.

Accounting & Finance for Bankers

Final A/cs. Of Banks & Cos.
JAIIB-MODULE-D
PRESENTATION BY
Ravi Ullal

24-o4-2008
1

Topics
Partnership

accounts
Final accounts of banking
companies
Company accounts
Balance sheet equation
Accounting in a Computerized
environment
2

PARTNERSHIP ACCOUNTS
Introduction
Definition
Partnership

deed

In the absence of partnership

deed/if deed is silent
Profit

sharing ratio Equal

No interest on capital
No interest on drawings
interest@6% on loan given by partner
No salary /no commission/ no
remuneration
Capital accounts under fluctuating
capital method
4

Methods of capital accounts

Fixed
Capital

account-transactions relating
to capital
Current account
Other

transactions such as Interest,

profit, goodwill, past profits/losses &
adjustments

Fluctuating
One

account- all transactions

5

GOODWILL
Its

reputation, super profit earning

capacity of a firm
Necessity
change in profit sharing ratio
Admission, retirement, death
Sale of business
Methods:
Average

profit
Super profit
capitalization of profit

Methods of goodwill
Average profit
(AP)
AP x Multiplier

Super profit
(SP)
SP x multiplier
SP = AP less
NP

Capitalization
of profit
(Capitalised
value) less
Actual Capital

NP=normal profit

Multiplier is
given

Multiplier is
given
7

GOODWILL IMPORTANT ENTRIES

ADMISSION

When

goodwill is raised and

written of
Debit goodwill and credit old
partners capital a/c (old ratio)
Debit All partners capital a/c &
credit goodwill (new ratio)
8

GOODWILL IMPORTANT ENTRIES

RETIREMENT

When goodwill is raised and written

of
Debit goodwill and credit old
partners capital a/c (old ratio)
Debit Continuing partners capital
a/c & credit goodwill (new ratio)
9

ADMISSION
revaluation

of assets/

liabilities,
goodwill,
capital adjustments,
balance of reserves,
past losses (if any)

10

RETIREMENT
As

per Act of 1932, retirement

by consent, partnership deed
provision, at will by giving
proper notice
Revaluation of assets/ liabilities,
goodwill, capital adjustments,
balance of reserves, past losses
11

examples
Let

us say A and B are partners sharing

profits equally. They take C as partner with
equal share. The position will be as under:

Partners Old Ratio New Ratio

Loss(Sacrifice)/

Gain

A
1/2 1/3 1/6

B
1/2 1/3 1/6

C
Nil 1/3 +1/3
Sacrificing Ratio = Old ratio()New ratio.
12

examples

Entries to be passed for Goodwill:

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

13

examples

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

To Goodwill a/c
(In new profit sharing ratio)
14

examples

Let us suppose A, B, and C are partners sharing profits and

losses in the ratio of 5 : 3 : 2. A retires and B and C agree to
continue at the ratio of 3: 2. In this case, the position will be as
follows:
Old Ratio
New Ratio
Net Gain/Loss
A
5/10
Nil

B
3/10
3/5
+ 3/10 (3/53/10)
C
2/10
2/5
+ 2/10 (2/52/10)
Gain ratio will be 3 : 2.
(b)
Let us now suppose B and C change their ratio to
5 : 3; then the position will be as follows:
Old Ratio
New Ratio
Net Gain/Loss
A
5/10
() 5/10 i.e 1/2
B
3/10 5/8
+ 13/40 (5/83/10)
C
2/10 3/8
+ 7/40 (3/82/10)
Gain ratio will be 13/40 : 7/40 i.e. 13 : 7.
15

examples

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

16

examples

A and B share profits in the ratio of 70% and 30%

respectively as on 31st December 2003. C was
admitted as a partner with efect from January 1,
2004 and he brought into business Sundry Debtors
Rs 5,000 (subject to 10% provision for bad debts),
Creditors Rs 1,600 and Goodwill Rs 4,000. He
agreed to maintain his capital at Rs 20,000 for 1/5th
share in the profits of the firm.
Creditors Rs 1,600 and Goodwill Rs 4,000
Stock increased by Rs 5200, Building(Rs.26000/-)
and Truck(Rs. 17000) were increased by 10%, and
other assets(Rs.7000) were decreased by Rs 800. A
Reserve for doubtful debt was created at 5% on
Debtors(Rs.14000/-). It was agreed to adjust the
Partners Capital in Profit sharing ratio(45:19).
17

examples

Jan. 2004 Sundry debtors a/c

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

18

examples

Jan 2004

Stock a/c
Dr.
5,200
Truck a/cDr.
1,700
Building a/c
Dr.
2,600
To Revaluation a/c
9,500
(Being increase in value of
assets recorded)
Revaluation a/c Dr.
1,500
To Others Assets a/c
800
To Provision for Doubtful Debts a/c
(Being decrease in other assets
and provision for doubtful debts recorded)

700

Revaluation a/c Dr.

