Accounts Class - XII 
Sample Paper - 1998 (Part - 3)
(Solved)

Part - A

Q 1 What is meant by goodwill? Name any two methods of valuation of goodwill.  (Marks 2)
Ans 1  Goodwill : Goodwill is the advantage of good name, relations of a business. It is the attractive force that brings in customers. It distinguishes an established business from a new one as it helps the business to earn more profits.
Methods of valuation of goodwill :
(i) Average Profits Method
(ii) Super Profit Method.

Q 2 R and S are partners sharing profits in the ratio of 5 : 3. T joins the firm as a new Partner. R gives 1/4 of his share and S gives 2/5 of his share to the new partner. Find out the new ratio.  (Marks 3)
Ans 2 R's share = 5/8
S's share = 3/8
R's sacrifice = 1/4 x 5/8 = 5/32
S's sacrifice = 2/5 x 3/8 = 6/40
Thus, R's new share = 5/8 - 5/32 = 15/32
         S's new share = 3/8 - 6/40 = 9/40
T's share = R's sacrifice + S's sacrifice
              = 5/32 + 6/40
              = 49/160
Thus, new ratio R : S : T
15/32 : 9/40 : 49/160
= 75 : 36 : 49

Q 3 State any three purposes for which share premium amount can be utilised.  (Marks 3)
Ans 3 As per section 78 of the Company's Act, 1956 a company can use share premium for any of the following purposes (only three are mentioned):
(a) issue of fully paid bonus shares to members.
(b) writing off preliminary expenses of the company.
(c) writing off the expenses of commission paid or discount allowed on any issue of shares or debentures of the company. 

Q 4 P, Q and R are partners in a firm. Their capital accounts stood at Rs. 30,000, Rs. 15,000 and Rs. 15,000 respectively on 1 , January 1996. As per the provisions of the deed :
(i) R was to be allowed a remuneration of Rs. 3,000 p.a., (ii) Interest at 5 % p.a. was to be provided on capital, (iii) Profits were to be divided in the ratio of 2 : 2 : 1. Ignoring the above terms, net profit of Rs. 18,000 for the year ended 1996 was divided among the three partners equally. Pass an adjustment entry to rectify the error. Show the working clearly.  (Marks 4)

Ans 4 Working Notes :

Thus, the statement showing corrections.

Thus, the entry is,

Journal

Q 5 X Limited issued 12% debentures of Rs. 10,00,000 at 8% discount redeemable at par. Assume that the debentures are redeemed by drawing method in the following manner:

Prepare Discount on Issue of Debentures Account.  (Marks 5)
Ans 5 Discount on issue of debentures = 8/100 x 1000000
                                                         = 80000
This is to be written off as :

Discount on Issue of Debentures A/C

Q 6 Rearrange the following in the form of a company balance sheet as per Schedule VI Part I of the Company Act 1956.   
(Marks 5)

Ans 6  

Balance Sheet as at

Q 7 (a) M and N are Partners in a firm. M has given a loan of Rs. 8,000 to the firm on 1 April, 1994. The partnership deed is silent upon the question of provision of interest on partner's loan. Compute the amount of interest payable on the loan advanced by M to the firm assuming the books are closed on 31 December each year.
(b) P, R and S are in partnership sharing profits in the ratio of 4 : 3 : 1 respectively. It is provided in the partnership deed that, on the death of any partner, his share of goodwill is to be valued at half of the profits credited to his account during the previous four completed years. R dies on January, 1997. The firm's profit for the last four years 1993 : Rs. 1,20,000, 1994 : Rs. 80,000, 1995 : Rs. 40,000, 1996 : Rs. 80,000, Determine the amount that should be credited to R in respect of his share of goodwill.  (Marks 3 + 3)
Ans7) a) In the absence of partnership deed, the partners' are entitled to receive interest on loan @ 6% p.a. M gave a loan of 8000 on 1.4.94 and the books closes on 31st Dec.
.^.. Interest on M's loan = 8000 x 6/100 x 9/12 = Rs. 360
b) Calculation of R's share of goodwill :
Total firms' profits for the last four years =120000 + 80000 + 40000 + 80000
                                                          = 320000
R's share of profits = 320000 x 3/8
                            = 120000
^..^. R's share of goodwill = 1/2(profits credited to him)
                                   = 1/2(120000)
                                   = Rs. 60000

Q 8 K Limited has been registered with an authorised capital of Rs. 2,00,000 divided into 2000 shares of Rs. 100 each of which, 1000 shares were offered for public subscription at a premium of Rs. 5 per share, payable as under :
                       Rs
on application   10
on allotment     25 (including premium)
on first call       40
on final call       30
Applications were received for 1800 shares, of which applications for 300 shares were rejected outright; the rest of the applications were allotted 1000 shares on pro-rata basis. Excess application money was transferred to allotment.
All the monies were duly received except from Sundar, holder of 100 shares, who failed to pay allotted and first call money. His shares were later forfeited, and reissued to Shyam at Rs. 60 per share Rs. 70 paid up. Final call has not been made.
Pass necessary Cash Book and Journal entries in the books of K Limited.

