CBSE Class -XII
Accounts Sample Paper Set III

Q1) Give any three points of distinction between revaluation account and realisation account. (Marks 3)
Ans1)
 Revaluation and Realisation account :
(i) Revaluation is prepared at the time of admission, retirement and death of a partner. Realisation is prepared at the time of dissolution of the firm.
(ii) Revaluation is prepared record the effect of revaluation of assets and liabilities. Realisation records the realisation of various assets and liabilities.
(iii) As a result of revaluation, assets and liabilities are revalued and not closed down. Whereas as a result of realisation, the assets and liabilities accounts are closed.

Q2) Can forfeited shares be issued at a discount? If so, to what extent? (Marks 3)
Ans2) 
The forfeited shares can be reissued at a discount. However, the discount on the reissue of such shares cannot exceed the amount earlier forfeited on such shares, i.e. amount received on re-issue plus the amount already received on forfeited shares should not be less than the paid up value of shares.

Q3) Ashoka Ltd. purchased machinery costing Rs. 1,35,000. It was agreed that the purchase consideration be paid by issuing 12% debentures of Rs. 100 each. Assume debentures have been issued (i) at par and (ii) at a discount of 10%. Give necessary journal entries. (Marks 3)
Ans3) 
Working Notes :
No. of debentures = 135000/90
= 1500

Q4) X, Y and Z are partners in a firm sharing profits and losses in the ratio of 5 : 3 : 2. Their fixed capitals were Rs. 3,00,000, Rs. 2,00,000 and Rs. 1,00,000 respectively. For the year 1996 interest on capital was credited to them @ 10% p.a. instead of 8% p.a.. Showing your working notes clearly, pass the necessary adjusting journal entry. (Marks 4)

Q5) A, B and C were partners in a firm sharing profits in proportion of their capitals which were Rs. 4,00,000, Rs. 3,00,000 and Rs. 2,00,000 respectively. They had a joint life policy of Rs. 2,70,000 on which the annual premium paid was considered as an expense. On 1.1.1996, B died. On that date there was a debit balance of Rs. 90,000 in their Profit and Loss Account. Pass necessary journal entries on B’s death. (Marks 4)

Q6) X, Y and Z were partners in a firm sharing profits in the ratio of 3 : 2 : 1. Z retired and the new profit sharing ratio between X and Y was 1 : 2. On Z’s retirement the goodwill of the firm was valued at Rs. 30,000. Pass necessary journal entry for the treatment of goodwill on Z’s retirement without opening goodwill account.
They admitted C into partnership on this date. New profit sharing ratio is agreed as 3 : 2 : 1. C brings proportionate capital after the following adjustments :
(i) C brings Rs. 10,000 in cash as his share of Goodwill.
(ii) Provision for doubtful debts is to be reduced by Rs. 2,400.
(iii) There is an old typewriter valued at Rs. 2,600. It does not appear in the books of the firm. It is now to be recorded.
(iv) Patents are valueless.
Prepare Revaluation A/c, Capital and the opening Balance Sheet of A, B and C.

Ans6) 
Working Notes:
X : Y : Z
Old Ratio = 3 : 2 : 1
New Ratio = X : Y
1 : 2
X’s gain = 1/3 - 3/6 = -1/6
Y’s gain = 2/3 - 1/3 = 1/3
Thus X has lost by 1/6 share
Goodwill = 30000
Y’s gaining share = 1/3 x 30000 = 10000
X’s sacrifice = 1/6 x 30000 = 5000
Z’s sacrifice = 1/6 x 30000 = 5000
On this date the firm was dissolved. A was appointed to realise the assets. A was to receive 5% commission on the sale of assets (except cash) and was to bear all expenses of realisation.
A realised the assets as follows :
Debtors Rs. 30,000, Stock Rs. 26,000, Investments 75% of book value, Plant Rs. 42,750. Expenses of realisation amounted to Rs. 4,100.
Commission received in advance was returned to the customers after deducting Rs. 3,000.
Firm had to pay Rs. 7,200 for outstanding salary not provided for earlier. Compensation paid to employees amounted to Rs. 9,800. This liability was not provided for in the above Balance Sheet. Rs. 25,000 had to be paid for Providend Fund.
Prepare Realisation Account, Capital Accounts and Cash Account.