8,000
(9,500 1,500)
To As Capital a/c
5,600
To Bs Capital a/c
2,400
(Being profit on revaluation
distributed in old profit sharing ratio)

19

examples

General Reserve a/c

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

20

examples

Fill in the blanks:

(a)
_________ is the value of an established business
over and above the value represented by its tangible
assets. It is also the value attached to the super profit
earning capacity of business arising from its wide
connections, reputation and long standing in the business.
(b)
_________ of a partner means joining of a new
person into an existing partnership as a partner.
(c)
_________ of a partner means that a partner
breaks of his relations with all other partners and
withdraws himself from the firm.
(d)
Under the_________ capital method, all the
transactions are recorded in the capital account only.
(e)
Under the_________ capital method, two
accounts are maintained for each partner, viz., Current
Account and Capital Account.
21

examples

State whether the following statements are True or False:

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

22

examples

11) Prepare the Profit and Loss account of Modern Bank Ltd. for the year ended 31st
March, 2003, from the following:

Rs
Interest on Fixed Deposits
1,62,410
Rebate on Bills discounted
29,000
Interest on Loans
45,000
Commission Charged to Customers
62,500
Establishment
15,000
Discount on Bills Discounted
89,000
Interest on Cash Credit
24,000
Amount Charged against Current Accounts
71,500
Directors Fees
10,000
Audit Fees
20,000
Postage and Telegram
2,000
Printing and Stationery
4,000
Rent and Taxes
22,500
Interest on Overdrafts
71,000
Sundry Charges
1,500
Interest on Savings Bank Deposits
57,780

23

examples

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

Total
2,95,190
III.
Profit
Net Profit for the year
38,810
24

examples

Schedules to be annexed with Profit and Loss Account

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

25

examples
Schedule

14: Other Income

Commission charged to customer
Schedule

62,500

15: Interest Expended

Interest paid on
Fixed Deposits 1,62,410
Savings Bank Deposits
57,780

2,20,190

26

examples
Schedule

16: Operating Expenses

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

75,000
27

Joint life policy

Premium
treated as
expenses

Premium
treated as
asset

Premium
treated as
reserves

At the end of
each year,
premium w/o to
P & L A/c

Each year
diference
between
surrender value
and Book value
is w/o to P & L
A/c

diference
between SV
and BV is w/o
to Jt. Policy
Reserve A/c

receipt of policy
amt.
Amount received
is credited to

receipt of policy
amt.

receipt of policy
amt.

If amount is > Policy

28
SV, the excess amount

Types of partners
Active
Sleeping
Quasi
nominal

29

FINAL ACCOUNTS OF BANKING

COMPANIES
Definition
Requirements

Accounts & audit

Third

Schedule annexed to BRA

Form A- Balance sheet
Form B- Profit & Loss Account
Audit
Submission of accounts- RBI- within 3
months
Publication of accounts- within 6 months
Auditor-prior approval of RBI for
appt/removal
30

Balance sheet-Form A
Capital & Liabilities
1.Capital

Assets
6.Cash & Bank Bal.
RBI
2. Reserves & surplus 7.Balances with Banks
& Money at call and
SN
3.Deposits
8.Investments
4.Borrowings
9Advances
5 Other Liabilities &
10.Fixed Assets
Provisions

11.Other Assets
31

Demand deposits
Credit

balances in OD and CC
Deposits payable at call
Overdue deposits
In-operative current accounts
Matured time deposits
Matured cash certificates
Matured certificate of deposits
32

Contingent liabilities
Schedule-12
Claims

against bank not acknowledged

as debts
Liability for partly paid shares
Liability on account of outstanding
forward exchange contracts
Acceptances ,endorsement & other
obligations
Other
items for which bank is
contingently liable.
33

PROFIT & LOSS ACCOUNT-FORM B

Income
Interest Earned
Other Income
Expenditure
Interest Expended
Operating Expenses
Provision for contingencies

