 13% Profit is given Rs.25,000
Project A B
1st year return 6,000 / (1.13)1 = 5,310 11,000 / (1.13)1 =

2nd year return 7,000 / (1.13)2 = 5,482 10,000 / (1.13)2 =
3rd year return 8,000 / (1.13)3 = 5,544 9,000 / (1.13)3 =
4th year return 9,000 / (1.13)4 = 5,520 8,000 / (1.13)4 =
5th year return 10,000 / (1.13)5 = 5,428 7,000 / (1.13)5 =
6th year return 11,000 / (1.13)6 = 5,284 6,000 / (1.13)6 =
---------- ----------
..36..
IRR Problem 1) MIR = 9%
Initial investment 0 - 100
1st year return 60 / (1.09)1 = 55.04

2nd year return 55 / (1.09)2 = 46.29
--------
101.33
less : initial investment 100.00
---------
NPV 1.33 Since NPV should be zero
 When interest rate increases NPV decreases & when interest rate decreases NPV increases so if
you wnat to decrease the NPV increase the interest rate i.e from 9% to 12% (on trial & error
method)
1st year return 60 / (1.12)1 = 53.57

2nd year return 55 / (1.12)2 = 43.84
--------
97.41
less : initial investment 100.00
---------
- 2.59 Since NPV should be zero this is also not suitableinterest
Rate of High NPV + ( Difference between the rate ) x high NPV

Addition of NPV
= 9 + ( 12 – 9 ) x 1.33
1.33 + 2.59
= 9 + 3 x 1.33
3.92
= 10.01% is the current interest rate for IRR
..37..
BASIC ACCOUNTANCY
Transaction : Transaction is the process of exchage between two or more persons. It involves transfer
of goods or services, either for cash or credit.
Theses transaction are classified under 3 categories.
a) Cash or Credit transaction

b) Business or Personal transaction
c) Barter or financial transaction
Cash transaction - Cash Transaction is a transaction in which goods or services are exchange for
Immediate cash
Credit transaction - Credit transaction is transaction in which goods or services are exchange for
Future payment
Business transaction - Business transaction is transaction in which goods or services are exchange for
cash or credit for Business use.
Personal transaction - Personal transaction is transaction in which goods or services are exchange for
cash / credit for Personal use
Barter transaction - Barter transaction in which goods or services are exchange for goods or
services without use of money
e.g. Rice is exchange with wheat
Financial transaction-Financial transaction is a transaction in which goods or services are express or

valued in terms of money they are also called monetory transaction
When not mention about transaction whether paid or what then it is treated as Credit transaction.
Important Terms
Capital - Capital is total amount invested in the business by the proprietor is know as capital. A
person may invest cash/goods or assets as a capital in his business. In accounting
language "Capital is excess of Assets over Liabilities".
Drawings - Drawings is total amount of cash or goods withdrawn by Proprietor or Partner for
Personal Use is known as drawings. Drawings reduces the capital of Proprietor or the
Partner.
Assets - The Proprietor own by the business firm are known as Assets. Assets are bought for use
in business e.g. Furniture, Machinary, Building and Motor Car.
Liability - Total amount payable by business to others are known as liability. It refers to the amount
which business owes to outsiders.
..38..
Debtors - A Person from whom amount is receivable is known as debtors. A person who owes
us is known as debtors.
Creditors - A Person to whom amount is payable is known as creditors. A person to who be owes
is known as creditors.
Goods - The items or commodities in which trader deals are known as goods . Goods are bought
for resale.
Transaction
Personal A/c Impersonal A/c
Nominal A/c Real A/c
Accounts - Accounts is a summaries record of all transactions pertaining to person one kind of Asset
one kind of Expenses or one kind of Income. Accounts are classified under 2 borad categories viz.
1. Personal Accounts - Personal accounts are the accounts of persons. The persons are of two types :
a) Natural Person - Natural Person have physical existance and includes living individuals.
b) Artificial Person – Artificial Person are legal person having no physial existance. Artificial
person are recognise by law and includes firm, club, companies, colleges,
local govt. Etc.
2. Impersonal Accounts – Impersonal accounts are other than Personal accounts. They are of two types
a) Real Account - Real accounts are the accounts of Assets or Properties

own by the Business. Assets are two types
i) Tangible Assets – Tangible assets are which can touch or seen.

ii) Intangible Assets – Intangible assets are which can't be seen or touch.
e.g. Trademark, Goodwill, Copyright, Patterns
b) Nominal accounts - Nominal accounts are the accounts of expenses, income, losses
and gains. Such accounts do not exits in reality but they are
imaginary in nature. Hence they are also called as ficticiuos A/c..
..39..
Golden Rules for Accountancy :
1) Personal Accounts - Debit the Receiver

Credit the Giver
2) Real Accounts - Debit whats comes in

Credit whats goes out
3) Nominal Accounts - Debit the expeses or losses

Credit the income or gain
Assets = Capital + Liability

Capital = Assets - Liability
Liability = Assets - Capital
Fill in the blanks
1. Every transaction has _________ effects (2)

2. Each transaction has at least ______ a/cs (2)
3. __________ A/c. Are record of the properties (Real)
4. A/cs. Of living person are ___________ A/c. (Personal)
5. Capital A/c is _______ A/c. (Personal)
6. Debit whats comes & Credit whats goes out is rule of _______ A/c. (Real)
6. A/c of losess are known _______ A/c. (Nominal)
7. Persons not having physical existing are know as ________ (logal/aritificial person)
8. Goodwill is an ________ Assets Iintangible)
9. Nominal A/c also known as _________ (Ficticiuos a/c).
Find our True or False from following statemets.
1. Trademark account is real a/c. (T)

2. Overdraft is nominal A/c. (F)
3. Capital A/c. Is personal a/c. (T)
4. Air India A/c. Is nominal A/c. (F)
5. Nominal A/c. Is debited with business incurre losess (T)
6. Personal a/c. Credited when person is receiver (F)
7. Real a/c. Debited when assets goes out (f)
8. Personal A/c. Debited when person is giver (F)
9. When cash is paid to Karishma her a/c. Is credited (F)
10. Goodwill is an intangible assets (T)
How to transaction completed in accountancy
Transacton – Identification – Classification (Real/Personal/Nominal) – ApplyGolden Rules - Journal

Entry – Ledger Posting – Trial Balance – Balance Sheet
Transacton – 1.1.2008 – Received Cash from Sudesh Rs.2400
..40..
Identification of a/c involved – 1) Cash a/c & 2) Sudesh a/c
Classification (Real/Personal/Nominal) – Cash is Real account

Sudesh is Personal account
ApplyGolden Rules - Real – debit what comes in & credit what goes out
Personal – debit the receiver & credit the giver
Journal Entry – Cash A/c ...... Dr 2400

To Sudesh a/c. .......Cr 2400
( Narration : Being Cash received from Sudesh )
Ledger Posting : The ledger account is having debit & credit side. The side which is having a more
total is treated as balance for that ledger a/c.
All expenditure a/c. are having - Dedit balances
All Income A/c. are having - Credit balances
All Assets A/c. Are having - Debit balances
Trial Balance : T.B. Is a statements of balances of various ledger a/c.s prepared as on particular day or
date. It is a list of balances a various ledger a/c. It is normally prepared at the end of
the month.
Objectives of preparing Trial Balance are
1. To Check in arithmatical accuracy of books of accounts.

2. It assist in locating the errors.
3. It helps in preparation of final accounts
There are two forms of preparation of Trial Balance
1. Journal form – In this form the names of accounts written serially in a particular column. In this
form the debit balances are written in the debit columns & credit balance in the credit columns.
2. Ledger form – In this form the trial balance is prepared in the form of ledger account having
two side i.e. Debit & Credit sides
The debit balance alongwith respective names of account are entered on the Dr. Side whereas
credit balances alongwith the respective name of account are entered on the credit sides.
Statements : 1. Account of person from whom the amount is receiveable show debit balances
e.g. Debtors, Drawings, Bank a/c.
2. Account of person to whom the amount is payable show credit balances

e.g. Creditor, Capital and Bank Overdraft a/c.
..41..
e.g. 1) Jan 1st 2008 received cash from Sudesh Rs.2400/-

2) Brought goods for cash Rs.1200/-
3) Sold goods to Sudesh on Credit Rs.170/-
4) Paid carriage on behalf of Sudesh Rs.30/-
5) Goods sold to Sudesh Rs.400
6) Goods return from Sudesh Rs.250/-
7) Goods bought for cash from Amin Rs.310/-
8) Received Cash on a/c. From Sudesh Rs.370/-
9) Goods sold to Raju for cash Rs.930/-
10)
Journal Entries for above transactions :
1. Cash A/c. ........ Dr 2400

To Sudesh a/c ........ Cr 2400
2. Goods a/c. ........ Dr 1200

To Cash a/c. ........ Cr 1200
3. Sudesh a/c. ........ Dr 170

To goods a/c. ........ Cr 170
4. Sudesh a/c. ........ Dr 30

To cash a/c. ........ Cr 30
5. Cash A/c. ........ Dr 400

To goods a/c ........ Cr 400
6. Goods a/c. ........ Dr 250

To Sudesh a/c. ........ Cr 250
7. Goods a/c. ........ Dr 310

To cash a/c. ........ Cr 310
8. Cash A/c. ........ Dr 370

To Sudesh a/c ........ Cr 370
9. Cash A/c. ........ Dr 930

To goods a/c ........ Cr 930
..42..
Cash a/c
Dr Cr
To Sudesh 2400 By goods 1200
To goods 930 By Sudesh 30
To Sudesh 370 By goods 310
By bal. B/d 2160
--------- ---------
3700 3700
===== =====
To balance b/d 2160
Sudesh a/c
Dr Cr
To goods 170 By cash 2400

To cash 30 By goods 250
To goods 400 By cash 370
To balance c/f 2420
--------- ----------
3020 3020
====== =====
By balance b/d 2420
Goods a/c
Dr Cr
To cash 1200 By Sudesh 170

To Sudesh 250 By Sudesh 400
To cash 310 By cash 930
By cl.stock b/d 260
------- -------
1760 1760
==== ====
To balance c/f 260
Trial Balance
Dr Cr
Cash 2160 By capital (Suresh) 2420

Goods 260
T
--------- ----------
2420 2420
====== =====
..43..
Balance Sheet
Liability Assets
Capital Cash 2160
Sudesh a/c 2420 Cl. Stock 260
--------- ----------
2420 2420
====== =====
Find our True or False from following statemets.
1. Wrong balancing of account will not affect the trial balance. (T)
2. T/B does not ensure airthmatical accuracy (F)
3. T/B is preapared at the end of the year (T)
4. The preparation of the T/B helps in locating error (T)
5. Debit balanc on ledger a/cs are shown in the credit sides of T/B (F)
6. Fixed Deposit with the Bank shows debit balances (T)
7. Finala accounts cannot prepared until the T/B tallies (T)
8. T/B is prepare after preparation of final account (F)
9. Purchases are shown on Debit side of T/B (T)
10. Bank Overdraft is shown on the debit side of the T/b (F)
..44..
DEPRECIATION
When fixed asset are used for producing goods & services of business their values
bound to decrease, such deduction in values of fixed assets due to their productive use is called a
Depreciation.
Depreciation is gradual, continues & permanant increase value of asset for any reason
what so ever. The need for depreciation is to
1) To ascertain true and correct value of the asset
2) To present a true financial position of business
3) To ascertain true and correct value of the profit & loss
4) To compute correct tax liability
Cost of Asset :
It refers to the purchase price of the asset, the incidential charges & installation charges. Total amount
received by selling, used or obsolute asset or its spare parts is called Residual value.
Computation of Depreciation = Purchase value of the asset + installation charges + incidential charges – scap value
Life period of asset
e.g. Machinery is purchase 35000, incidential charges 1000, installation charges are 2000 the scrap
value of the machinery 8000 and the life period of the machinery is 6 years. Calculate the depreciation.
Depreciation = 35000 + 1000 + 2000 - 8000 = 30000 = 5000

6 6
There are various methods for depreciation
1. Strainght line or Fixed installment or Written Down method

2. Reducing balanace or Deminishing balance method
3. Annuity method
4. Accelerated Depreciation
5. Sum of year digit method
Strainght line or Fixed installment or Written Down method
Under this method the installment, rate or amount is fixed till the life time of the asset.
1) The Machinery is purchaed for 60,000 & rate of depreciation is 10% and life of the machinery
is 5 years.
It means upto 5 year the depreciation will be 6000 (10% on 60,000) every year (i.e. 5 years)
The Machinery is purchaed for Rs.60,000 & Sold it for Rs.50,000
J.E. Is 1) Machinery a/c ... Dr 60000

To Cash a/c. ....Cr 60000
2) Cash A/c. ....Dr 50000
To Machinery a/c. .....Cr 50000
..45..
1) When the machinery is sold on a loss then
Profit & Loss a/c. ....Dr 10000
To Machinery a/c. ....Cr 10000
2) When the machinery is sold on a loss then
Machinery a/c. ...Dr 10000

To Profi & Loss a/c....Cr 10000
Ex. 1) The machinery costing Rs.75,000 it has to be depriciate @ 10% under straight line method
what will be value of the machinery after period of 3 years.
Cost of machinery - 75000
1st year @ 10% dep. - 7500

2nd year dep. - 7500
3rd year dep. - 7500
22500
Ex. 2) The Computer is purchaed for Rs.30,000 it has to be depriciate @ 10% under fixed instalment
it has sold after 3 years for Rs.23,000/- ?
a) calculate the profit or loss. b) Total depreciation charged for 3 years.
b) Depriciation @ 10% for 1 year is Rs.3000

3,000 x 3 = 9,000 (total depriciation)
a) 30,000 – 9000 = 21000 value of computer after 3 years