OR

M Ltd. issued on 1 January, 1992 1000 12% debentures of Rs. 100 each repayable at the end of 3 years at a premium of 5%. It was decided to create a sinking fund for the redemption of debentures. The Investment are expected to earn interest at 5% p.a.
Reference to the sinking fund table shows that Re. 0.3i7209 invested at 5% p.a. amounts to Re. 1 at the end of three years, the investments were sold at Rs. 70,000 and the debentures were redeemed. Prepare Debentures account, Sinking Fund account and Sinking Fund Investment account for the three years.  (Marks 10)
Ans 8 Working notes :
1000 x 100 at 105 (10, 20 + 5, 40, 30)
 Applied for           Allotted
   300 
  1500   Pro rata    1000
  1800                  1000

Sundar was allotted = 100 shares
Applied for = 100 x 1500/1000 = 150
.^.. Paid application money = 1500
           Due on application = 1000
              Surplus received      500

Due on allotment on his shares = 2500
                     Already received =   500
                           Not received = 2000

Total amount payable on allotment = 25000
 Less : Transfered from application =  5000
   (500 x 10)
             Less : Not paid by sunder =  2000
                                                      18000

K Ltd.
Journal

Books of K Ltd.
Cash Book
(Bank column only)

OR

Working notes :
Value of debentures = 100000
To be redeemed at 5% premium = 5000
Hence, total amount required on redemption of debentures = 105000

Amount to be set aside annually = 105000 x 0.31209
                                                = 33306.94
                                                = 33307

Sinking Fund  Account

Sinking Fund Investment A/C

Q 9 J, S and R were in partnership sharing profits and losses in the ratio of 3 : 2 : 1. Their Balance Sheet as on 31 December, 1994 was as follows:

It was agreed to dissolve the firm, and the terms of the dissolution were :
(i) J took over building at book value and agreed to pay off creditors.
(ii) Accrued interest was not collected whereas there was a contingent liability of Rs. 600 which was meet.
(iii) Other assets realised : Plant : Rs. 25,000; stock : Rs. 5,000; Debtors : Rs. 4,600.
(iv) Realisation expenses : Rs. 600
Prepare Realisation account, Capital accounts and Cash account.

OR

A, B and C were carrying on partnership business sharing profits in the ratio of 3 : 2 : 1 respectively. On 31 December, 1996, the Balance Sheet of the firm stood as follows :

B retired on the above mentioned date on the following terms:
(i) Building to be appreciated by Rs. 7,000.
(ii) Provision for doubtful debts to be made 5% on debtors.
(iii) Goodwill of the firm is valued at Rs. 18,000 and adjustment in this respect to be made in the continuing partners' capital accounts without raising goodwill account.
(iv) Rs. 3,000 to be paid to B immediately and the balance in his capital account to be transferred to his loan account.
Prepare Revaluation account, Capital accounts, Cash account, and the Balance Sheet after B's retirement. (Marks 12)
Ans 9  

OR

Balance Sheet of A and C as on 1.1.97

Working Notes,

Journal (Goodwill)

Part B

Q 10 Indicate which of the following transactions would result in (a) Source, (b) use, and (c) Neither Source nor use of the fund :
(i) Collection from debtors Rs. 5,000, (ii) Sale of old machinery Rs. 2,000, (iii) Redemption of debentures Rs. 10,000.  (Marks 3)
Ans 10 A transaction will have flow of funds (source or use) when one item is current and the other is non-current. Using this, we analyse the following cases :
(i) Collection from debtors Rs. 5000 :
In this, as cash and debtors, both are current, there is neither any source nor any use of funds.
(ii) Sale of old machinery 2000 :
Of the two items, cash and machinery, one is current (cash) and other is non-current (machinery), so there is a flow of funds. As the cash is coming in, so it is a source of funds.
(iii) Redemption of debentures :
As the cash (current) is being used to pay off debentures (non-current) so there is an use of funds in this case.