Schedule.13
Schedule.14
Schedule.15
Schedule.16

Profit /Loss

Appropriations
Transfer to Reserves
Proposed dividend
Balance carried to Balance
sheet

34

NOTES TO ACCOUNTS
Significant
Schedule.17
Accounting
Policies
Notes forming Schedule.18
part of
Accounts
35

Other Income
Profit

on exchange transactions
Profit on sale of investments
Profit on revaluation of investments
Profit on sale of fixed assets
Letting of locker (income from locker
charges )
Misc. income -Godown rent
36

Ponder over these points

Govt.

securities shown at book value and

dif. between MV and BV is given in the
notes
If
some fixed assets are w/o on
revaluation of assets/reduction of capital
every B/S after wards should. show the
revised figure for next 5 yrs. With the
date & amt. revised
Other fixed assets includes vehicles,
furniture and fixtures. Lockers and safe
deposit vaults are included in furniture
37

Ponder over these points

20%

to reserve fund before declaring

dividend
Gold is treated as investment
Silver is treated as other assets
Income from performing assets is
recognized on accrual basis while in
r/o non-performing assets it is on cash
basis
In r/o NPA, if income is already
recognized, then make provision
38

ASSET CLASSIFICATION ETC

Asset

Classification

Performing

and
non performing ( remain out of order)

Income

Recognition

Performing-accrual

basis
Non performing-cash basis

Asset

Classification
Std-0.40%

(revised from 0.25%)

Sub-Std.<18 months-10%
Doubtful>18 months-usl-100%-secured.3yrs50%,>1&<3-30%-upto 1year-20%
Loss assets-100%

39

SLR & NON SLR DEPOSITS

Held to
maturity

Available for
sale

Held for
trading

Freedom
Investment
available
should not
exceed 25% of
total
investment

Freedom
available

-no marked to
market. Profit on
sale treated as
cap. Reserve

Marked to
market

-Marked to
market
-profit on sale of
investment.
taken to P&L a/c

To be
40 sold

COMPANY ACCOUNTS

Features of a Joint Stock Company

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

41

COMPANY ACCOUNTS

6.
Separation of management from ownership:
Even though the shareholders are true owners, they do not
participate in the management of the company. They elect their
representatives known as Board of Directors.
7.
Transferability of shares:
The shares of a company are freely transferable subject to
restrictions placed on transfer of private limited companys shares.
8.
Separate legal status:
A company has an independent legal status and as such, the
shareholders or the owners are not liable for the acts of the
company.
9.
Large membership:
A company is owned by a large number of members. In the case
of private limited company the minimum number of members is 2
and the maximum is 50. In the case of public limited company, the
minimum number of members is 7 and there is no maximum limit
on the number of members.
42

Types of companies
On the basis
of
incorporation
Chartered
company
Statutory
company
Registered
company

On the basis
of ownership

On the basis
of liability

Private
company
Public
company
Government
company

Co.limited by
shares
Co. Ltd. by
guarantee
Co. with
unlimited
liability

Foreign
company

Holding
company

43

SHARE CAPITAL
EQUITY
PREFERENCE
CUMULATIVE
REDEEMABLE
PARTICIPATING

44

SHARE CAPITAL
AUTHORISED

CAPITAL
ISSUED CAPITAL
SUBSCRIBED CAPITAL
CALLED CAPITAL
PAID UP CAPITAL

45

ISSUE OF SHARE AT PAR

-BANK

credited

CAPITAL

Debited
Debited
-

Over subscription
-share application
-share capital
-bank (refund)
-share allotment

Debited
-

Credited
Credited
Credited

- SHARE APPLICATION
-SHARE

APPLICATION

-SHARE

Credited

46

SHARE ALLOTMENT/SHARE CALL

Share allotment
a/c
Share capital a/c

Debited
-

Credited

Bank a/c

Debited
-

Credited

Debited
-

Credited

Debited
-

Credited

Debited
-

Credited

47
Credited

Share allotment a/c

Share call a/c
Share capital a/c
Bank a/c
Share call a/c
Calls in arrears a/c
Share allotment a/c
Share call a/c

Issue of shares at premium

Share application/
allotment a/c
Share capital A/c
Share premium A/c

Debited

Credited
Credited

48

Issue of shares at discount

Share allotment
A/c
Discount on issue
of shares A/c
Share capital A/c

Debited
Debited

Credited

49

Forfeiture of shares
Share capital A/c
Call in arrears A/c
Forfeited shares
A/c

Debited
-

Credited
Credited

50

Re-issue of shares
Bank A/c
Forfeited shares
A/c
Share capital A/c
Capital reserve A/c