Rs.23,000 – 21,000 = 2,000/- is profit.
Reducing balanace or Deminishing balance method
Under this method the depreciation is to be charge on remaining balanc of the asset at given rate.
ex.1) Motor Car purchased for Rs,4,00,000 & it has to be depriciated @ 10% on reducing balance
method what will be cost of motor car after 4 years .
Cost of Motor car - 400000

less- 1st year @ 10% dep. - 40000
360000
less - 2nd year dep. - 36000
324000
less - 3rd year dep. - 32400
291600
less - 4th year dep - 29160
262000
Cost of machinery is 1,37,560/- (400000 – 262000 = 137560)
..46..
ex-2) Car is purchse on 01.07.2003 for 360000 the depreciation is to be charged @ 10%
a) If Car is sold on 30.09.2006 & depreciation is charged under straight line method, selling price
of Car is Rs.2,18,000 cal profit or Loss ?
b) If Car is sold on 30.09.2006 & depreciation is charged under reducing balance method,
selling price of Car is Rs.2,18,000 cal profit or Loss ?
Straight line Reducing balance

Cost of Car 360000 360000
31.03.2004 By Dep. (9 months) 27000 27000
333000 333000
31.03.2005 By Dep. 36000 33300
297000 299700
31.03.2006 By Dep. 36000 29970
261000 269730
31.09.2006 By Dep. 18000 13487
243000 256243
less - Car sold 218000 218000

Loss occured 25000 38243
ex-3) Machinery is purchased for 4,00,000 on 01.07.2003 initially it has been decided to charge 10%
depreciation under fixed instalment method. Lateron it was decided from 01.04.2006 the
depreciation is to be charged on Reducing balance what will be price of machinery at the end of
31.03.2008.
01.07.2003 400000
31.03.2004 By Dep. (9 months) 30000
370000
31.03.2005 By Dep. 40000
330000
31.03.2006 By Dep. 40000
290000
31.03.2007 By Dep. 29000
261000
31.03.2008 By Dep. 26100
234900
Rate of Depreciation = Amount of Depreciation x 100

Cost of Asset
1) Cost of machinery 40,000 installation charges 2000 scrap of the machinery is 6000, the life of
machinery is 6 year, calculate the rate of depreciation.
Cost of machinery = 40000 + 2000 - 6000 = 36000 = 6000

6 6
Rate of Depreciation = 6000 x 100
42000
= 42.29 % .
..47..
INVENTORY VALUATION
There are 3 method of inventory/stock valuation :
a) LIFO – Last in First out method

b) FIFO – Fist in First out method
c) Weighted Average Method
Ex.- Calculate the a) stock under LIFO method at the end of 11.01.2008 &
b) Value of stock
1) 01.01.2008 op. stock 200 x 8

2) 05.01.2008 purchase 100 x 9
3) 07.01.2008 used 80
4) 09.01.2008 purchase 100 x 8
5) 10.01.2008 used 150
6) 11.01.2008 used 50.
Date Particulars Unit price/unit Amount Total
01.01.08 opening stock 200 8 1600 1600

05.01.08 purchase 100 9 900 2500
300 2500
07.01.08 used/sold - 80 9 720 780
220 1780
09.01.08 purchase 100 8 800 2580
320 2580
10.01.08 used/sold - 150 8/9/10 1220 1360
170 1360
11.01.08 used/sold - 50 8 400 960
120 960
Closing stock is 120
Closing amount of stock - Rs.960/-
Ex.-2) Calculate the a) stock under FIFO method at the end of 11.01.2008 &
b) Value of stock
1) 01.01.2008 op. stock 200 x 8
2) 05.01.2008 purchase 100 x 9
3) 07.01.2008 used 80
4) 09.01.2008 purchase 100 x 8
5) 10.01.2008 used 150
6) 11.01.2008 used 50.
..48..
FIFO Method
01.01.08 opening stock 200 8 1600 1600

05.01.08 purchase 100 9 900 2500
300 2500
07.01.08 used/sold - 80 8 640 1860
220 1860
09.01.08 purchase 100 8 800 2580
320 2580
10.01.08 used/sold - 150 8/9 1230 1430
170 1430
11.01.08 used/sold - 50 9 450 980
120 980
Ex.-3) Calculate the a) stock under Weighted Average method at the end of 11.01.2008 &
b) Value of stock
1) 01.01.2008 op. stock 200 x 8
2) 05.01.2008 purchase 100 x 9
3) 07.01.2008 used 80
4) 09.01.2008 purchase 100 x 8
5) 10.01.2008 used 150
6) 11.01.2008 used 50
Weighted Average Method – Amount divided by unit will get rate
01.01.08 opening stock 200 8 1600 1600

05.01.08 purchase 100 9 900 2500
300 8.33 2500
07.01.08 used/sold - 80 8.33 666 1834
220 1834
09.01.08 purchase 100 8 800 2634
320 8.23 2634
10.01.08 used/sold - 150 8.23 1234 1400
170 1400
11.01.08 used/sold - 50 8.23 411 411
120 989
..49..
Bills of Exchange
In a transaction of credit sale – Seller becomes a Creditor & Buyer becoes Debotrs .
Similarly in transaction lending & Borrowing - a person who lends money is called Creditor & person
who borows a money is called Debotrs.
In Credit transaction to avoid risk a bad debts Creditor always taken from debtors written
aknowledgement of debts and written promise to pay that debts after specified period his written
acknowledgement & promise together are known as "Bills of Exchange".
In a local language B/E is called as Hundi. According to Sec. 5 of N.I. Act 1881. B/E is defined as
an instrument in writting containing an unconditional order, signed by maker directing a certain person
to pay on demand or of a future date a certain sum of money only to or to the order of a certain person
or to bearer of a instrument.
Bills of Exchange takes palce under credit transaction & not cash transaction.
Features of transactions of Bills of Exchange:
1. It is document in writting
2. It consist of acknowledgement of debts & promise to pay that debt in future.
3. It is signed by the maker (i.e. Drawer) by bills.
4. It is drawn on definite (i.e debtors)
5. There is an order to pay certain amount to a definite person (i.e Payee).
6. It is transferable by delivery and/or endorsement.
7. It is always duly stamped.
The Bills which are upto the period of 90 days are exmpted from stamp duty.
Specimen for Bills of Exchange
Stamp Drawer Name :

Address:
Date :
Two months after date, pay me or my order, a sum of Rupees.Ten thousand only.
For value received.
Rs.10,000/-
To,
Drawee Name :
Addres. Accepted
Signature Drawee's Sign Drawer's Sign.
..50..
Important Terms in B/E.
1. Parties to B/E = There 3 parties to B/E. Namely Drawer, Drawee and Payee.
a) Drawer – Is a person who draft or prepare the bill. He is a creditor and he hs to receive the money
from debtros or Buyer. In a trade bill seller draws bill. He can be payee also.
b) Drawee – Is a person on whom the bill is drawn. Usually B/E is drawn in name of the buyer. He is
debtor & he has to pay the amount to drawer after acceptance.
c) Payee – Is a person to whom payment to be received.
There are two types of bill.
a) Demand Bill – When the bill is payable on demand is called Demand Bill.
b) Usance Bill – When bills is payble after certain period/time is called Usance Bill.
Terms of the Bill
The bill is always drawn on for certain specified period of time. The period for which Bills of
Exchange is called Term of the Bill.
Due date of the Bill
Date on which payment is to be made is called due date of the Bill. If the due date falls on Sunday or
any other public holiday payment of bill should be made on preceding working day. If a bill falls due
for payment on 15th August it must be paid on 14th August.
Due date is always computed by adding 3 extra days over terms of bill.
Acceptance of Bill – Bill is set to be accepted when drawee writes the word "Accepted" and puts his
signature and date on bill. Unless the bill is accepted by drawee is not liable for payment.
Before the acceptance the bill the Bills of Exchnage is called "Draft".
Transaction – Sales goods on credit by Mr. Abhay to Mr.Bharat amounting to Rs.10,000/-.

Write the jounal entries in the books of Abhay & Bharat.
First find out who is Drawer and Drawee. - Abhay is Drawer and Bharat is Drawee
In the books of Mr.Abhay In the books of Mr.Bharat

( Drawer) ( Drawee)
1) Bill drawn Bharat a/c. Dr 10000 Purchase a/c. Dr 10000
To Sales a/c Cr 10000 To Abhay's a/c Cr 10000
2) Bill is accepted B /R a/c. Dr 10000 Abhay's a/c. Dr 10000

To Bhara's a/c Cr 10000 To B / P a/c Cr 10000
..51..
Honoured the Bill - When the payment is made on due date it is called payment of the bill or
honouring the bill.
Dis-honoure of Bill - When the payment of the bill is not made on due date it is called dis-honoured
of the bill.
Calculation of due date – While the calculation of the bill 3 grace days to be added.
1) The bill is drawn on 5th July for 3 months, calculate the due date of the bill.
5th July to 5th August = 1 month, 5th August to 5th Spet = 2 months 5th Sept. To 5th Oct = 3 month
+ 3 days grace i.e. 8th October is the due date.
2) The bill is drawn on 23rd Nov 2007 for 2 months

Answer is 25th January 2008.
3) The bill is drawn on 26/02/2008 for 40 days.

Feb'08 = 29-25 = 4 days ( since it is leap year)
Mar'08 = 31 days
April' 08 = 5 days + 3 grace days i.e. 8th April 2008 is due date.
4) The bill is drawn on 14/12/2007 for 91 days.

Dec'07 = 18 days
Jan'08 = 31
Feb'08 = 28
Mar'08 = 14 + 3 days grace = 17 March 2008 is due date.
1) Bill drawn Bharat a/c. Dr 10000 Purchase a/c. Dr 10000

To Sales a/c Cr 10000 To Abhay's a/c Cr 10000
2) Bill is accepted B /R a/c. Dr 10000 Abhay's a/c. Dr 10000

To Bhara's a/c Cr 10000 To B / P a/c Cr 10000
3) Bill honoured Cash/Bank a/c. Dr 10000 B/P a/c. Dr 10000

To B/R a/c Cr 10000 To Cash/Bank a/c Cr 10000
4) Bill dis-honoured Bharat's a/c. Dr 10000 B/P a/c. Dr 10000

To B/R a/c Cr 10000 To Abhay's a/c Cr 10000
Ex-1) Mr. Sunil purchase a goods from Sachin on credit for Rs.30,000/- .The bill is drawn & duly
accepted & on retirement it has been duly honoured.
a) Identify the drawer /drawee/payee
b) What will be entries in the books of Sunil & Sachin.
Sunil – Drawee (Buyer) Sachin – Drawer (Seller) & Payee.
..52..
In the books of Mr.Sachin In the books of Mr.Sunil
( Drawer) ( Drawee)
1) Bill drawn Sunil's a/c. Dr 30000 Purchase a/c. Dr 30000

To Sales a/c Cr 30000 To Sachin's a/c Cr 30000
2) Bill is accepted B /R a/c. Dr 30000 Sachin's a/c. Dr 30000

To Sunil's a/c Cr 30000 To B / P a/c Cr 30000

Demand Bill is purchase & usance bill is discounted.
Demand bills is purchase means drawer in urgency of money goes to Bank and asking the amount of
bill. Bank will take the bill and gives less amount/payment immediately to Drawer and hold the bill till
its maturity.) (e.g bill is of Rs.10,000/- banks gives him 9,000/).
Usance bill is discounted means Drawer in urgency of money goes to Bank and asking the amount of
bill. Bank will take the bill and charge certain interest makes the payment immediately to Drawer and
hold the bill till its maturity.) (e.g bill is of Rs.10,000/- banks gives him 9,000/- takes commission 500
and intrest of Rs.1000/-).
Bills is Discounted with the Bank
In the books of Mr.Sachin In the books of Mr.Sunil

( Drawer) ( Drawee)
1) Bill drawn Sunil's a/c. Dr 30000 Purchase a/c. Dr 30000

To Sales a/c Cr 30000 To Sachin's a/c Cr 30000
2) Bill is accepted B /R a/c. Dr 30000 Sachin's a/c. Dr 30000

To Sunil's a/c Cr 30000 To B / P a/c Cr 30000

4) Bill is discounted Cash A/c. Dr 27000

Interest a/c.Dr 2000 ------ No Entry------
Comm. A/c. Dr 1000
To B/R a/c. 30000
5) Discounted bill is
honoured ----- NO Entry---- B/P a/c Dr 30000
To Cash a/c. 30000
Statement : 1) When the bill is discounted with the Bank there will be no entry in the books of Drawee.
2) A discounted bill is honoured there will no entry in the books of Drawer.
..53..
Problem 2) Sachin purchased a goods on credit from Mr. Santosh amounting to rs.25,000/- and he
draws bill for the period of 2 months the bill is accepted and being discounted with a Bank for
Rs.23,000/- it has been honoured by the drawee on the due date. Write the J/E in the books of drawer
& drawee.
In the books of Mr.Santosh In the books of Mr.Sachin

( Drawer) ( Drawee)
1) Bill drawn Sachin's a/c. Dr 25000 Purchase a/c. Dr 25000

To Sales a/c Cr 25000 To Santosh's a/c Cr 25000
2) Bill is accepted B /R a/c. Dr 25000 Santosh's a/c. Dr 25000

To Sachin's a/c Cr 25000 To B / P a/c Cr 25000
3) Bill discounted Cash/Bank a/c. Dr 23000

Interest a/c. Dr 1500 -----No Entry-----
Comm. A/c. Dr 500
To B/R a/c Cr 25000
4) Discoutned Bill B/P a/c. Dr 25000

honoured ----- No Entry---- To Cash a/c. 25000
5) Discounted Bill Sachin a/c Dr 25000 B/P a/c. Dr 25000

dis-honoured To B/R a/c 25000 To Santosh's a/c. 25000
There are 4 options with Drawer about the Bill
1) Retained till maturity

2) Discounted the Bill before maturity
3) Endorsed the Bill
4) Bill Sent for collection
Endorsement – When the holder of the bill puts its signature on back of the bill with the view to
transfering its ownership to any other person is called "Endorsement of the Bill".
In Endorsement transaction there are two parties, namely 1) Endorser 2) Endorsee
Endorser – The person who transfer the ownership & possession of the bill by signing on its back is
called Endorser.
Endorsee – It may be a creditor or holder of the bill.
Prblem 2) Sachin purchased goods from Saurav on credit for Rs.30000 & draws the bill on the next day
Saurav purchase goods from Rahul for 30000 on credit. Saurav transfer the bill infavour of Rahul. Find
out the 1) drawer/drawee in 1st transaction. 2) Debtors/Creditor and endorser & endorsee in 2nd
transaction.?
..54..
1) Drawer = Saurav Drawee = Sachin
2) Drawer = Rahul (Creditor/Endorsee) Drawee = Saurav ( Debtor /endorser)
Problem – 3) Yuvraj purchase goods on a credit from Harbhajan amounting to Rs.25000 He draws bill
and it has been duly accepted by the drawee after a month he is endorsing the bill in the name of
Saimond and the bill is honoured on a due date what will be the entries in the Banks of Yuvraj &
Harbhajan.
In the books of Mr.Harbhajan In the books of Mr.Yuvraj