Q7) The following balances have been extracted from the books of Rama Ltd. on 31.12.1996 :
Share Capitals Rs. 10,00,000, Share Premium Rs. 1,00,000 12% Debentures Rs. 5,00,000 Creditors Rs. 2,00,000, proposed dividend Rs. 50,000, Profit and Loss Account (Dr.) Rs. 50,000, Live Stock Rs. 9,00,000, Government Bonds Rs. 4,00,000, Work in progress Rs. 4,00,000 and Discount on issue of 12% Debentures Rs. 1,00,000.
Prepare the Balance Sheet of the Company as per Schedule VI Par I of the Companies Act 1956. (Marks 5)

Q8) A and B were partners with profit sharing ratio of 2 : 1. The Balance Sheet of the firm on 31.3.1996 was as follows:

Liabilities Amount
Creditors
Bills Payable 20,000
Reserve Fund 15,000
Capitals : 12,000
A 40,000
B 30,000
70,000
1,17,000

Assets Amount
Sundry Debtors 40,000
Less Provision 3,600 36,400
Stock 20,000
Building 25,000
Patents 2,000
Machinery 33,600
1,17,000

They admitted C into partnership on this date. The new profit sharing ration is agreed as 3 : 2 : 1.
C brings in proportionate capital after the following adjustments:
i) C brings Rs. 10,000 in cash as his share of goodwill.
ii) Provision for doubtful debts is to be reduced by Rs. 2,400.
iii) There is an old typewriter valued at Rs. 2,600. It does not appear in the books of the firm. It is now to be recorded.
iv) Patents are now valueless. Prepare Revaluation Account, Capital Accounts and the opening
Balance Sheet of A, B and C. (Marks 12)
Ans.8

Ans.  Working Notes
……………..A : B
Old Ratio = 2 : 1
New Ratio=A : B : C
……………..3 : 2 : 1
A’s sacrifice = 2/3 - 3/6 = 1/6
B’s sacrifice = 1/3 - 2/6 = Nil
C’s gain = 1/6
Goodwill Entry

JOURNAL

……………C’s Capital A/c……………Dr…………………..10000
……………..To A’s Capital A/c………………………………………10000
……………(Being the amount brought in
……………by C for goodwill transferred
……………to A who has sacrificed)

* Proportionate Capital of C
A’s Capital (after adjustments) = 60000
B’s Capital (after adjustments) = 35000
Let C’s capital = x
… x = 1/6 x (95000 + x)
x = 95000/5 = 19000
Thus, total cash brought by C =
19000 (Capital)
10000 (Goodwill)
29000

Q 9 XY Ltd. invited applications for issuing 50,000 equity shares of Rs. 10 each.
The amount was payable as follows :
On application Rs. 3 per share
On allotment Rs. 4 per share
On first and final call Rs. 3 per share
Applications were received for 75,000 shares and pro-rata allotment was made as follows :
Applicants for 40,000 shares were allotted 30,000 shares on pro-rata basis.
Applicants for 35,000 shares were allotted 20,000 shares on pro-rata basis.
Ramu to whom 1,200 shares were allotted out of the group applying for 40,000 shares failed to pay the allotment money. His shares were forfeited immediately after allotment. Shamu who had applied for 700 shares out of the group applying for 35,000 shares failed to pay the first and final call. His shares were also forfeited. Out of the forfeited shares 1,000 shares were
re-issued @ Rs. 8 per share fully paid up. The re-issued shares included all the forfeited shares of Shamu. Pass necessary journal entries to record the above transactions. (Marks 12)
Ans. 9)
 Working Notes :
50000 x 10 (3, 4, 3)
Applied for Allotted
40000 Pro-rata 30000
35000 Pro-rata 20000
75000 50000

Ramu was allotted = 1200 shares
He applied for = 1200 x 40000/30000 = 1600
Paid on application = 4800
Due on application = 3600
Surplus received = 1200
Due on allotment = 4800
Less: Already received = 1200
unpaid 3600
Total amount due on Allotment = 50000 x 4 = 200000
Less : Adjusted from application 75000
Less: Unpaid by Ramu 3600
Received on allotment 121400
Shamu was allotted = 700 x 20000/35000 = 400 shares

Calculation of amount to be transferred to capital reserve:
Share forfeited account balance of Shamu = 2800 (A)
on 400 shares
Share forfeited balance of Ramu’s 1200 Shares = 4800
… On 600 Shares = 4800/1200 x 600
= 2400 (B)
Thus, total amount is share forfeited A/C = 5200 (A) + (B)
(for the shares re-issued)
Capital Reserve = 5200 - 2000
= 3200

OR

The Balance Sheet of Seema Ltd. disclosed, the following information on 1.1.1995 :
15% Debentures Rs. 15,00,000
Debenture Redemption Fund Rs. 11,60,000
15% Debenture Redemption Fund Investment Rs. 11,60,000
The annual contribution to the Debenture Redemption Fund was Rs. 1,30,000 for the year 1995 and 1996. The debentures were redeemable on 31st December, 1996. On 31st December, 1996 the investments were sold for Rs. 13,80,000 and the debentures were redeemed.
Prepare Debenture Account, Debenture Redemption Fund Account and Debenture Redemption Fund Investment Account for the year 1995 and 1996.
Ans.