Debited
Debited
-

Credited
Credited

51

Issue of Bonus shares

Cap. Red. Reserve A/c
Share premium A/c
Capital reserve A/c
Gen Reserve A/c
Profit & Loss A/c
Bonus to shareholders
A/c

Debited
Debited
Debited
Debited
Debited
-

credited

Bonus to shareholders
A/c
Equity share capital A/c

Debited

credited
52

Balance sheet equation

LIABILITIES
Capital
300.00
Reserves

200.00

Term
Loans
Current
Liabilities
Total

300.00

ASSETS
Fixed
assets
Current
assets

700.00
300.00

300.00
1000.00

Total

1000.00

53

Balance Sheet Equation

Assets

Liabilities

Assets

Liabilities
(+)
Assets (-)

Capital

Assets (-)

Liabilitie
s

Liabilitie =
s
Capital

Capital

54

BALANCE SHEET EQUATION

Assets = Liabilities
Assets = Capital + Liabilities
Assets =Net worth + Liabilities
Net worth = Capital + Reserves&
Surplus
Net worth = Assets Less Liabilities
55

1. The Assets of a business are

Rs.500000 and its capital is

Rs.115000. Its liabilities on that
date would be------

a)
b)
c)
d)

Rs.615000
rs.385000
Rs.500000
Rs. 115000
56

B/s Equation Examples

(1) If the net worth of the business is Rs.1100,fixed assets are
Rs. 600, current assets Rs.400, investments Rs.300, current
liabilities Rs. Nil, what is the amount of claim to outsiders?

Rs. 1300l

Rs. 500

rs.200

Rs. Nil
(2) Identify the wrong pair
Outstanding expenses - Personal Account account*
Profit and Loss Account (Dr. balance) Application of
funds
net worth less reserves & surplus - Balance in P & L
Account
Balance sheet - Financial position
57

Computerized accounting
Computer

language: cobol,
foxpro,unix etc
Analog computers : scientific and
mech. Field
Digital computers: computerized
accounting
Data : fact
Record : group of data
Data file: data records
58

EXAMPLES
1.

Select from the following , a

statement which speaks about
liabilities of an entity.

The liabilities consist of claims of

the owners
The liabilities consist of claims of
the owners and outsiders
The liabilities consist of claims of
the outsiders
None of the above
59

EXAMPLES

) Sudhir had the following transactions. Use balance

sheet equations to show their efect on his assets,
liabilities and capital.
(a)
Invested Rs 1,50,000 in cash.
(b)
Purchased securities for cash Rs 10,000
(c)
Purchased a building for Rs 2,00,000,
giving Rs 50,000 in cash and balance by way of a
loan from Canara Bank.
(d)
Sold securities costing Rs 2,000 for Rs
3,000.
(e)
Paid Salaries of Rs 2,000
(f)
Paid interest of Rs 10,000 and paid Rs
10,000 towards Canara Bank Loan
(g)
Received dividend of Rs 1,000 on securities
60

EXAMPLES

Point out whether the following statements are True or

False.
(a)
The balance sheet represents an expansion of
the equations as:
Assets = Liabilities + Capital.
(b)
Assets Original Capital = Liabilities.
(c)
Rehman has assets of Rs 10,000 and
liabilities of Rs 5,000. His capital therefore
would be Rs 15000.
(d)
Assets will be equal to Capital if there are no
liabilities of the business.
(e)
If a firm borrows a sum of money, its capital
would be
reduced.
61

EXAMPLES

2.

If the net worth of the business is

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

62

EXAMPLES

3.

Select from the following a sentence

which is wrong
a.
b.
c.

d.

If assets increase and liabilities do not , the

capital will increase
If assets increase and liabilities also increase
by same sum , the capital will remain same
A reduction in the amount of assets will
amount to equivalent reduction in the net
worth
An increase in the amount of assets with no
corresponding increase in liabilities will
increase the amount of capital
63

EXAMPLES

4.

The firm sells goods on credit for

Rs.50000, the cost of the goods
sold is Rs.30000.The efect of the
transaction is that, the capital of
the firm----a. increases by Rs.50000
b. reduces by Rs.40000
c. increases by Rs. 20000
d. reduces by Rs. 20000
64

EXAMPLES

5.