( Drawer) ( Drawee)
1) Bill drawn Yuvraj's a/c. Dr 25000 Purchase a/c. Dr 25000

To Sales a/c Cr 25000 To Harbhajan a/c Cr 25000
2) Bill is accepted B /R a/c. Dr 25000 Harbhajan's a/c. Dr 25000

To Yuvraj's a/c Cr 25000 To B / P a/c Cr 25000
3) Bill is endorsed Saimond's a/c. Dr 25000

To B/R a/c. Dr 1500 -----No Entry-----
There will be no Entry in the books of Drawee if bill is endorsed.
4) Endorsed is B/P a/c. Dr 25000

honoured -----No Entry----- To Cash/Bk A/c. 25000
When the endorsed Bill is honoured there will be no entry in the books of drawer.
4) Endorsed is Yuvraj's a/c. Dr 25000 Purchase a/c. Dr 25000

dis-honoured To endorsees a/c Cr 25000 To Harbhajan a/c Cr 25000
Bill Sent to Bank for collection
Mr. X and Mr. Y are the trader Mr. X purchase goods from Mr. Y on credit for Rs.30000 and
immediately prepare the bill the preriod for 2 months He gives the bill to the Bank for collection and it
has been duly honoured by the drawee. What will be the Journal Entries in the books of Drawer &
Drawee.
In the books of Mr.Y In the books of Mr.X
( Drawer) ( Drawee)
1) Bill drawn Mr. X's a/c. Dr 30000 Purchase a/c. Dr 30000

To Sales a/c Cr 30000 To Mr.Y's a/c Cr 30000
2) Bill is accepted B /R a/c. Dr 30000 Harbhajan's a/c. Dr 30000

To X's a/c Cr 30000 To B/P a/c Cr 30000
3) Bill sent Bank for Bill sent for colle a/c. Dr 25000
Collection To B/R a/c. Dr 1500 -----No Entry-----
..55..
When Bill sent for collection to the Bank there will be no entry in the books drawee.
4) Bill sent for coll. Cash/Bank a/c. Dr 25000 B/P a/c. Dr 25000
honoured To B/S for colle a/c. Dr 25000 To Cash A/c. 25000
5) Bill sent for coll. Mr.X's a/c. Dr 25000 B/P a/c. Dr 25000
dis-honoured To B/S for colle a/c. Dr 25000 To Y's A/c. 25000
Format for B/E

Format for B/E
In the books of Drawer) In the books of Drawee
1) Bill drawn Drawee's a/c. Dr Purchase a/c. Dr

To Sales a/c Cr To Drawer's a/c Cr
2) Bill is accepted B /R a/c. Dr Drawer's a/c. Dr

To Drawee's a/c Cr To B/P a/c Cr
3) Bill is honoured Cash/Bank a/c. Dr B/P a/c Dr

To B/R a/c. Dr To Cash A/c. Cr
3) Bill is dis-honoured Drawee's a/c. Dr B/P a/c Dr

To B/R a/c. Dr To Drawer A/c. Cr.
4) Bill Endorsed Endorsee's a/c. Dr

To B/R a/c. Cr ------- No Entry-----
5) Endorsed is B/P a/c. Dr

honoured -----No Entry----- To Cash/Bk A/c.
6) Endorsed is Drawee's a/c. Dr Bill Purchase a/c. Dr

dis-honoured To Endorsee's a/c Cr To Drawer's a/c Cr
7) Endorsed is Drawee's a/c. Dr Bill Purchase a/c. Dr

dis-honoured & To Endorsee's a/c Cr To Drawer's a/c Cr
noting charges pd To Noting charges A/c.
7) Bill sent for Bill sent for colle a/c. Dr

Collection To B/R a/c. Cr -----No Entry-----
8) Bill sent for coll. Cash/Bank a/c. Dr

honoured Bank charges a/c.Dr B/P a/c. Dr
To B/S for colle a/c. Dr To Cash A/c.
9) Bill sent for coll. Mr.Drawee's a/c. Dr B/P a/c. Dr

dis-honoured To B/S for colle a/c. Dr To Cash ?Bank's A/c.
..56..
10) Bill sent for coll. Drawee's a/c. Dr Bill Purchase a/c. Dr
dis-honoured & To Bill sent coll.'s a/c Cr To Noting charges A/c.
noting charges To Cash/Bank A/c. Cr To Drawer's a/c Cr
paid
Accomodation of Bills
Accomodation means to help – Bank are also use raising finance – Bills which are drafted & accepted
with a view to financial helping parties without any trade transaction is called accomodation of Bill.
Accomodation Bills is also called a Ficticiuos Bill after accepting the bill the drawer discount it
with the Bank & share the proceeds with drawee. Before due date drawee collects money used by the
drawer and pays the entire amount to the Bank.
Due date
1) If bill is drawn after date the period of the bill should be counted from the date of bill drawn
2) In case of bill drawn aftersight the period of the bill should be counted from the date on which
the bill is presented for acceptance.
3) In case a bill is drawn after acceptance the period of the bill should be counted from the date of
acceptance.
e.g 15th Febraury 2008 - Bill date (After date)

18th February 2008 - Present date (After Sight)
20th February 2008 - acceptance date ( After acceptance)
Prolem 1) X draft the bill on Y for 200000 and Y accept the bill & return it to X. Now X discount the
bill with the Bank @ 5% after discounting X remits the 50% of the proceeds to Y. On the due date X
remit the amount to Y for payment of the Bill. The bill honoured on due date.
In the books of Mr.X( Drawer) In the books of Mr.Y ( Drawee)
1) Bill drawn B/R a/c. Dr 200000 X 's a/c. Dr 200000

To Y's a/c Cr 200000 To B/P a/c Cr 200000
2) Bill disocunted Cash a/c. Dr 190000

Discount DR 10000 -----No Entry-----
To B/R's a/c Cr 200000
3) Share is Transfer Y's A/c Dr 100000 Cash a/c. Dr 95000

to Y To cash a/c. 95000 Discount Dr 5000
To Discount 5000 To X a/c. Cr 100000
4) Remit the Amt. Y's a/c. Dr 100000 Cash a/c. Dr 100000

To cash a/c. Cr 100000 To X a/c. 100000
5) Bill is honour ---- No Entry---- B/P a/c. Dr 200000

To cash a/c. Cr 200000
..57..
Bill may be dishonoured for non-acceptance or for non-payment when the drawee refuses to accept
the bill. The bill is said to be dishonoured for non-acceptance.
When the drawee refuses to makes the payment of bill is its due date the bill is said to be dis-
honoured for non-payment.
In case of dis-honured of bill for non-payment drawee is liable for pay the amount of bill + expenses
incurred thereby the holder of the bill on account of dis-honoured of bill. On dis-honours of bill drawer
or holder is required to give notice of dishonoured to all concern parties is involved.
Noting charges
Notice chanrges are the charges or the fees charged by the Notary Public for establishing the fact of
dis-honoured of bill. Notary Public is an officer oppointed by the Govenment to handle the cases of
bill.
Drawee or Acceptor of a Bill bears noting charges when B/E is dis-honoured.

Noting create voluable evidence of a dishonoured of bill for court reference. First holder of the bill
pays the noting charges and later on his charges are recovered from drawee.
Protesting
When the Notary Public issues a seperate certificate mentioning therein place of dis-honour, causes of
dis-honour, parties & their address. Such certificate is called Protesting.
In foreign bill Protesting is necessary to create an evidence for recovering amount of bill from
drawee of the bill.
..58..
SUBSIDIARY BOOKS
Types of subsideiary Books
Most of the busienss until are big in size and having unlimited business transactions these business
transactions are classified in different categories and accordingly recorded in different subsidiary
books.
Subsideiary books are Primary books and business transactions are first recorded in this books of
accounts. Following are the various types of subsidiary books.
1. Purchase Book
2. Sales Book
3. Purchase return book
4. Sales return book
5. Cash Book
6. Bills Receivable Book
7. Sales payable Book
8. Journal proper book
1. Purchase Book – In the Purchase Book only credit purchases are recoded. The purchase book is
also known as Purchase Day Book, Bought Book, Purchase Journal or Brought Day Book. The
transactions in this book are recorded on the basis of Inward Invoices. The transactions in this
books are recorded at a net price.
e.g. Sachin pruchase goods worth Rs.10,000/- from Rahul and he allows 10% discount on it
what will be amount recorded in the purchase books of Sachin ?
a) 10000 b) 11000 c) 9000 d) above 11000
2. Sales Books In this books only credit sales of goods are recorded. Sales book is also known as
Sales Day Book, Sales Register, Sales Journal. The transaction in the net price.
i.e. Gross price – trade discount .
3. Cash Book – Is the subsidiary book meant for recording only cash tranactions. It is bok of
prime or original entry because all cash and banking transaction are recorded in this book for
the first time.
1. Simple Cash Book –
2. Double Column Cash Book
3. Triple Column Cash Book
1. Simple Cash Book – It is also know as single column cash book containing only on
column for recording cash receipt & cash payment.
Specimen of Simple Cash Book

Date Receipt Rec./No L/F Amount Date Payment Vou. No. L/F Amount
..59..
2. Double Column Cash Book – A Cash book with cash and discount column or Cash /
Bank with Bank and Discount column or the cash book with Cash & Bank column. A cash book
contaning two column for recording cash & Discount or Bank & Discount or Cash and Bank
transaction is know as double column Cash Bank.
Dr Cr
Date Receipt Rec. L/F Discount Cash Date Payment Vou.No L/F Discount Cash
No
Specimen of Triple Column Cash Book -

DR CR
Dt. Receipt Rec. L/F Disc. Cash Bank Dt Payment Vou. L/F Disc. Cash Bank
No. No
Cash Discount – Cash discount is given for the purchase of immediate payment.
Trade discount – Trade discount is given to the retailer by the wholeseller for increasing sales. First
calculate the trade discount & then cash discount.
Fill in the blank - ____________ (Cash) Disocunt is allow for purchase of immediate payment.
e.g. 1. The goods are sold on a credit worth Rs.50,000/- and trade discount is allow5% & cash discount
allow 10% calculate the net price.
50000
2500 5% trade discount (1st cal trade discount)
47500
4750 10% cash discount (2nd cash discount)
42750
2. Sold goods to Naresh for rs.10,000 at 10% trade discount & 3% cash disocunt. Calculate
amount of trade, cash & net price.
10000
1000 10% trade discount (1st cal trade discount)
9000
270 3% cash discount (2nd cash discount)
8730
Ex-1) Prepare a triple column cash of Sachin on 1.1.08 from the following transactions
1. Op. Bal of cash – Rs.20000 on January 1, 08

2. bought a goods for Rs.5000 and Customer allowed 10% trade discount & 5% cash discount.
January 6, 08
3. Brought furniture worth Rs.10000 75% paid in cash & balance amount by cheque on January,07
4. Paid to Rahul Rs.475/- after deducting 5% cash discount by cheque January 8, 2008
..60..
DR CR
Dt. Receipt Rec. L/F Disc. Cash Bank Dt Payment Vou.N L/F Disc. Cash Bank
No. o
Jan.1 Op.bal ----- 20000 ------ Jan 6 goods 725 4275 -----
Jan.7 Furniture 7500 2000
Jan.8 Rahul 25 ---- 475
By Balance 8225
750 20000 2475 750 20000 2475
Note :
Amount + Discount = Contractors amount
475 + 5& = 100
475 x 5 = 25
95
Ex – 2
1. The Opening cash balance Rs.20000 & Bank balance is Rs.10000

2. Brought goods for cahs @ 10% trade disc. & 15% cash disc. Amt Rs.10000
3. Brought the furniture amounting to Rs.6000 2/3 in cash & 1/3 by cheque.
4. Received cheque Rs.9000 from Sachin in full settlement of Rs.10000
5. Paid to Saurav Rs.450/- after deducting 10% cash discount.
6. Received chque from Anil Rs.14,500 and allow discount of Rs.500
7. sold goods to sunil Rs.9000 @ 10% trade discount & 5% cash disocunt 1/3 amount recovering
in Cash and 1/3 by cheque & remaining amount after one month
Prepare cash book.
DR CR
Dt. Receipt Rec. L/F Disc. Cash Bank Dt Payment Vou.N L/F Disc. Cash Bank
No. o
Jan.1 Op.bal ----- 20000 10000 Jan 6 goods 2350 7650 -----
sachin 1000 9000 Jan.7 Furniture 4000 2000
Anil 500 14500 Jan.8 Saurav 50 450
Sunil 750 2565 2565
22565 36065 2400 12100 2000
12100 2000
To Bal. 10465 34065
..61..
BANK RECONCILIATION
A trader Banking transacitons in the Bank column of the cash Baook maintain by him. He also balances
the cash book at a end of every month to ascertain the Bank balance. Later he campares cash book with
the etract/pass book or a Bank. It is expected that both the balance of cash book and pass book should
be equal but in real practice it differes due to certain reasons which can be done by preparing a
statement known as Bank reconciliation statements.
Branch Reconciation is a statement and not the account is prepared by the trader to expalin or
reconciled the differences between the cash book and pass book balance.
Reasons for difference between cash book and bank book balances are as follows.
1. Cheque deposited but not cleared or encashed.