Q10) Give any three points of distinction between “Funds Flow Statement” and “Cash Flow Statement".
Ans10) 
Difference between Funds Flow Statement and Cash Flow Statement :
1. Basis of Analysis : Funds flow statement discloses the causes of changes in working capital.

Cash flow statement discloses the causes of changes in cash position.
2. Usefulness : Funds flow is useful for long term financial planning.

Cash flow is useful for short term financial planning.
3. Difference in preparing :

Funds flow shows an increase in a current liability or decrease in current assets as decrease in working capital and vice versa.

Cash flow shows an increase in current liability or decrease in current asset as increase incash and vice versa.

Q 11) The following is the position of the current assets and current liabilities of Z Ltd. :

Rs. 1996
Rs.
Provision for Bad Debts.
Short term loan
Creditors
Bill Receivable 1,000
10,000
15,000
20,000 -
19,000
10,000
40,000

The company incurred a loss of Rs. 45,000 during the year. Calculate cash from operations.
Ans 11)

Q12) How does ratio analysis become less effective due to price level changes? (Marks 4)
Ans12) 
Financial analysis for various years cannot be compared as the price level changes will make the comparison misleading.
For example the comparing the ratio of sales to fixed assets of a current year will be much higher as compared to that of a previous year. This is because the sales are recorded at the current year’s price but fixed assets will be expressed in terms of cost incurred in the past. Thus, the previous years figures must be adjusted in the light of price level changes before comparing the ratios of these years.

Q13) A company has a loan of Rs. 20,00,000 as part of its Capital employed. The interest payable on the loan is 15% and the ROI of the company is 25%. The rate of income tax is 40%. What is the gain to the share-holder due to loan raised by the company? (Marks 5)
Ans13) 
Return on Investment = Profit before Interest, tax x 100
Capital employed
Capital employed = 20,00000
25 = Profit before Interest and Tax
100 2000000
Thus Profit before Interest and Tax = 500000
Less: Interest on loan
( 15 x 2000000) 300000
100
Pft after Interest and before Tax 200000
Less: tax (200000 x 40) 80000
100
Net Profit after tax 120000
Thus, gain to the shareholder due to the loan = 120000.

Q14) Following are the Balance Sheets of Radha Ltd. as on 31.12.1995 and 31.12.1996.

Liabilities 1995 1996 Assets 1995 1996

Share Capital10,00,000 15,00,000 Fixed Assets 20,00,000 30,00,000
Reserves10,00,000 10,00,000 CurrentAssets 5,00,000 8,00,000
Loan2,00,000 8,00,000
Current Liabilities3,00,000 5,00,000 25,00,000 38,00,000
25,00,000 38,00,000
You are required to prepare a comparative Balance Sheet on the basis of the information given in the above Balance Sheets.
(Marks 5)

Ans14)

Q15) “Analysis of Financial Statement is affected by window dressing and the personal ability of the analyst.” Comment. (Marks 6)
Ans15) i) Analysis of financial statements is affected by window dressing :
The term window dressing means manipulation of accounts to conceal vital facts and present the financial statements in such a way to show a better position than what its actually is. Thus, analysis of financial statement may not be a definite indicator of the quality of management.
ii) Personal ability and bias of the analyst :
The figures in the financial statement are to be analysed by human ability. Thus, the users generally have divergent opinion and meaning for the accounting figures. For example, for calculating return on capital, some may consider profit after tax while others may consider profit before tax.
Thus, the analysis of financial statements is based on the personal ability of user and thus cannot be free from bias.

Q 16) The following are the summarised profit and loss account of Hindustan Products for the year ended 31.12.1996 and the Balance Sheet of the Company as on that date

Calculate the following ratios :
(i) Quick Ratio (ii) Stock Turnover Ratio and (iii) Return on Shareholders Investments:

Ans16)
 i) Quick Ratio = Liquid Assets
Current Liabilities
Liquid Assets = Debtors + Cash
21000 + 30000 = 51000
Current Liabilities = Creditors + Outstanding Exp.
= 115000 + 15000 = 130000
Thus, Quick Ratio = 51000
130000
= 51 : 130
= 0.39
ii) Stock Turnover Ratio = Cost of Goods Sold/Average Stock
Cost of Goods sold = Sales - Gross Profit
= 800000 - 340000
= 4,60,000
Average stock = Opening stock + closing stock
2
= 99000 + 199000
2
= 298000 = 149000
2
Thus, the ratio = 460000
149000
= 3.08 times
iii)
Return on shareholders’ Investment = Net Profit after Interest and Tax x 100
Shareholders’ funds
Shareholders’ funds = Equity Share Capital + Profit and loss A/c
= 290000 + 60000
= 350000
Thus, 60000 x 100
350000
= 17 1/7%