Mr.Ghatge commenced his business on

1st
April,
2006
with
Capital
of
Rs.1,00,000. He did good business
during the year and earned handsome
profit. At the end of 31st March, 2007,
his financial position was: Fixed Assets
Rs.1, 20,000 and bank balance of
Rs.33000 and Creditors Rs. 17000. What
was his net profit for the year 05-06?
a.
b.
c.
d.

Rs. 36000
Rs.70000
Rs.53000
None of the above

65

EXAMPLES

6.

One of the pairs given below is

wrong. Select the wrong pair.
a. Outstanding expenses - Nominal
account
b. Profit and Loss Account (Dr.
balance) Application of funds
c. Net worth less reserves & surplus
- Capital
d.

Balance sheet - Financial position

66

EXAMPLES

7.

From the following ,find a sentence

which
is
false
in
respect
of
partnership
a.

b.
c.

d.

If the partnership is following the Fixed Capital

Account Method salary payable to a partner is
credited to the partners current account
Drawings made by partners are never entered in
the Profit and Loss Appropriation Account.
In the Fluctuating Capital Account Method the
balance in the capital account always remains
the same
The capital account of a partner is required to be
opened in both the Fixed Capital Account Method
and Fluctuating Capital Account Method

67

EXAMPLES

8.

From the account given below,

select the account which is
wrongly included in Profit &
Loss Appropriation Account at
the debit side
a.
b.
c.
d.

Drawings Account
Partners Salary Account
Interest on Loan Account
Commission to Partners Account

68

EXAMPLES

10. A

and B are two partners in a firm

sharing profits and losses as 2:1.
they admitted C as a partner with
25% share in the profits of the
firm. Hence , the new profit
sharing ratio , after admission of
C would be ----a.
b.
c.
d.

15:15:10
20:10:10
3:1:1
None of the above
69

EXAMPLES
11.

Mr. Q and Mr. R were partners of a firm sharing profit

and losses in the ratio of 3:2. They take S into
partnership. It was agreed that S will pay Rs.1,00,000
as his share of goodwill which will be retained in
business and also bring Rs.3,00,000 as capital for one
fourth share in the future profits. The book value of the
stock was 41,000 but was to be revalued at Rs.50,000,
Accountant has passed following entries, but Mr. Q
feels that one of the entry is wrong. Select the wrong
entry from the following.
a.
b.
c.

d.

Debit cash and credit Goodwill for Rs.1,00,000

Debit cash and credit Ss Capital for
Rs.3,00,000
Debit Goodwill for Rs.1,00,000 and credit Qs
Capital by Rs. 60000 & Rs Capital by Rs.
40,000
Debit Stock and credit Profit & Loss
Adjustment A/c by Rs.9,000

70

EXAMPLES
12.

In the books of ABC Enterprises, a partnership

firm, when Mr. C, a partner decided to resign from
the firm, a revaluation of assets and liabilities was
done and Revaluation account was prepared which
showed the following position: At the credit side of
Revaluation Account, Stock
A/c Rs.25000,
Premises A/c Rs.52000 and Creditors A/c Rs. 8000
were shown while at debit side of Revaluation
Account,
Reserve for Doubtful Debts A/c.
Rs.15000, As Capital A/c.Rs.20000, Bs Capital A/c.
Rs.20,000 and Cs Capital A/c. Rs.20000 were
shown. Accountant has interpreted the Revaluation
Account as follows. One of the interpretations by
him is incorrect. Select the incorrect sentence.
a.
b.
c.
d.

Stock is revalued upwardly by Rs. 25000

Creditors are revised upwardly by Rs.8000
Premises are revised upwardly by Rs.52000
A provision on debtors of Rs. 15,000 is made for
doubtful debts

71

EXAMPLES

13.

Read the following four journal

entries which are passed to consider
revaluation of assets and liabilities
at the time of admission of a partner.
One of the journal entries is wrong,
choose the entry which is wrong.
a.
b.

c.

d.

For increase in the value of assets-Debit Asset

Account and Credit Revaluation Account.
For decrease in the value of liabilities- Debit
Liabilities Account and Credit Revaluation
Account.
For Profit on revaluation of assets and liabilities
Debit Old Partners Capital Account in old profit
sharing ratio and Credit Revaluation Account
For decrease in the value of assets -Debit
Revaluation Account and Credit Asset Account
72

EXAMPLES
14.