2. Cheque issued bu not presented for payment
3. Interest credited or allowed by the Bank.
4. Interest debited or charged by the Bank.
5. Bank charges to charge by the bank
6. Direct deposit by the customer into the Bank.
7. Direct payment by the Bank as per our standing instruction such as Electric Bill, LIP, telephone
Bill.
8. Direct collection by Bank on behalf of customer – dividend, interest etc.
9. Undercasting, Overcasting of debit or credit side Cash book or Pass book.
The debit balance as per Cash book is same as credit balance in the Pass Book it is treated as
favourable balance.
The Credit balance of Cash Book is same as Debit balance as per Pass Book & it is treated as Bank
overdraft and called as unfavourable balance.
Branch Reconciliation Statements
Balance as per Cash Book .................... 30000

Add: 1. Cheque issued but not presented }
2. Interest credit/allow by the Bank }
3. Direct deposit by Bank } x
4. Direct collection by Bank }
Less: 1. Cheque deposited but not cleared }

2. Interest debited by Bank }
3. Charges debited by Bank } y
4. Direct payment / debited by Bank }
Overcasting - Amount wrongly written more than actual one is called Overcast.
Undercasting – The amount which is written a less is know as undercasting.
If Receipt side is overcasting we have to deduct
..62..
If the receipt side is undercasting we have to add it.
If the balance as per cash book is favourable i.e. Debit balance or credit balance as per Pass Book for
Bank Reconciliation.
1 If the receipt side of the cash Book is overcasted we have to deduct the amount to reconcilised with
the balance as per Pass Book.
2. If the receipt side of the Cash Book is undercasted we have to add the a balance to Re-conciliation
statement to reconcilised its Pass Book Balance.
Op. Balance + Receipt - Payment = Closing Balance

20000 + 15000 - 13000 = 22000
20000 + 15000 - 11000 = 24000
20000 + 15000 - 14000 = 21000
3. If the payment side of the cash book is undercasted we have to dedct the amount for B/R statement
to get the balance as per Pass Book.
4. If the payemnt side of the Cash Book is overcasted we have to add the amount to the Reconciliation
statements to get the balance as per Pass Book.
Format for Branch Reconcilation Statements
1. Balance as per Cash Book .................... 30000

Add: 1. Cheque issued but not presented }
2. Interest credit/allow by the Bank }
3. Direct deposit by Bank } x
4. Direct collection by Bank }
Less: 1. Cheque deposited but not cleared }

2. Interest debited by Bank }
3. Charges debited by Bank } y
4. Direct payment / debited by Bank }
2. Balance is unfavourable as per Cash Book
Add : Y
Less : X
3. Balance as per Pass Book/Bank Book (Credit Balance).
Add : Y
Less : X
4. Overdraft as per Pass Book (Debit Balance)
Add : X
Less : Y
..63..
When balance is favourable as per cash book
Opening bal + Cr (Receipt) - Dr (Payment) = Cl.

30000 + 10000 - 12000 = 28000
30000 + 11000 - 12000 = 29000 When Receipt side overcasted = minus the amt
30000 + 9000 - 12000 = 27000 When Receipt side undercasted = Add the amt
30000 + 10000 - 13000 = 27000 When Payment side overcasted = Add the amt
30000 + 10000 - 11000 = 29000 When Payment side undercasted = minus the amt
When entry is passed on credit side of the pass book the customer balance increases & when entry is
passed on debit of the pass book customer balance decreases in both the books i.e. Cash book / Pass
book. Entries are passed on opposite side i.e. When the debit side of cash book entry is passed same
entry is passed on the credit side of the Pass Book and vise-a-versa.
Ex-1 Cash of Sachin show debit balance of Rs.25,000 on 29.02.2008 but the balance as per pass book
does not agree with the same & following reason where detected.
1. Cheque issued but not presented for payment Rs.2000/-

2. Cheque deposited but not cleared for Rs.3000/-
3. Iinterest credited in the pass book Rs.300/-
4. Bank charges Rs.20/- as min.bal. Charges
5. Direct deposit by the customer in to the Bank Rs.2500/-
6. Telephone bill paid by the Bank rs.600/- as per S.I.
You are asked to prepate the Bank Reconciliation Statement as on 29.02.2008
Bank Reconciliation Statement as on 29.02.2008
Balance as per Cash Book ........................ 25000
Add : Cheque issued but not cleared 2000

Interest credited in Pass Book 300
Direct Deposit by Customer 2500 4800
29800
Less : Cheque deposited but not cleared 3000

Bank Charges Min.Bal 20
Telephone bill 600 3620
Balance as per Pass Book ....................... 26180
..64..
Ex-2) 1. Cash Book is showing the credit balance of Rs.25,000/- at the end of 31 st Jan 2008. the
balance does not agree with as per Pass Book & following reason were detected.
1. Bank has debited a charges for not maintaining min. Bal. - Rs.500/-
2. The cheque dep. But not cleared Rs.6000
3. ECS collected by the Bank Rs.700/-
4. Direct dposited by the customer Rs.9000
5. Cheque issued but not presented Rs.4500/-
6. Bank paid LIP Rs.900/-
7. Debit side of cash book is overcasted by Rs.700/-
8. Bank credited interest Rs.900/-
It has been observered that the payment side of cash book undercasted by Rs.400/- . You are asked to
prepare B/R. Statement.
Bank Reconciliation Statement as on 29.02.2008
Balance as per Cash Book (Crdit balance i.e. Overdraft) ........................ 25000
Add : Min. Balance charges 500

Cheque dposited but not cleared 6000
Bank paid LIP 900
Overcasted 700
Uundercasted 400 8500
33500
Less : Cheque issed but not cleared 4500

ECS collected 700
Direct deposit 9000
interest 900 15100
Balance as per Pass Book ....................... 18400
When balance is unfavourable as per cash book
Opening bal + Payment - Receipt = Cl.

30000 + 10000 - 12000 = 28000
30000 + 10000 - 13000 = 27000 When Receipt side overcasted = Add the amt
30000 + 10000 - 11000 = 29000 When Receipt side undercasted = Minus the amt
30000 + 11000 - 12000 = 29000 When Payment side overcasted = Minus the amt
30000 + 9000 - 12000 = 27000 When Payment side undercasted = Add the amt
..65..
PETTY CASH
In a business unit you have to make the payment by cheque or cash for purchases of the
goods/assets/payment of expenses etc. Such expenses includeds small amount of repeatative nature
such as postage, stationery, conveyance etc.
Thes expenses are know as petty expenses, recording of such petty expenses in the cash
book makes its bulky time consuming to avoid such difficulties separate record of such expenses are
made in the book known as Petty Cash Book
There are two types of petty cash book.

1. Simple Petty Cash Book
2. Columner Cash Book i.e various columns it is also know as Anylytical Petty Cash Book.
Specimen of Simple Petty Cash Book

Amount Cash Bank Date Particular Voucher L/F Amount
Reced Folio No
200 2008 Jan. 1
7 By conveyance 25
11 BY Stationery 110
15 By office exp. 25
160
Closing bal 40
40 To Op Bal
Specimen of Columner Cash Book

Amount Cash Bank Date Particular Vr. Total Postage Stationery Tea Convey Office L/F
Reced Folio No amt. Exp. ance. Exp.
200 2008 To Chief Cashier
Jan. 1
3 By postage stamp 10 10
7 By Conveyance exp. 25 25
11 By stationery 110 110
15 By office exp. 25 25
170 10 110 25 25
15 By closing bal c/d 30
30 16 To op. bal
Imprest System - Under the Imprest System Petty cashier is given a fixed amount (i.e imprest
amount) at the beganning of the period to meet the petty expenses and closes the petty cash book the
shortfall at the beganning of the next period is re-imbursed by the chief cashier and this process is
goes on.
e.g. If an imprest amount is fixed Rs.500/- the petty cashier in the 1 st month is given Rs.500/- by the
chief cashier if he paid Rs.400/- during the month he hasbalance of Rs.100/- now at the beganing of 2 nd
month chief cashier will deliver Rs.400/- to make imprest of Rs.500/-.
..66..
PARTNERSHIP ACCOUNT
There are 4 steps of every businessman has to be maintain while doing the accounting in the books.
Recording - Vouchers
Classification - Ledger
Summaring- Trial balance
Interpretation – P&L or B/S.
There are three types of accounts such as;
Personal account
Real accounts
Nominal accounts
Assets A/c. Liability A/c.

-------------------------------------------------- -------------------------------------------------
Dr CR Dr CR
(Increases) (Decreases) (Decreases) (Increases)
Expenses A/c. Income A/c.

-------------------------------------------------- -------------------------------------------------
Dr CR Dr CR
(Increases) (Decreases) (Decreases) (Increases)
Capital A/c.
--------------------------------------------------
Dr CR
(Decreases) (Increases)
Types of organisations
Proprietory Partnership Company
Registration No Act Partnership Act Company's Act
Registering Authority ---"---- Registrar of Firm Registrar of Company
Format for preparation No format for No format for Format under shcedule
of Final Accounts preparing of preparing of VI.
B/S & P &L B/S & P &L Part -I - B/S
Part-II – P&L
..67..
Company's format for preparation of B/S and P&L a/c. In T form i.eHorizontal form and columner
form i.e Vertical form.
There are two methods of maintaining Capital accounts.

1 Fixed Capital method :
2. Fluctuating capital method:
1. Fixed Capital method : - Under this method for each partner two accounts are maintained.
a) Partner's Capital A/c. - In this account amount capital are credited which is contributed by partners.
b) Partner's Current A/c. - All adjustment regarding int on capital, int on drawings and share in profit
or loss, salary etc are recorded.
2. Fluctuating capital method: - Only one a/c is maintained by partners i.e. Capital alc.
Manufacturer prepares the - a) Manufacturing A/c., b) Trading A/c., c)P& L A/c.

d) P & L Appropriation a/c.
Trader prepares the - a) Trading A/c., b)P& L A/c. c) P & L Appropriation A/c
Service Sector prepares - a) P& L A/c. b) P & L Appropriation A/c
Manufacture A/c - shows the details of manufacturing of the factory

Trader A/c. - shos the cost of production of the firm
P & L A/c - shows the Gross Profit of the firm
P& L Appro.A/c - shows the Net Profit of the firm
When profit shareing ratio is not mentioned in the partnership deed then it is treated as equally.
Minimum registration charges for parnership deed is Rs.500/- maximum is depend upon volume of the
business.
Admission of Partner
While admitting the new partner there are 5 adjustment has to be takes place.
1 Adjustment of profit shareing ratio

2. Amount of capital brought by new partner
3. Adjustment of Goodwill
4. Re-valuation of Asset & Liabilities
5. Treatement of Accumulated Reserve & Losses.
1. Adjustment of profit shareing ratio –
In this adjustment the existing partner's has to be give their part of share to new partner, it means they
have to sacrifice their profit ratio. Goodwill which brought by new partner is share in old partners.
E.g. A & B are partners sharing Profit & Loss in 3:2 . C is admitted with business he has to give share
1/3.
..68..
Ex-1) P & Q are partners sharing Profit & Loss in the ratio of 3:4. R admitted are entitled to ½ share of
future of profit. Calculate new profit sharing ratio under the following circumstances.
A) If 'R' acquires his share of profit in the original ratio of P & Q.

B) If 'R' acquires his share of profit equally from P & Q
C) If 'R' acquires his share of profit in the ratio of 2:1.
D) If 'R' acquires his share of profit only from Q.
A) Old ratio of P & Q is 3:4

R - ½ share
Calculate the sacrifice ratio
i) Sacrifice Ratio:
share to be given old ratio Sacrifice ration
P = ½ x 3/7 = 3/14
Q = ½ x 4/7 = 4/14
ii) New Ratio :

Old ratio - Sacrifice ration
P = 3/7 - 3/14 = 3/14
Q = 4/7 - 4/14 = 4/14
to bring denominator 14 multiple by 7 without changing value.
R = ½ x 7/7 = 7/14
Therefore new ratio is 3 : 4 : 7
B) Old ratio of P & Q is 3:4

R - ½ share wants equally i.e. ½
i) Sacrifice Ratio:
P = ½ x ½ = ¼
Q = ½ x ½ = ¼
ii) New Ratio :

P = 3/7 - ¼ = 5/28
Q = 4/7 - ¼ = 9/28
R = ½ x 14/14 = 14/28
New PSR = 5 : 9 :14
C) Old ratio of P & Q is 3:4

R - ½ share wants share in 2:1
i) Sacrifice Ratio:
P = ½ x 2/3 = 2/6
Q = ½ x 1/3 = 1/6
..69..
ii) New Ratio :
P = 3/7 - 2/6 = 4/42
Q = 4/7 - 1/6 = 17/42.
R = ½ x 21/21 = 21/42
New PSR = 4 : 17 : 21
D) Old ratio of P & Q is 3:4

R - ½ share wants share from Q
i) There is no need to calculate the Sacrifice Ratio: since Q has to sacrifice
ii) New Ratio :

P = 3/7 x 2/2 = 6/14
Q = 4/7 - 1/2 = 1/14
R = ½ x 7/7 = 7/14
New PSR = 6 : 1 : 7
Ex-2) A B & C are partners sharing Profit & Loss in the ratio of 4:3:2. 'D' admitted for 1/10 share find
out the new profit ratio
Sacrifice ratio
A = 4/9 x 1/10 = 4/90
B = 3/9 x 1/10 = 3/90
C = 2/9 x 1/10 = 2/90
New Ratio
A = 4/9 - 4/90 = 36/90

B = 3/9 - 3/90 = 27/90
C = 2/9 - 2/90 = 18/90
D = 1/10 x 9/9 = 9/90
36 : 27 : 18 : 9 therefore New ratio is 4 : 3 : 2 :1
2) Capital brought by New Partner :
1. If the partner brings capital in Cash then entry will be
Cash/Bank a/c. .........Dr ****

To New Partners Cap. A/c. ........ Cr *****
2. If the partner brings capital in Real Assets/property then entry will be
Assets A/c. .........Dr ****

Property A/c. .......Dr ****
To New Partners Cap. A/c. ........ Cr *****
..70..
3) Adjustment of Goodwill:
Goodwill means reputation of the firm/partner. It is an intangible asset.
Methods of valuation of Goodwill

1. Net profit method :
2. Super profit method:
3. Capitalisation of profit method:
Ex-1) Profit earn by A B C & Co for the last 5 years are as follows:
1. Year 2000 profit is Rs.85,000/-

5. year 2004 profit is Rs.73,000/-
determine the value of Goodwill on the basis of 4 years purchase of Avg. Profit of past 5 years.
Value of G/W = 85000 + 80000 + 82000 + 75000 + 73000

5
= Avg. Profit x No of years on basis of purchase
= 79000 x 4
= 3,16,000/-
Entries to be entered in the books
1. If the partner brings capital in Cash then entry will be
a) Cash/Bank a/c. .........Dr ****

To Goodwill. A/c. ........ Cr ****
Goodwill a/c. .........Dr ****

To Old partner's A/c. ........ Cr ****
( in thier old profit sharing ratio)
b) If old partners takes G/w ( when G/w A/c not open in the books)
Cash/Bank A/c. ........Dr ****

To old partners capital A/c. ...Cr ****
(in their sacrificing ratio)
2 If Goodwill raised in Books.

..71..
3 Goodwill raised & written off
a) Goodwill a/c. .........Dr ****

b) All Partners Capital A/c. .........Dr ****

To Goodwill A/c. ........ Cr ****
( in thier new profit sharing ratio)
4) Goodwill is already existing in books
1) Value is more than existing G/W value

2) Value is less than existing G/W value
Old Partner's A/c. ............Dr ****

To Goodwill A/c. ........ Cr ****
3) Value is equal to existing G/W value
--------- No entry to be passed -------
5) Goodwill is paid privately

-------- No entry to be passed -------
Goodwill shows the credit balance. It must be debit balance because it is Asset.
4) Revaluation of Assets & Liabilities -
When new partner entered into the business he may be revalued all the assets & liabilities of the firm.
Assets may increased or decreased that amount is kept in "Revaluation A/c." Whatever difference occur
it goes to old partners old profit ratio. He adjust account before entered the new partners. They
prepares the "Revaluation A/c." before closure of the year. After new year he transfer all balanc of
Revaluation A/c to the Business.
5) Accumulation of Reserve & Losses
If profit then passed the entry
Old partner's A/c .....Dr ****

To, P & L A/c. .....Cr ****
(in old profit sharing ratio)
..72..
If Loss then passed the entry
P & L A/c .....Dr ****

To Old partner's A/c. .....Cr ****
(in old profit sharing ratio)
Problems for practice:
Ex-1) A & B are partners sharing Profit & Loss in the ratio of 4:1. They admitted C into partnership &
decide share of profit equally in the new firm. C pays for goodwill premium Rs.30,000/- in this
connection-
a) A & B will receice Rs.15,000/- each

b) A will Receive Rs.24,000/- & B will Receive Rs.6,000/-
c) A will receive entire 30000
d) A will receive entire 30000
e) A will receive 42000 & B will pays 12000
old ration of A & B is 4: 1
A = 4/5 – 1/3 = 7/15

B = 1/5 - 1/3 = -2/15
C = 1/3 x 5/5 = 5/15
now C share of G/W = 30000 - 5/15

? - 2/15
30000 x 2/15 = 2 x 30000 x 15 = 12,000/-

5/15 15 5
Answer is Opetion "e" i.e. A will receive 42000 & b will pay 12000
Ex-2) A is admitted as new partner agree is to pay Rs.12000 as G/w or premium but bring only 10000
in cash the balance of Rs.2000 must be debited to his
a) A's Capital A/c. b) A's Current A/c c) A's Loan's A/c d) Revaluation A/c. 5) G/w A/c.
Answer – A's Current A/c.
Ex-3) If new partner bring the amount of G/W in cash G/w is transfer to the old partners in
a) old ratio b) new ratio c) sacrifice ratio d) gain ratio e) none of the above
Answer – Sacrificing ratio.
..73..
Ex-3) A & B are partners sharing Profit & Loss in the ratio of 5:3. They admitted C for ¼ share which
he acquires ¾ form A and ¼ from B. C pays Rs.20000 for his share of G/W. A & B will be credited by
Rs.___
a) 50000, 15000 b) 10000, 10000 c)15000, 5000 d) 12000, 8000 e) 8000, 12000
Answer - In this problem the scrifice ratio is given i.e 3 :1 i.e. Option c) 15000, 5000
New ratio
A = 5/8 - (¾ x ¼ ) = 7/16
B = 3/8 - (¼ x ¼ ) = 5/16
C = ¼ x 4/4 = 4/16
New ratio is 7: 5 : 4
Ex-4) A & B are partners sharing Profit & Loss in the ratio of 2:3. They admitted C into partnership
firm giving him 25% share . If 'C' bring 30000 as his share of capital and capital are to be kept in profit
sharing ratio what will be the capital of B.
a) 36,0000 b) 45,000 c)48,000 d) 54,000 e) 60,000
Sacrifice ration
A = 2/5 x ¼ = 2/20
B = 3/5 x ¼ = 3/20
New ratio
A = 2/5 – 2/20 = 6/20

B = 3/5 - 3/20 = 9/20
C = ¼ x 5/5 = 5/20
30000 - 5/20
? - 9/20
30000 x 9 x 20 = 54,000/-
20 x 5
Answer : Option 'D' i.e. 54,000/-
Ex-5) The sum of share sacrifice by old partner infavour of new partner
a) Total share of the firm

b) The share given to new partners
c) The share retain by the old partner
d) The share give to new partner less the share gained by old partner
e) None of the above.
Answer – option 'B' The share given to the new partner

..74..
Formula for Goddwill
1. Avg. Profit = Total profit

nos. of yeras
2. Capital employed = All angible assest – outsider liabilities

3. Normat Profit = Avg. Capital employed x Normal rate of return
100
3. Super Profit = Average profit – Normal profit
7. Goodwill = Avg. Profit x Numbers of years purchase
=========================================================================
Sum 1) Mona, eena and Son carrying business in partnership for last 5 years. Goodwill of the firm is to
be valued at 3 yearst purchase of avg. Profit of las 5 years . You are asked to calculate the amt of
goodwill.
Profit 16000
Profit 15000
Loss 8000
Profit 7000
Profit 10000
Avg. Profit = Total profit = 48000 (Profit – 8000 (loss), no of yreas = 5

nos. of yeras
Avg. Profit = 40000

5
Avg. Profit = 8000
Goodwill = Avg. Profit x Numbers of years purchase
= 8000 x 3
= 24000
2. Super Profit Method
Sum-2) The capital emplyed of a firm is rs.200000, its avg. Profit lor last 3 years is Rs.40000 and
normal rate of return in the business is 15%. Calculate the goodwill for 4 years
Normat Profit = Avg. Capital employed x Normal rate of return

100
= 200000 x 15%
= 30000
Super Profit = Average profit – Normal profit

= 40000 - 30000
= 10000
. Goodwill = Avg. Profit x Numbers of years purchase

= 10000 x 4
= 40000
..75..
Ex-6) A & B are partners sharing profit & losses in the ratio of 2:1. They admit C as a partner for 1/3
share which he receive equally from A & B the new profit sharing ratio is
a) 2:3:4 b) 3:2:4 c) 4:2:3 d) 4:3:2 e) 2 :4:3
Old ratio of A & is 2:1
C - 1/3 fro A & B
Sacrifice ratio
A = 2/3 x 1/3 = 2/9

B = 1/3 x 1/3 = 1/9
New ratio
A = 2/3 - 2/9 = 4/9

B = 1/3 - 1/9 = 2/9
C = 1/3 x 9/9 = 3/9
Answer = option 'C' i.e. 4:2:3
Ex-7) A & B are partners sharing profit & losses in the ratio of 4:3 they admit C who bring
Rs.35,000/- towards goodwill. The P.S.R. Is 3:3:2. A will get______
a) 15000 b) 20000 c)27500 d)30000 e)35000
Sacrifice ratio
A = 4/7 - 3/8 = 11/56

B = 3/7 - 3/8 = 3/56
C = 2/8 x 7/7 = 14/56
35000 - 14/56
? - 11/56
35000 x 11 x 56 = 27,500/-
56 x 14
Answer - Option 'C' i.e. 27,500/-
Ex-9) Revaluation of goodwill must be effected through
a) Revaluation A/c. b) Relisation A/c. c) Partners Capital A/c.

d) P & L A/c. e) P & L Appropriation A/c.
Answer : Option ' C' i.e. Partner's Capital A/c.
..76..
Retirement of Partners
When partner Retiring from the business there are 5 possibilities takes places:
1) Profit sharing ratio

2) Goodwill
3) Revaluation of Asset & Liabilities
4) Appropriation Rervers & Losses
5) Payment to retirement of Partner
1) Profit sharing ratio
In admission of partner there are sacrifice ratio has to be calcualate here gain ratio to be calcualate:
Ex-1) P, Q, R ar partner in a firm sharing profit & losses in the ratio of 4:3:2. Q decides to retire from
the firm calculate new ratio P & R under following circumstances;
1) If Q gives his share to P & R at the original ratio of P.S.R.

2) If Q gives his share to P & R equally
3) If Q gives his share to P & R in the ratio of 3:1
4) If Q gives his share to only P.
1) If Q gives his share to P & R at the original ratio of P.S.R.

Old ratio - 4 : 3 : 2
Q retires his share 3/9 gives to P & R 4 : 2
Gain ratio :
P = 3/9 x 4/6 = 12/54

R = 3/9 x 2/6 = 6/54
New ratio
P = 4/9 + 12/54 = 36/54

R = 2/9 + 6/54 = 18/54
Answer - 36 : 18 i.e. 2:1
2) If Q gives his share to P & R equally
Old ratio - 4 : 3 : 2
Q retires his share 3/9 gives to P=½ R=½
Gain ratio
P = 3/9 x ½ = 3/18
R = 3/9 x ½ = 3/18
..77..
New ratio
P = 4/9 + 3/18 = 11/18
R = 2/9 + 3/18 = 7/18
Answer - 11 : 7
3) If Q gives his share to P & R in the ratio of 3:1
Gain ratio
P = 3/9 x ¾ = 9/36
R = 3/9 x 1/4 = 3/36
New ratio
P = 4/9 + 9/36 = 25/36
R = 2/9 + 3/36 = 11/36
Answer - 25 :11
4) If Q gives his share to only P.

Old ratio - 4 : 3 : 2
Q retires his share 3/9 gives to P=3/9
New ratio
P = 4/9 + 3/9 = 7/9
R = 2/9
Answer - 7 : 2
2) Goodwill
1) When Goowill does not appear in the books – There are 6 possibilities
a) G/W is raised
b) G/w raised & Written Off
c) G/w adjusted without opening G/w. A/c.
d) G/w is raised retiring partners & profit sharing ratio
e) G/w raised retiring Partner & written off
f) G/w is paid privately.
a) G/W is raised – then entry will be

Goodwill A/c. ...Dr ****
To All partner;s Cap. A/c. ...Cr ****
( old P.S.R.)
b) Goodwill raised & Written Off

i) Goodwill A/c. ...Dr ****
To All partner;s Cap. A/c. ...Cr ****
( old P.S.R.)
..78..
ii) Continuing Partner's Cap A/c. ...Dr ****
To G/w A/c. ...Cr ****
( New P.S.R.)
c) Goodwill adjusted without opening G/w. A/c.
Continuing Partner's Cap A/c. ...Dr ****
(gain ratio)
To Retiring Partners Cap. A/c. ...Cr ****
d) G/w is raised retiring partners & profit sharing ratio

Goodwill A/c. ...Dr ****

(only share of retiring partner)
e) G/w raised retiring Partner & written off
i) Goodwill A/c. ...Dr ****

(only share of retiring partner)
ii) Continuing Partners A/c. ...Dr ****
Goodwill A/c. ...Cr ****
f) Goodwill is paid privately

------- No entry --------
2) When Goowill appear in the books
1) Value is more than existing G/W value
Goodwill a/c. ......Dr ****

To All partner's Cap. A/c. . ..... Cr ****
( In old P.S.R.)
2) Value is less than existing G/W value
All Partner's Cap. A/c. .....Dr ****

To Goodwill A/c. .... Cr ****
( In old P.S.R.)
3) Value is equal to existing G/W value
--------- No entry to be passed -------
3) Revaluation of Goodwill -
Revaluation A/c will open in case of retirement of partner – All difference of revaluation a/c. Will
transfer to All Partners Capital A/c. In their old profit sharing ratio.
..79..
4) Accumulation of profit & Losses -
Any Reserves & Losses transfer to the Balance Sheet in Partner's Capital A/c.
5) Payment to retiring partners
A retiring Partner on his retirement is entitle to the following sum:
1) Balance in his Capital Account.