In the books of ABC Enterprises, a partnership

firm, when Mr. C, a partner decided to resign from
the firm, a revaluation of assets and liabilities was
done and Revaluation account was prepared which
showed the following position: At the credit side of
Revaluation Account, Stock
A/c Rs.25000,
Premises A/c Rs.52000 and Creditors A/c Rs. 8000
were shown while at debit side of Revaluation
Account,
Reserve for Doubtful Debts A/c.
Rs.15000, As Capital A/c.Rs.20000, Bs Capital A/c.
Rs.20,000 and Cs Capital A/c. Rs.20000 were
shown. Accountant has interpreted the Revaluation
Account as follows. One of the interpretations by
him is incorrect. Select the incorrect sentence.
a.
b.
c.
d.

Stock is revalued upwardly by Rs. 25000

Creditors are revised upwardly by Rs.8000
Premises are revised upwardly by Rs.52000
A provision on debtors of Rs. 15,000 is made for
doubtful debts
73

EXAMPLES

15.

Select the incorrect statement in

respect of companies.

A member of a company can enter into contract with a

company
b. It is compulsory to register a joint stock company
c. If all but one member of a private company becomes
insolvent ,it affects the existence of the organisation
d. Shareholders are not liable for the acts of the
company
a.

16.

Select the incorrect statement

a.
b.
c.
d.

Authorized capital is the capital with which the

company is registered
Issued capital is equal to its authorized capital
Authorized capital, issued capital, subscribed capital,
called up capital and paid up capital cannot be same
The amount which the company has asked its
shareholders to pay is called up capital of the
company.

74

EXAMPLES

17. Following

are the journal during

the process of application to
allotment stage . One of the
entries is wrong. Select the
wrong entry.
a.
b.

c.

d.

Debit bank account and credit share application

account ( when application money is received)
Debit share application account and credit
share capital account (application transferred
to share capital account)
Debit share capital and credit share allotment
account ( for recording allotment money being
fallen due )
Debit bank account and credit share allotment
account ( for receipt of allotment money)

75

EXAMPLES

18.Select

the incorrect
statement in respect of calls
in advance
a.

b.

c.
d.

The company may accept from

shareholders , the uncalled amount
on shares even before it is fallen due
The article of association must
permit such acceptance of advance
call money
Interest on calls in advance can be
paid but the maximum is upto 6%
The amount of calls in advance is
part of the paid up share capital
76

EXAMPLES
19.

Select the incorrect statement in respect of

utilization of share premium
a.
b.
c.
d.

20.

it is used for the purpose of buy back of shares

it used for payment of dividend in case of
inadequacy of profits
it is used for writing off preliminary expenses
it is used for issue of fully paid bonus shares

Mr. X was issued 100 shares of Rs.10 each. He

failed to pay call money of Rs. 5 per share. The
shares were forfeited and re-issued to Mr. Y at
Rs.9. When the entry recording the re-issue of
shares was passed in all, four accounts were
affected. The debit and credit effect of these four
accounts is given below. One of the accounts is
given wrong effect. Select that account from the
following.
a.
b.
c.
d.

Debit bank account by Rs.900

Debit forfeited shares by Rs.500
Credit share capital by Rs.1000
Credit forfeited shares by Rs.400

77

EXAMPLES
21.

DT Ltd. issued shares of Rs.10 each at 10 %

premium, payable on application Rs.2, on
allotment Rs.3 (including premium), on first
call Rs.2 and on final call Rs.4. One of the
shareholders, applied for 100 shares but fail
to pay allotment and first call money. At this
stage, the said shares were forfeited. Select
the account which was wrongly credited.
a.
b.
c.

22.

Credit
Credit
Credit
Credit

Forfeited shares Account by Rs.200

Share allotment Account by Rs.200
share premium Account by Rs.100
Share first call Account by Rs.200

Select the source which is not valid for issue of

bonus shares
a.
b.
c.
d.

Share premium
Revaluation reserve created by revaluation of fixed assets
Capital reserve
Capital redemption reserve

78

EXAMPLES
23.

The liability side of the balance sheet of

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

b.

c.

d.

Share Premium Account (Rs.5 Lakh), Capital Reserve

Account ( Rs. 1 Lakh), General Reserve Account (15
Lakh) & Profit & Loss Account by Rs. 4 Lakh
Share Premium Account (Rs. Nil Lakh), Capital Reserve
Account ( Rs. Nil Lakh), General Reserve Account (10
Lakh) & Profit & Loss Account by Rs. 15 Lakh
Share Premium Account (Rs.5 Lakh), Capital Reserve
Account ( Rs. 3 Lakh), General Reserve Account (15
Lakh) & Profit & Loss Account by Rs. 2 Lakh

Share Premium Account (Rs.5 Lakh), Capital Reserve Account

( Rs. 1 Lakh), General Reserve Account (4 Lakh) & Profit & Loss
Account by Rs. 15 Lakh

79

EXAMPLES
24.