2) Balanace in his Current Account.
3) His share in the profit or loss till the date of retirement.
4) His share in Goodwill and revaluation a/c. Of the firm.
5) His share in Accumulated Reserves & losses of the firm.
6) Interest on his capital till the date of retirement.
7) Salary till the date of retirement if he entitle.
The sum total of all the above will be either paid to him or it will be transfer to his loan account.
..80..
Retirement of partner / Dessolution of firm
Realisation account to be prepare when dispose the firm asset & liability.
Ex-1) X,Y & Z are the partner sharing profit in the ratio of 2 :2 :1. Z retires determine the new profit
sharing ratio of X & Y
a) 1: 1 b) 2:1 c) 3:1 d) 1:3 e) 1:2
Gain ratio
X = 1/ 5 x 2/4 = 2/20
Y = 1/5 x 2/4 = 2/20
New ratio
X = 2/5 + 2/20 = 10/20
Y = 2/5 + 2/20 = 10/20
Answer = 10:10 i.e. 1 :1
Ex-2) Old Profit sharing ratio - New Profit sharing ratio = ______
a) Sacrificing ratio b) Gain ratio c) Capital ratio

d) Old ratio e) None of these
Answer – Sacrificing ratio ( gain ratio = N.R, - O.R.)
Ex-3) In the even of death of a partner the accumulated profit & losses are share by the partner in
a) Sacrificing ratio b) New ratio c) Capital ratio

d) Old ratio e) gain ratio
Answer – Old ratio
..79..
Ex-4) On the death of partner the amount received from Joint Life Policy should be crdited to cap. A/c.
Of
a) All Partners including deceased partner b) Only continuing partners
c) Only deceased partner d) All f the above
e) None of the above Answer – All the partners including deceased partner.
E-6) X,Y & Z are the partner sharing profit & losses equally . Y retires G/w appearing the bks is
Rs.60000. It is valued at Rs.120000. Y will be credited with ______
a) 60000 b)40000 c) 20000 d) 120000 e) None of the above
Answer - (120000- 60000= 60000/3 (equally) = 20000 – option 'c'.
..81..
Ex-7) A retiring partner contiunes to be liable for obligation incurred after his retirement if
a) He does not give public notice b) unpaid amt is transfer to his loss a/c.
c) He starts a similar business. d) He give a public notice
Answer – Option 'a' – He does not give public notice.
Ex-8) Premium paid Joint Life Policy of partner is

a) Debited to P & L A/c b) Credited to P & L A/c.
c) Debited to Partners Cap a/c. e) Credited to Partners Cap. A/c.
e) None of the above
Answer – Debited to P & L A/c ( but after maturity it is credited to partners capital a/c.)
Ex-9) U/s-37 of the Indian Partnership Act 1932 provides int. On the amount left by the retiring or
deceased partner
a) 4% B) 5% C) 6% d) 7% e) Bank rate
Answer - 6% option 'c'
Ex-10) Joint Life Policy reserve a/c. Is transfer to
a) Capital A/c. Of retiring partner b) All partners in old P.S.R.

c) Remaining partners in new P.S.R d) None of the above
e) Retire partners & remaining partner who sacrifice the ratio
Answer – All Partners in old P.S.R.
Ex-11) If Goodwill raised at full value in the books is to be written off complely the capital a/c. Of the
remaining partner will be debited
a) All profit sharing ratio b) New profit sharing ratio

c) sacrificing sharing ratio d) gain sharing ratio
e) capital ratio.
Answer – New Profit sharing ratio
..
..82..
COMPANY ACCOUNT (SHARES)
Employment of complex machinary involvement of large nos of worker and to face martket
the capital required is huge hence new firm of business i.e. Joint Stock Compay come into
existence.
Features of Joint Stock Company;

1) Liability is limited to the extent of face value of shares.
2) Defination of shares – A SHARES means a share/part in share capital of the company
(u/s-246 of Company Act
3) A perpectual existence – unless law not allow to windup business.
4) Volutary Association
5) Common Seal – A separate entity of the Company, Artificial person in the eys of law.
common seal is in custody of Board of Directors, It is used in every important
document withness by minimum 2 directors.
6) Compulsory Registration -
There are two types of companies.
1. Public Limited Company – there no limit for the members

2. Private Limited Company -Maximum members of the company are 50.
The ownership is with the Sharesholders but the Management is looked after by Board of
Directors which elected between the sharesholders. The shares of Joint Stock Company can
be easily transfer or sold.
Types of shares :
1. Equity shares – It is also known as Ordinary shares

1. Thses types of shares giving voting rights to its members.
2. Do not enjoy any special preference in respect of dividend
payment or repayment of capital
3. The rate of dividend flactuates accordingly to the profit made by
the company (which is not convertable)
2. Preference shares – 1. The shareholders enjoys priority regarding dividend payment &
repayment of capital
2. Fixed rate of dividend
3. Cannot enjoy the voting rights
Types of preference shares are
1. Cumulative preference shares

2. Non-cumulative preference shares
3. redeemable preference shares
4. Participating preference shares
5. Non-participating preference shares
..83..
Preference shares can be redeemed provided by
1. They are fully paid.

2. It is only out of profit or preceedings received from fresh issue of shares.
3. On if fresh issue is not possible then Capital Redemption Reserve (CRR) is created
out of Reserves of the company.
Different types of Capital:
Authorised Capital
Issued Un-issued
Subscribed unsubscribed
Called up Uncalled
Paid Unpaid
(Calls in arrears)
1. Authorised Share Captial – Maximum amount /capital which the company can raised
/mentioned in Memorandum of Association is called Authorised capital . It is also called
Nominal capital or registered capital.
2. Issued & Un-issued share capital - Usually Company donot required entire capital hence
the part of authrised capital may be raised by offering shares to public. Hence the
difference between authorised & Issued share capital.
3. Subscribed & Unsubscribed Share Capital -

Subscribed capital = (at par)
over-subscribed > issued
Under-subscribed <
4. Called Up & Un-called share capital – The colection of money is divided into different
stages i.e.
1. On Application - 2. On Allotment - 3. On call - ( 1 st call, 2nd call & final call)
The application money is received from the public at the time of application form
submission. Accordingly to SEBI guidelines and the decision of managment allotment of
shares taken place accordingly. Allotment letters are sent to the members. The letter may
state a requrest for payment of allotment money.
..84..
The members may or maynot pay similarly further step of calls is followed wherein calls
letters are sent requesting the member to pay call-money.
Members may or may not pay.
The portion of subscribed capital for which request of payment is made is to said to be called
up capital. Unless it is know as un-called capital.
5. Paid & Un-paid Capital - As mentioned above after the request for payment the member
may or may not pay, hence the portion of called up capital where the payment is receive
becomes paid up capital & the amount not received becomes un-paid capital also known as
calls in arrears.
Even after severeal reminders if calls in arrears are not cleared then accordingly to SEBI
guidelines and decision of Management such unpaid shares are forfieted (cancelled).
Further if the managment wish to issue these forfieted share it can be done that is known
as re-issue of forfieted shares.
Issue of shares
1. Cash consideration – whatever get back
2. Non-cash consideration – purchase of Asset
3. Conversion consideration – to convert debenture into share etc.
4. Right issue consideration – Issue of share in cash to the existing share holders if not
interest ten give to outsider. Rate are different to existing & outsiders.
5. No consideration - Issue of bonus shares depending on the ratio decided shares are
issued to the existing share holders without requiring them to pay hence the Reserves
of the Company or profit made is used in making issue of bonus shares.
Advantages of Bonus issue :
1. Profits of company can be distributed without distributing cash.

2. Profit can be retain for future development & expansion.
3. The shares capital level goes high
4. Existing share holder contribution goes up.
5. Bonus shares can be issued at par premium or discount.
6. Partly paid shares can be converted into fully paid shares
Bonus shares can be issued for two purposes:
1) To convert partly paid shares into fully paid shares

2) Issue of fresh shares
I. Reserves which can be used to convert partly paid shares into fully paid shares
a) Profit & Loss a/c.

b) General Reserves
c) Capital Reserves ( P & L A/c. & CRR)
d) Investment allowance Reserves
e) Sinking fund for redemption of debentures.
..85..
II Reserves which can be used to issue of fresh shares
a) Profit & Loss a/c.

b) General Reserves
c) Capital Reserves ( P & L A/c. & CRR)
d) Investment allowance Reserves
e) Sinking fund for redemption of debentures.
f) Capital Redemption Reserves
g) Security Premium A/c.
III Some Reserves which cannot be used for bonus.
a) Security premium if not colleted in cash

b) Capital Reserves created due to re-valuation of Fixed Assets.
"Shares can be issued at Par, Premium or Discount"
Issue of shares at Premium – Section 78 of Company Act.

e.g. If face value of share is Rs.100/- , Per issue price is Rs.110/-
therefore, premium collected is Rs.10/- per shareholders
Issued Price > face value
The premium collected is kept in special a/c. Is called as "Security Premium A/c." shown of
liability side of Balance Sheet" It is a kind of profit on issue but it is not a revenue profit. It is a
capital profit.
"Issue of shares at Discount" Section 79 of Company Act pemits
1. The class of shares – should already exist (class means equity/preference)

IP < FV.
2. New company cannot shares at discount not within the first year of incorporation.
3. It should authorised by passing a resolution in General meeting.
4. Maximum rate of discount must not exceed 10% or rate permitted by company law.
5. The shares to be issued at discount must be issued within 2 months of its sanction of
general meeting.
"Discount on issued of shares" - is a capital loss hence cannot be debited to P & L a/c.
Hence its is shown on the Asset said of the Balance Sheet. Under the hear of miscellaneous
expenditure" not written off.
Surrender of shares
Journal Entries
1. Issue of shares
a) Bank a/c ........Dr ****

To Share application ........Cr ****
(Being an application money received)
..86..
b) Share application ........Dr ****
To Share capital a/c. ........Cr ****
(Being the amount transfer to Share capital)
..84..
If excess application received i.e oversubscribed then refunded to member
a) Share application a/c ........Dr ****

To Bank a/c. ........Cr ****
(Being the amount of share application refunded to members)
If there is pro-rata allotment excess application money is adjusted in the following stages;
Bank a/c ........Dr ****

Share application ........Dr ****
To Share allotement a/c.......Cr ****
(Being an excess application amount is adjusted)
Allotment at PAR
Transfer an allotment money due receive
a) Share allotment a/c ........Dr ****

To Share Capital a/c. ........Cr ****
(Being the transfer an allotment money due )
b) Bank a/c. ........Dr ****

To Share allotment a/c........Cr ****
(Being an amount of money received at par)
Allotment at Premium
Transfer an allotment money receive on premium
a) Share allotment a/c ........Dr ****

To Security Premium ........Cr ****
(Being the transfer an allotment money at premium )
b) Bank a/c. ........Dr ****

To Share allotment a/c........Cr ****
(Being an amount of money received at premium)
Transfer an allotment money receive on call
a) Call a/c. ........Dr ****

(Being the transfer received on call )
..87..
b) Bank a/c. ........Dr ****
To calls a/c. ........Cr ****
(Being an amount of calls received)
c) Bank a/c. ........Dr ****

Calls in arrears a/c. ... ....Dr ****
To Call A/c. .......Cr ****
(Being an amount of calls in arears received)
Forfieture Shares
a) Equity Share Capital a/c ........Dr ****

To Calls in arrears a/c. ........Cr ****
To Share Calls a/c. ........Cr ****
To Share forfieture a/c. ........Cr ****
(being the re-issue of forfieture shares )
i) Bank a/c. ........Dr ****

Share forfieture a/c. ........Dr ****
(Being the amount is collected )
ii) Share forfieture a/c. ........Dr ****

To Capital Reserve ........Cr ****
(Being the balance amount transfer to CRR)
"Bonus issue"
1. Partly paid to fully paid

2. Making call
i) Share call a/c. ........Dr ****

To Share capital a/c. ........Cr ****
ii) Reserves Used a/c. . .......Dr ****

To Bonus to eq. Shareholders a/c.........Cr ****
..87..
iii) Bonus used for eq. Shareholders a/c. .......Dr ****
To Share Calls alc. .......Cr ****
Fresh Issue
i) Reserves a/c. . .......Dr ****

To Bonus to eq. Shareholders a/c.........Cr ****
ii) Bonus used for eq. Shareholders a/c. .......Dr ****

To Share Capital alc. .......Cr ****
..88..
CAPITAL & REVENUE EXPENDITURE
Classification
Expenditure & Receipts
Capital Revenue
Revenue Defferred Revenue
Final Account are prepared at the end of the year where Trading, Profit & Loss A/c. And Balance sheet
is prepared. The expenses & the income has to be calssified as Capital & Revenue before preparing
these statements. No rules are available to give clear distinction but there are few established ases for
this classification.
Rules A) Capital Expenditure:
1) It is that expenditure the benefit of which is not fully consumed in one year.
2) It results in purchase or acquisition of Asset or property.
3) It is expenses incurred to bring an old Asset back into working condition.
e.g. Any asset which increase the life and efficiency
4) Expenses for extending or improving life productivity or efficiency will be capital expenditure.
5) Non recurring
6) The amount spend will be normally large.
7) Capital Expenditure forms part of Balance Sheet.
B) Revenue Expenditure
1) It is that expenditure which benefit only the current accounting year i.e it is not carry forward to
the next year.
2) It is incurred in normal course of Business i.e. To run the Business maintain the level of
working & carry out day to day activities.
3) Expenditure related to the trading activities i.e. Purchase of goods for resale or to manufacture
the finished goods.
4) Recurring expenses
5) Amount spend is generally small.
..89..
C) Deffered Revenue Expenditure
1) It is that expenditure which is originally revenue nature but the amount spent will be large due
to which the benefit is rceive not only for one year but few more years to come.
Effects: Propotionate amount is charged or written off in - Profit & Loss a/c. ( for the year)
& Balance amount is carried forward to the subsequent years shown as - Assets side
in the balance Sheet.
1) Capital Receipt / Capital Profit
1) Non-recurring
2) Not earned during regular course of business.
3) Not relate to day to day trading activities
e.g. Sale of fixed asset – capital receipt shown in the respective a/c. Forming part of Balance
Sheet
e.g.- Profit on sale of Asset - capital profit / not recurring
Effect - P & L a/c. Credit side
2) Revenue Receipt – Related to normal course of Business.
e.g. Sales, Dividend, Interest, Rent, Commission, Receipt shown on credit side of P & L A/c.
Question :
1. Old machinery purchase for Rs.1,00,000/- and Rs.25,000/- spend to bring it working condition.
Ans : Both the expenses of - Capital expenditure nature.
2. Purchase of Building of Rs.10,00,000/- and Rs.1,00,000/- spent for brokarage, Registration and
legal charges etc.
Ans : Both the expenses of - Capital expenditure nature.
3. Repairs to Building
Ans : Deffered Revenue exp. ( effect of expenses if long life so it is distributed in several years & not
in one year ).
4. Amount spend to replace defective part of Old Plant.

Ans: Revenue exp. ( It is used for maintaining the same level)
5. Heavy Expenses on Advertisement A/c.

Ans: Deffered Revenue expenditure ( It is promotion on product & benefit will not get in one year but
expected several years)
6. Machinery Purchase- Rs.5,00,000/- & installation & delivery charges, Custom duty exp. -
Rs.35,000/-
Ans :Capital expenditure ( It is used for acquisition of Asset)
7. For existing Machinery, the new machinery are fixed for increase the production
Ans : Capital expenditure ( It is used for increase the efficiency)
..90..
8. Taxes paid
Ans: Revenue expenditure ( It is day to day recurring)
9. Exp for repaining the factory shed.

Ans: Revenue expenditure (day to day maintaince & recurring nature)
10 Travelling expenses of Directors for trip abroad for purchase of imported machinery.
Ans : Capital exp. ( If the machinery is purchase then amt will be added to cost of machinery – it si
captial exp. Otherwise if machinery isnot purchase then it is revenue exp.).
11. Cinema theatre builts up additional exits.

Ans: Revenue exp.(it is recurring)
12. Cost of Goodwill purchase

Ans: Capital exp. ( It is non recurring)
13. Petrol driven engine of a Bus replaced by diesel engine.

Ans: Capital exp. ( it is non-recurring)
14. Custom duty, Legal charges paid

Ans: Revenue exp. ( Recurring)
15. Purchase of Ureca Forbes, Coats for staff

Ans: Revenue exp. (Recurring)
16. Legal charges related to issue of shares

Ans: Deffered Revenue ( The benefit distributed in several years & it is non-recurring nature)
17. Cost of replacement of an old machinery by new machinery.

Ans: Capital Exp. ( It is non recurring
18. Expenditure incurred in preparing a project plan

Ans : Revenue exp ( it approved this project than it is capital exp because it will increase the efficiency
of production and if not approved then it is revenue exp.)
19. Trainning of employees for better running of machinery

Ans: Revenue exp ( It is day to day activity)
20. Replacing the existing screen with a by new Cinema Scope (big screen) -
Ans: Deffered Revene exp ( If it prove due to that more people come to see cinema and increase the
profit and the said profit will be further more year but if does happens so then it is capital exp. Since it
is heavy exp. And not recurring)
21. Stock of Rs.5,000/- destroyed by fire & Rs.3,500/- received from Insurance company
Ans: Revenue exp. ( The amt received from Insurance company is revenue receipt /profit i.e. Rs.3,500/-
and Loss by fire revenue loss)
..91..
22. Profit on sale of investment
Ans : Capital profit
23. Compensation received for loss of Goodwill

Ans : It is capital profit
24 Dividend on investment
Ans: Revenue receipt
25. Sale of old Machinery

Ans : Capital receipt or profit
26. Wages paid for extension of building

Ans : Capital expenditure.
How to calssify
1 Find out whether it is related with Asset, then find whether it is used for maintance of existing
level or increase efficiency/ production.
Revenue exp – If it is maintaining the existing level then it is revenue nature and
Capital Exp – If it is increase the performance/efficiency then it is capital nature.
2. Find out whether it is recurring or non-recurring

Revenue exp – If it is recurring then it is revenue nature and
Capital Exp – If it is non-recurring then it is capital nature.
3 Find out whether benefit/effect is for one year or more years

Revenue exp – If benefit/effect is one year then it is revenue nature and
Capital Exp – If benefit/effect is more years then it is capital nature.
..92..
NON TRADING ORGANISATIONS
Business : Activities done for obtaining profit is called Business.
Accounting Cycle- Transaction – Journal - Subsidiary/Ledger – Trial Balane (Recitification of errors)
Examples of Non-Trading Org. : Clubs, Hospitals, Schools, Colleges, Public Library, Trusts etc.
Non-Trading Organisation which are not engaged in trading activites & have objective is not profit
making. They prepare following accounts.
1. Receipt & Payment A/c.

2. Income & Expenditure A/c.
3. Balance Sheet.
The objectives to prepare income & expenses a/c.
1. Is not to find out profit but to ascertain whether the income is sufficient to bear the regular
expenses to continue the activity for given period of time which is usually are financial year.
2. All the income & expenditure for the current year forms a Income & Expenditure a/c. but any
Cash or fund received or paid during that period is recorded in 'Receipt & Payment A/c.'
Cash receives - Receipt side
Cash paid - Payment side
3. Expenses paid related to current year - Expenditure side

Income related to current year - Income side
4. Usually it is very rear to have Income just equal to Expenses.
5. Income & Expenditure A/c. Debit – Expenses

Income & Expenditure A/c. Credit - Incomes
6. Receipt & Payment A/c. Debit – Receipt

Receipt & Payment A/c. credit – Payment
There fore if Income & Expenditure a/c.s shows a credit balance it means Surplus called as "Exces a
Income over Expenditure & vis-a vis.
Distinguish between Receipt & Payment and Income & Expenditure
..93..
Receipt & Payment Income & Expenditure
1. The type of A/c. : 1. The type of A/c. :
"Real A/c." "Nominal A/c."
2. It records Receipt & Payment of both Capital 2. It records income & expenses only revenue
& Revenue nature nature
3. It is like a Cash Book 3. Trading, P & L a/c.
4 It records only cash transacitons 4. Non-cash tranactions recorded.
e.g. Depriciation, loss on sale of asset
5. Op. Balances is here that indicate cash in hand 5. There are no balances which are carry forward
on beganing of year & closing balance will tell but at the closing of the accounts the balancing
us cash in hand at the end of the year. amount will represent a surplus or deficit.
Surplus or deficit amount is adjusted in the

Balance Sheet at the Liability side under
"Capital Fund".
SN. Items Treatment

1 Subscription : It is recurring income which will appear as Income in Income
& Expenditure a/c.
2. Special Donation: It is non-recurring & will be recorded on Liability side of
Balance Sheet.
3. General Donation: It is recurring & will be recorded in Income & Expenditure a/c.
- income side
4. Life Membership fees/ It is recurring, capitalised amount will be added to Capital
Entrance fees Fund – i.e. Liability side of Balance Sheet.
5. Any gifts : Given by legal representative of deceased members, It is non-
recurring, its is appear on Liability side of Balance Sheet.
6. Special Fund: It is non-recurring, it is on Liability side of Balance Sheet.
7. Honorirum: It is recurring, it is recorded on expenditure side of Income &
Expenditure a/c.
8. Sale of Assets: Profit or loss will appear in Income & Expenditure a/c. & the
cost or Book value will be deducted from respective assets in
the Balance Sheet.
..94..
Calculation of Subscription:
Particulars Amount
Subscription received during the year xxxx
Less : Outstanding subscription for last year xxxx
Less : Subscription received in advance (next year) xxxx
Add : Outstanding subscription of current year xxxx
Add : Subscription received in advance in previous year xxxx
Income & Expenditure A/c. (subscription recorded under this head) xxxx
Ex- 1 Ascertain the income from subscription for year ended 1998.
Received of subscription during the year 1998 - 40,000

Outstanding subscription as on 31.12.1998 - 3,000
Outstanding subscription as on 31.12.1997 - 8,000
Subscription in advance as on 31.12.1997 - 4,000
Subscription in advance as on 31.12.1998 - 6,000
Solution
Subscription as on 31.12.1998 40,000

Add - Outstanding subscription as on 31.12.1998 3,000
Add - Subscription in advance as on 3112.1998 6,000 9,000
Less – Outstanding subscription as on 31.12.1997 8,000

Less - subscription received in advance 31.12.1997 4,000 12,000
37,000
=====
Ex- 2 Find out the amount of salaries to be debited to Income & Expenditure a/c. Of 1997 form the
details given below
Payment made for salarries during 1997 - 24,000

Outstanding salary as on 31.12.1996 - 1,000
Outstanding salary as on 31.12.1997 - 1,600
Prepaid salary as on 31.12.1996 - 600
Prepaid salary as on 31.12.1997 - 800
Solution :
Payment made for salarries during 1997 - 24,000

Add - Outstanding salary as on 31.12.1997 - 1,600
Add- Prepaid salary as on 31.12.1996 - 600
Less : Prepaid salary as on 31.12.1997 - 800
Less : Outstanding salary as on 31.12.1996 - 1,000
24,400
..95...
CONSIGNMENT / HIRE PURCHASE
There are two parties namely,
Consignor Consignee
- Seller - Buyer
– Principal - Agent
– Proforma Invoice - Account Sale
– Sent goods for sale to consignee - Get commission on sale goods
Proforma Invoice-
Invoice sent by consignor to the consigee stating full details of goods such as quantity, grade, value etc.
Transfer of the goods to consignee is not sale, the invoice is called proforma invoice.
Account sale -
The consigee is required to submit to consignor a statements showing details of goods sold, expenses
incurred, commission due to him and balance payable to consignor is settled. This statements is called
the Account Sale.
Loading –
Consignor sent the goods to consinee along with proforma invoice the higher price of the goods
because he want to keept consigee in dark about actual amount of profit earned. The excess amount
over the cost is called loading.
Normal Loss-
The loss which is unavoidable (such as leakage) it would be spread over the entire consgment while
valuing stock. The total cost plus expenses incurred should be diveded by quantity available after the
normal loss to ascertain the cost per unit.
Abnorma loss -
In any accidentail or unnecessary loss occurs then such loss is ascertained and transfered to profit &
Loss a/c.
Del Credere Commission -
Del credere commssion is an extra commission over and above normal commission paid to consignee
for selling goods on credit. But all losses due to bad debt, collection charges and discount must be
borne by consignee.
..96..
Journal Entries in the books of Consignor
3) Goods sent on consignee
consignment a/c. ..... Dr ****

To goods sent on consignment a/c. ****
(Being at cost price or invoice price)
4) Goods sent above invoice price(loading)
Goods sent to consigment a/c...... Dr ****

To consignment a/c. ****
(Being amount loading reverse otherwise actual stock is not tally)
5) If expses incurred by consignor
Consignment a/c. ...... Dr ****

To Cash/Bank a/c. ****
(being amount expenses incurred by consignor)
6) If consignor received advance amount from consignee
Cash/bank a/c. ...... Dr ****

To Consignee a/c. ****
7) If consignee will incurred expenses
Consingment a/c. .....Dr ****

To Consignee a/c ****
(being amount exp incrred by consignee)
8) for commission to consignee
Consingment a/c. .....Dr ****

To Consignee a/c ****
(being commisison for consignee)
9) If goods sold by consignee
Consignee a/c. .....Dr ****

Consignment a/c. ****
In case normal loss there is no entry passed by consignor
..97..
10) In case of Abnormal Loss
Profit & Loss a/c. ...... Dr ****

To Consignment a/c. ****
11) In case of profit
Consignment a/c ..... Dr ****

To Profit & Loss a/c. ****
12) If closing stock
Consignment stock a/c. ....Dr ****

To Consignment a/c. ****
13) for creating Rerserve if above the cost
Consignment stock a/c. ....Dr ****

To Stock Reserve a/c. ****
14) goods int transit
goods int transit a/c .... Dr ****

To consignment a/c. ****
While passing the Journal entries in the books of Consignee write all the above journal entries
reverse direction.
..98..
Problem-1) 'J' of Culcutta consigned 50 cases of cotton costing Rs.2000 each to z of Bombay. J paid
follwoing expenses.Carrigae Rs.2500, Freight 19000, loading charges Rs.3500.Z solf the 30 cases @
Rs.3500 each and incurred following expeses lading charges 3000, warehousing & storage charges
5000 and packing & selling charges Rs.4000. It is found that two cases have been lost in transit and 3
cases still in transit. Z is entitled to commission of 10% on gross sales draw necessary legder account in
the Books of J.
In the books of Mr.J of Culcutta (Cosignor)

Consignment a/c.
Dr Cr
Particular amt Particular amt
To goods sent on 100000 By sale (goods) 105000
To Cash/Bank a/c. (exp) 25000 By Loss 5000
To Z's a.c (Exp) 12000 By goods in transit 7500
To Consignee (comm) 10500
By Profit 8500 By Consigment stock 38500
156000 156000
Mr. Z's a/c. (Consignee)

Dr Cr
To Consigment 105000 By Consignment 12000
By Consignment (Comm) 10500
By Bal. (tr to consignor) 82500
105000 105000
Goods sent on consignment a/c.

Dr Cr
To trading 100000 By consignment (goods) 100000
100000 100000
..99..
Working:
1) goods senf 50 x 2000 = Rs.1,00,000
2) Expenses paid by consignor

carriage 2500 (non-recurring charges)
Freight 3500 (non-recurring charges)
loading 19000 (non-recurring charges)
25000
3) Expenses paid by consignee

packing 4000 (recurring charges)
warehousing 5000 (recurring charges)
loading 3000 (non-recurring charges)
12000
4) sale of goods
30 cases x 3500 = 105000
5) Abnormal loss
2 x 2000 = 4000 25000 x 2 = 1000 (propotionnate amt)
Add 1000 50
5000
6) goods in transit (find out the value)
3 x 2000 = 6000 25000 x 2 = 1500 (propotionnate amt)
1500 50
7500
7) Closing Stock
Total cases 50
– lost (transit) 5
45
– 30 cases 30
Balance cases 15 cases
15 x 2000 = 30000 25000 X 15 = 7500

– 7500 45
– 37500
Loading charges for 45 cases
3000 x 15 = 1000
45
Closing stok value = 30000

loading 7500
loading 1000
----------
38500
..100..
JOINT VENTURE
Joint Venture –
Two or more persons come together for specific purpose (business) & as soon as purpose is over the
relations comes to end. It means it is in temporary nature of partnership.
Features of Joint venture :
1. It is an agreement between to or more persons.