Select the incorrect statement in case of

Share Capital and Reserves and Surplus as
shown in the balance sheet.
a.
b.

c.
d.

25.

Under share capital, the following order is maintained:

Authorised capital, issued capital, subscribed capital
The called up amount per share is indicated and in the
amount column total amount i.e. number of shares
multiplied by amount called up per share is shown
The amount of unpaid calls is deducted from (b) above
The amount of forfeited shares account is shown
under Reserves & surplus

Select the incorrect statement in respect of

form of balance sheet of
companies(Liabilities side).
a.
b.
c.
d.

sinking fund is shown under unsecured loans

Loans from banks are grouped under the head Secured Loans
Unclaimed Dividend is grouped under the head current
liabilities
Proposed dividend is grouped under provisions.

80

EXAMPLES

26.

Select the incorrect statement in

respect of form of balance sheet of
companies ( Asset side).
a.
b.

c.

d.

Live Stock is grouped under the head

current Asset
Balance of unutilized monies raised by
issue is grouped under the head
Investments
Interest paid out of capital during
construction is grouped under the head
Miscellaneous Expenditure
Vehicles are grouped under the head
Fixed Asset
81

EXAMPLES
27.

One of the accounts is wrongly debited to

Profit and Loss Appropriation A/c of a
company. Name the wrong account debited
a.
b.
c.
d.

28.

Interim dividend
Proposed dividend
Provision for tax
Capital redemption reserve

Select the false statement in respect of

assets

a.
b.
c.

d.

a banking company is allowed to acquire assets for its

own use
a banking company is allowed to grant loans against
the security of assets belonging to its customers
a banking company is allowed to take possession of
such assets in case of default committed by the
borrower
a banking company is not allowed to sale the assets
against the security of which it has granted loans

82

EXAMPLES
29.

THE FINANCIAL STATEMENT OF BANK CONSISTS OF ------SCHEDULES

a.
b.
c.
d.

30.

INVESTMENTS, ADVANCES, FIXED ASSETS AND OTHER ASSETS

ARE PART OF SCHEDULE NOS.--RESPECTIVELY
a.
b.
c.
d.

31.

18 SCHEDULES
16 SCHEDULES
17 SCHEDULES
12 SCHEDULES

6,7,8,9
7,8,9,10
8,9,10,11
9,10,11,12

LIABILITY FOR PARTIALLY PAID INVESTMENTS IN RESPECT OF

BANKING COMPANIES IS GROUPED UNDER THE HEAD----a.
b.
c.
d.

INVESTMENTS
OTHER ASSETS
OTHER LIABILITIES AND PROVISIONS
CONTINGENT LIABILITIES

83

EXAMPLES
32.

One of the items is a misfit in a group

namely other income of a banking
company. Select this item from the
following
a.
b.
c.
d.

33.

INCOME ON INVESTMENTS
PROFIT ON SALE OF INVESTMENTS
PROFIT ON REVALUATION OF INVESTMENTS
PROFIT ON EXCHANGE TRANSACTIONS

Depreciation on banks property is part of

Operating Expenses. Some of the items
included under this category are listed below.
One of the expenses is wrongly included. Identify
that item of expense.
a.
b.
c.
d.

depreciation on motor cars

depreciation on stationary and stamps
depreciation on furniture
depreciation on non-banking assets

84

EXAMPLES

34.

The provisional requirement for

standard asset is----a.
b.
c.
d.

35.

0.40%(revised) of total outstanding

10%(revised) of total outstanding
40%(revised) of total outstanding
100%(revised) of total outstanding

The investment under held to

maturity should not exceed -----of
banks total investment.
a.
b.
c.
d.

25%
75%
5%
None of the above

85

EXAMPLES

36.

Acceptances, endorsements and

guarantees are shown as-----

a.
b.
c.
d.

37.

other assets
contingent liabilities
advances
other liabilities and provisions

Choose the wrong pair from the

following. The information given in the
pair is pertaining to banking companies

a.
b.
c.
d.