2. Thre agreement is made to carry out on a specific job.
3. The agreement goes over as soon as the venture is completed.
4. It is a temporary partnership without any firm name.
Distinction between Joint Ventrue and Partnership
Joint Venture Partnership

Period Temporary Permanant
Member Co-ventures Partners
Name of Firm No specifi name Firm name has to be define
Registration Not required Must required
Dessolution Automatically desolved Dessolution deed has to be prepared
Book of Accounts May / may not have separate books of a/c. Separate books of a/c. maintained
Act No separate act Partnership Act
Whether Member Permitted side by side business Not permitted another business
can do side by
side business
Distinction between Joint Ventrue and consignment
Joint Venture Consigment

Partie Co-ventrue Consignor & Consignee
Profit Share the profit Consignee gets commission
Capital Contribue some capital Consignee does contribute Capital
There are three methods of maintaining joint venture accopunt
1) Separate books of Accounts

2) Each Co-venture mataining accounts
3) Memorandum joint account
..101..
1. Separate books of Accounts – Under this method open three accounts viz.
a) Joint Bank account (Personal a/c.)

b) Joint Venture account (Nominal A/c.)
c) Co-ventre account (Personal a/c.)
2. Each Co-venture mataining accounts Under this method open two accounts viz.
a) Joint Venture A/c.

b) Co-venture a/c.
3. Memorandum joint account Under this method single account is open
a) Each Co-venture prepare in his books the account of J/V with ....... (another co-venture a/c.)
Features of Memrandum Joint Accounts
a) It is rough account
b) No double entry system followed
c) To determine the profit or loss account they prepare J/V with ....... (another co-venture a/c.)
wherein his own transactions are recorded here & not other co-ventures tranactions.
I) Journal entries in Separate books of Accounts
1. Cash brought into joint venture
Joint Bank A/c. ....Dr ****

To A's a/c. ****
To B's a/c. ****
2. Goods or other Assets brought into joint venture
Joint Venture a/c. ....Dr ****

To Co-ventures a/c. ****
3. Cash purchase

To Joint Bank a/c. ****
4. Payment of expenses joint venture

..102..
5. Payment of expenses by Co- venture

To Co-venturer's a/c. ****
6. Receipt on sale of goods
Joint Bank A/c. ....Dr ****

To Joint ventures a/c. ****
7. For commission on intrest due to vo-venturers

8 Stock taken over by Co-venturer

.
Co-venture a/c. ....Dr ****
To Joint venturer's a/c. ****
9. Profit approved

10. Refund of capital

II) J/E under "Each Co-venture mataining accounts"
1. For supply of goods

To Sale's a/c. (profit) ****
To Purchase's a/c (cost) ****
(depending upon the goods given on profit or cost)
2. For purchase of goods for Joint venture

3. For goods supplied by co-venture

..103..
4. Expenses incurred for joint venture

To Cash / bank a/c. ****
5. Expenses incurred by co-venture

6. goods sold by himself
Cash/Bank a/c. ....Dr ****

7. goods sold on credit
Customer's a/c. ....Dr ****

To joint venture a/c. ****
8. For sale of goods by co-venture
Co-venturer's a/c. ....Dr ****

To Joint venturer's a/c. ****
9. Commission, interest earned by himself

To Commission a/c. ****
To interest a/c. ****
10. Commission or interest payable by co-venture

To Co-venture a/c. ****
11. Stock taken over buy himself
Purchase a/c. ....Dr ****

To Joint Venture a/c. ****
12. stock taken over by co-venture

..104..
13. Profit on joint venture
To Profit & loss a/c. ****
To Co-venture a/c. ****
14. Amount received from co-venture
Cash/Bank a/c. ....Dr ****

III) Memorandum of Joint Venture - No entry for others is passed
1. For goods supplied
Joint Venture with XYZ a/c. ....Dr ****

To Purchase a/c. ****
To Sale a/c. ****
To cash a/c. ****
2. For expenses

3. For goods sold

4. For commission, interest received

To Commission a/c. ****
To interest a/c. ****
5. For goods taken over
Purchase a/c. ....Dr ****

6. For share of profit

To Profit & Loss a/c. ****
..105..
HIRE PURCHASE
Distinction between Joint Ventrue and Partnership
Type Hire Purchase Instalment Sale

ownership Ownership does not pass immediately Ownership passed immediately on
down payment
Repossing The seller can re-possess the goods The seller cannot re-possess the goods
Written off goods The buyer can return the goods to seller & The buyer cannot terminate the
terminate the agreement agreement by returning the goods
Dispose off The buyer cannot dis-pose off the goods The buyer has right to dis-pose off the
goods
Loss In higher purchase if buyer take reasonable The loss of goods has to suffer to
care loss of goods is of seller. buyer
Terms :
1) Cash price – The price at which goods are sold on immediate payment (Cost + profit)
2) Higher purchase – The Payment made in instalment = Cash price + interest
3) Down Payment - Payment made immediately on signing of the agreement.
(Cash price and interest price has to be bifercate)
there are three methods :
1) Simple interest method – When both values given ( i.e cash price & int rate.)
2) Backward calculation method - If cash price is not given
3) Propotinate method – rate of interest not given
Problem– 1) X & co purchases goods namely truck from Y & co.on 1st January 2000 where cash price
is Rs.74,500/- & Ea.20,000/- paid on signing of the agreement, remaining amount paid
in 3 equal instalement of Rs.20,000/- each & rate of interest is 15%.
Cash Price = 74,500

Hire Purcashe price = Rs.20000 + ( 3 x 20000 ) = 80,000
Rate of interest = 5%
Interest amount = 80000 – 74500 = 5500
..106..
Method I) : Simple interest method
Cash Price = 74,500

(-) down payment = 20,000
54,500
( +) 1st year int. 5% 2,725
57,225
(-) Ist instalment 20,000
37,225
(+) 2nd year int. 1,861
39,086
(-) 2nd instalment 20,000
19,086
(+) 3d int. @ 5% 914
20,000
(-) 3rd int. 20,000
Nil
II Method - Backward calculation method - This is used when cash price is not known
Instalement Amt. due Instalment paid Total due interest Principal due at
beganning
3 - 20,000 20,000 952 19048
2 19,048 20,000 39048 1859 37189
1 37,189 20,000 57189 2723 54,466
(+) down payment 20,000
Cash Price 74,466
Calcualtion
1) 20,000 X 5 = 952/- 20,000 ---------105
105 ? --------- 5
2) 39048 X 5 = 1859/-
105
3) 57,189 X 5 = 2723/-
105
III – Method - Propotionate method – When we do'not know interest rate the follow this method.
1st year - 60,000 3 5,000 X 3 = 2750/-

6
2nd year - 40,000 2 5,000 X 2 = 1833/-
6
3rd year - 20,000 1 5,000 X 1 = 917/-
6 --------
5,500/-
Ratio is 3 : 2:1
..107..
Banking Company final Accounts
Form A - 12 Schedules in Balance Sheet
5 Schedules for Liabilities
6 Schedules for Assets
1 Schedules for Note - Contigency libilities
.
Form B - 4 Schedules in Profit & Loss Account
2 Schedules for Income
2 Schedules for Expenditure
Form A – Balance (on particular date)
Capital & Liabilities Schedule No. Amount

Capital 1 xxxx
Reserve & Surplus 2 xxxx
Deposit 3 xxxx
Borrowings 4 xxxx
Other Libilities & Provisions 5 xxxx
Assets Schedule No. Amount

Cash & Balance with RBI 6 xxxx
Balance with other Bank/Money call/short notice 7 xxxx
Investments 8 xxxx
Advances 9 xxxx
Fixed Assets 10 xxxx
Other Assets 11
Note Schedule No. Amount

Contigent liab., Bills for collection,Acceptance & 12 xxxx
edorsement, Other obligations
Banks are maintaining various books such as;
Cash Book
Ledger Book
Register
..108..
What items comes under each head of Balance sheet:
Liabilities side
1. Capital
Share capital of (National bank - all Share capital of Central Govt., Foreign Bank – Has to
keep the deposit as well as Capital with RBI, Private Bank
Authorised / Issued & subscribed / Paid up share capital.
Authorised share capital shown in the B/s. Is only information ( Upto what limit
company can take capital i.e. Limit of the company)
Issued & subscribed capital -

Paid up capital
2. Rserves & Surplus
– Statutory Reserves – Certain Profit has to be transfer/keep for next year (i.e. 20% )
– Capital Reserves
– Security premium
– Other reserves (which kept for specific purpose)
– Profit & Loss - (surplus amt)
3. Deposits
– Demand deposit
– Savings Deposit
– Term Deposits – If branch is abroad the should be shown separetely
4. Borrowings
– Give the details what are borrwoing in India and what are borrowings from foreign
– RBI
– Other Banks
– Financial Institututions
5. Other Liabilities & Provisions
Liabilities
– Bills payable - P.O., D.D. , T.T., remittances of funds undiscounted bills has to be
pending at time of year endingStatutory Reserves
– Inter Office adjusement (Br to C.O.)
– Interest Accured
..109..
– Provisions
– Provisons for income tax
– Provisons for proposed dividend
– Provisons for unclaimed dividend
– Provisons for bad debts
– Provisons for rebate of undiscounted bills etc.
Assets side
6. Cash & Bank balance with RBI
7. Balance with other Banks

– Balance with call money & short notices
8. Investments
– debentures (dividend always calculated on face value)
– Govt. Securities
– Subsidiry Joint venturer
– Investment in gold / Commercial paper
– (Alwasys taken as cost amount and not market value is shown in B./S only as information)
9. Advances
– Bill discount
– Cash Credit / Overdraft loan
– Term loan
– have to give details on secured & unsecured separetely
– also have to give details of loans in India & abroad separetely
10. Fixed Assets

– Fixed assets of premises
11. Other Assets

– Interest accured
– Advance tax paid (T.D.S. - Income)
– Stationery
– Stamps
– Non Banking assets
– Advances to the staff/employees
12. Contingent Liabilities
– Claim against bank not aknowledged as debts - court case pending

– Liability for partly paid investments ( Call money)
– Liability for outstanding forward exchange contracts
– Acceptance/endorsement & other obligations
– Arrears of cumulative dividends & bills re-discounted under underwriting contract.
..110..
T.D.S payable always with expenditure & comes in under B/S. Liabilities
T.D.S receivable always with income & comes under Balance sheet Assets side.
Profit & Loss A/c.
1. Income
– Interest earned
– Other income (comm, exchange, loker rent etc.)
2. Expenditure
– Interest expenditure
– Other exepnses
– Provision & contigencies (NPA provision)
3. Net Profit & Loss for the year

– Add: balance b/f last year
4. Appropriation
– Transfer to statutory Reserves
– Transfer to other reserves
– Proposed dividend
I) Classification of Assets & Advances
– Standard Advances ( below 90 days non performing)

– Sub – Standard advances ( above 90 days & below 18 months non perfoming a/c. )
– Doubtful advances (above 18 months to 3 years )
– Loss ( if no security / not recover or dispute in ocurt then it is treated as loss)
II) Provisions of Advances
There are two type of Advances Secured advances & Unsecured advances
On unsecured advances we have to do the 100% provisions
& on Secured loans
10 % - upto 1 years
20% - 1st year to 3 yreas
30% - above 3 years.
III) Income recognisation
Standard Advances - Interest accrual

Sub-Standard advances – Cash system
INDEX
Sr. No. Particular Page No.
1. Simple/Compound Interest calcualation 1

2. Annuity 5
3. EMI/Loan sanction/pension calcualation 10
4. Bond calcualation 21
5. Current Yield 26
6. Yield to Maturity 29
7. Capital Budgeting 32
8. Basic Accountancy 37
9. Depreciation 44
10. Inventory valulation 47
11. Bills of Exchange 49
12. Subsidiary Books 57
13. Bank Reconcilation 61
14. Petty cash 65
15. Partnership Account 66
16. Retirement of partner 76
17. Dealth of Partner/Dissolution of firm 80
18. Company Account (Share) 82
19. Capital & Revenue Expenditure 88
20. Non Trading Organisation 92
21. Consignment 95
22. Joint Venture 100
23. Hire Purchase 105
24. Banking company final accounts 107

Afb Formula + Qs Short

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Afb Formula + Qs Short

Hochgeladen von

Copyright:

Verfügbare Formate

INDEX

Sr. No. Particular Page No.

1. Simple/Compound Interest calcualation 1

P = Product Product is nothing but amount consider for interest calculation.

S.I. = P x R x T = 10,000 x 12 x 6 = 7,200/-

C.I. = P ( 1 + R. I. ) n = 10,000 ( 1 + 10 )2 = 12,100/-

iii) Frequency of = P ( 1 + R .I . )nxm

= P ( 1 + R.I.. )nxm = 10,000 ( 1 + 10 )2x4

a) = P ( 1 + R.I.. )nxm = 11,000 ( 1 + 6 )4 x 2

b) = P ( 1 + R.I.. )nxm = 11,000 ( 1 + 6 )4 x 4

= n (n + 1) = 12 (12 + 1 ) = 12 x 13 = 93600 x 7 = 546/=

= n (n + 1) = 18 (18 + 1 ) = 18 x 19 = 256500 x 9 = 1923.75

iv) Monthly Discounted = P x R.I.

Monthly Discounted = P x R.I. = 10000 x 12 = 1,20,000 = 99/-

Period for double the principal = 72

Period for double the principal = 72

Period for double the principal = 72

Period for double the principal = 100

Period for double the principal = .35 + 69

Period = .35 + 69 = .35 + 69 = 17.6 years

Rate of interest = 1054 x 100 = 12%

Effective Rate of Interest = [ (1 + RI )nxm -1]

There are two basic types of Annuites

e.g. R.I. = 6% i.e. 6 = 0.06

C = Cash Flow N = No. of years

Example of Ordinary Annuity

1st year 2001 1000 x 4 year (1.06)4 = 1262.47

1st year 2000 1000 x 5 year

PV (Annuity Due) = PV (O/A) x ( 1 + i )

PV (Annuity Due) = PV (O/A) x ( 1 + i )

5) Rs.1,500/- is Cash flow Rate of interest = 7%, Period = 4 years

b) FV (A/D) = 6660 x (1.07)

d) PV (A/D) = PV (O/D) x (1+i)

1) B=Bracket, 2) Off = % , 3) D = Division, 4) M=Multification, 5) A= Addition, 6)S=Subtraction

Loan sanction = 20,00,000

Loan sanction = 12,00,000

C = 2000000 therefore C = 2,19,106/= (EMI)

Initial disbursed amt + discounted amt = Total loan amt.

8,00,000 + 3,05,158 = 11,05,158/-

1. Discounted amt. = 6,00,000 = 4,95,868/-

1. Discounted amt. = 4,00,000 = 2,73,205/-

20,00,000 + 4,95,868 + 2,73,205 = 27,69,073/-

Total disbursement = Initial amt + Discounted amt

As per terms of disbursement - 30% of Rs.2000000 is Rs.600000 inti

Total disbursement = Initial amt + Discounted amt

paying today = Rs.3,50,000/-

Answer : If go for loan Rs.3,24,459 is bette option than Rs.3,50,000/-

Since required monthly pension = 3 years x 12 = 36

1) Ontop Option – It means first come first basis

2) Auction option – Bid / Auction basis

 Major factor for decided bond price is Market Interest Rate.

Purchase of Bond = PV cash flow + PV of face value

1.4.2002 8 x 1 year 1 = 7.40

1.4.2003 8 x 1 year 1 = 6.85

1.4.2004 8 x 1 year 1 = 6.35

1.4.2005 8 x 1 year 1 = 5.86

1.4.2006 8 x 1 year 1 = 5.44

another method calculate the purchase price

Therefore answer is option d) Below 100.

Purchase price of Band = c x [ 1 – (1+i) -n + FV

= 477.68 ( loss is Rs.17.32 i.e 495- 477.68 = 17.32)

Purchase price of Band = c x [ 1 – (1+i) -n + FV

Canara Bank suffer loss of Rs.1.56