Reserves & surplus - Share premium

Time deposits - Matured time deposits
Borrowings in India - Refinance from NABARD
Other Liabilities & Provisions - Inter office/branch
adjustments(net

86

EXAMPLES
38.

The name of the accounts with the coverage of

various items in building that account is given
below. One of the items covered in on of the
accounts is wrong. Select this account
a.

b.

c.
d.

39.

Closing balance of provisions held towards NPA Opening Balance plus provisions made during the year less
write off of bad debts/write back of excess provisions
Interest Earned - interest on advances plus income on
investments plus interest on deposit with RBI plus income
earned by way of dividends from subsidiaries plus discount
on bills less unexpired discount
Reserves & surplus - Opening balance plus additions
during the year less deductions during the year
Term deposits - from banks and from Others

Identify a pair which is mismatch from the

following pairs in respect of Company Accounts

Miscellaneous Expenditure Preliminary Expenses

Contingent Liabilities footnote to balance sheet
Debentures Unsecured Loans
Outstanding Expenses Current Liabilities

87

EXAMPLES

Identify a pair which is mismatch

from the following pairs in respect
of Company Accounts
a. Miscellaneous Expenditure
Preliminary Expenses
b. Contingent Liabilities footnote to
balance sheet
c. Debentures Unsecured Loans
d. Outstanding Expenses Current
Liabilities

40.

88

EXAMPLES
41.

While preparing the final accounts of the

company, the adjustments [(i) to (iv)] are
to be made by passing necessary entries.
One of the entries passed is wrong entry.
Select the wrong entry.(i) Provide dividend
5% of paid up share capital (Share capital
of Rs. 5,00,000 consisting of shares of Rs.
10 each fully paid) (ii) Insurance for
unexpired period is Rs.2000 (iii) A provision
of Rs. 25,000 is to be made for income tax
(iv) a provision of Rs. 5000 is to be made
for doubtful debts
a.
b.
c.
d.

Debit Dividend by Rs.25000 & Credit Bank by Rs.25000

Prepaid Insurance by Rs.2000 & Insurance by Rs.2000
Debit Profit & Loss Account by Rs.25,000 & Credit Provision
for Tax by Rs.25,000
Debit Profit & Loss by Rs.5,000 & Credit Provision for
doubtful debts by Rs.5,000

89

EXAMPLES

42.

If the partners capital accounts are

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

Debit side of partners current account

Credit side of partners capital account
Debit side of partners current account
Credit side of partners current account
90

Example
43.

L,K and P are partners. The following diferences as listed at

(i) to (iv) have arisen due to misunderstanding. The answer
to each point is given at (a) to (d). One of the solutions is
incorrect. Identify the wrong solution. (i) L used Rs.25,000
belonging to the firm and made a profit of Rs.4,000. K
wants the amount to be given to the firm (ii) P used
Rs.10,000 belonging to the firm and sufered a loss of Rs.
3000. He wants the firm to bear the loss (iii) L & K wishes
to appoint S as new partner. P does not agree (iv) L has
given loan of Rs. 50,000 to the firm, he wants interest at
6% ( there is no partnership deed)
a. K is right .L must pay Rs.29,000 to the firm
b. P is right . Firm should bear profit as well as losses.
c. P is right. No new partner can be admitted without the
consent of all.
d. L is right. He is entitled for interest at 6% in the
absence of partnership agreement.
91

Example
43. A

a.
b.
c.
d.

firm earns Rs.10,000 as its normal

profits. The rate of normal return being
10%. The assets of the firm amount to
Rs.72,000 and liabilities to Rs.24,000.
Find out the value of goodwill.
Rs.52,000
Rs.1,00,000
Rs.28,000
Nil
92

Example
44. If

the adjustment in the values of

assets at the time of the admission of
a partner shows a profit, it should be
credited to the capital accounts of----a.
b.
c.
d.

The old partners in their new profit-sharing

ratio
All partners in their new profit sharing ratio
The old partners in their old profit sharing
ratio
None of the above

93

Example
45.

Choose the correct treatment for premium

paid on Joint Life Policy when premium paid
is treated as an expense.

a.

b.

c.

d.

Premium amount is debited to P & L account every

year and when claim becomes due then to be
shared by all partners
Every year amount debited to Joint Life Policy
Account and balance is shown on asset side at
surrender value . The diference between
surrender value and premium paid is written of to
Profit and Loss account
Joint Life Policy and Joint Life reserve Account are
adjusted to bring them down to surrender value of
policy.
None of the above.
94