ACCOUNTANCY, 2019-20.

ACCOUNTANCY
{2019–20}
CHARAK RAY
libra.charak@gmail.com

Paper Design
Academic Session 2019 - 20
Marks Allocation,
Suggested Question and
Syllabus.

Part A Units Periods Marks
1. Accounting of Not – for – Profit
Organisations
25 10
2. Accounting for Partnership Firms 90 30
3. Accounting for Companies 35 20
Total 150 60
Part B Financial Statement Analysis
4. Analysis of Financial Statements 30 12
5. Cash Flow Statement 20 8
Part C
Total
Project Work
Project Work will include
Project File 4 Marks
Written Test 12 Marks (One Hour)
Viva Voce
50
40
20
20
Allocation of Marks by CBSE

SUGGESTED QUESTION PAPER DESIGN
Class XII (2019–20)
Duration: 3
Hours
Theory: 80 Marks
Project: 20 Marks
S. No. Typology of Questions Objective
Type/MCQ
1 Mark
Short
Answer
I
3 Marks
Short
Answer
II
4 Marks
Long
Answer
I
6 Marks
Long
Answer
II
8 Marks Marks
1. Remembering: Exhibit memory of previously learned
material by recalling facts, terms, basic concepts, and
answers.
5 1 1 1 … 18
2. Understanding: Demonstrate understanding of facts and
ideas by organizing, comparing, translating, interpreting,
giving descriptions, and stating main ideas.
5 1 1 1 1 26
3. Applying: Solve problems to new situations by applying
acquired knowledge, facts, techniques and rules in a
different way.
5 … 2 1 … 19
4. Analysing and Evaluating: Examine and break
information into parts by identifying motives or causes.
Make inferences and find evidence to support
generalizations. Present and defend opinions by making
judgments about information, validity of ideas, or quality of
work based on a set of criteria.
Creating: Compile information together in a different way
by combining elements in a new pattern or proposing
alternative solutions.
5 … 1 … 1 17
Total 20 x 1
= 20
2 x 3
= 6
5 x 4
= 20
3 x 6
= 18
2 x 8
= 16
80
(32)
Internal Choice to come in 3 marks, 4 marks, 6 marks and 8 marks questions.

CHANGES IN SYLLABUS FOR
ACADEMIC SESSION 2019 – 20
CLASS XI
CHANGES
1. INTRODUCTION TO IFRS (INTERNATIONAL FINANCIAL REPORTING
STANDARDS) IS DELETED.
2. INTRODUCTION TO IND- AS (INDIAN ACCOUNTING STANDARDS) IS
INCLUDED.
3. OBJECTIVE TYPE QUESTIONS / MULTIPLE CHOICE QUESTIONS (MCQS)
INTRODUCED.
4. WEIGHTAGE OF OBJECTIVE TYPE QUESTIONS / MULTIPLE CHOICE
QUESTIONS (MCQS) IS 20 MARKS.
5. VALUE BASED QUESTIONS DO NOT FIND MENTION IN THE SYLLABUS
OR SUGGESTED QUESTION PAPER DESIGN.

CLASS XII
PARTNERSHIP ACCOUNTS
1. GOODWILL ACCOUNTING INCLUDES RAISING AND WRITING OFF OF GOODWILL
INCORPORATED. (INVOLVED AS 26)
COMPANY ACCOUNTS (INVOLVED AS 16)
2. METHOD OF WRITING OFF DISCOUNT OR LOSS ON ISSUE OF DEBENTURES
CHANGED. IT SHALL BE WRITTEN OFF IN THE YEAR DEBENTURES ARE ISSUED
FROM
(A) SECURITIES PREMIUM RESERVE, IF IT EXISTS;
(B) STATEMENT OF PROFIT AND LOSS.
CASH FLOW STATEMENT
3. PROPOSED DIVIDEND TO BE ACCOUNTED AS PER AS 4, CONTINGENCIES AND
EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

Objective Type Questions
and
Multiple Choice Questions

Objective Type Questions and MCQs
(Suggested Question Paper Design)
A Remembering
B Understanding
C Applying
D
Analysing and
Evaluating
Questions based on previously learnt
facts, terms and basic concepts.
Questions based on understanding of
facts and interpreting.
Questions based on application of
acquired knowledge, facts; techniques
and rules in different ways.
Questions involving making inferences
and finding evidence. Presenting and
Defending Opinions etc.
5 Q
1 M
5 Q
1 M
5 Q
1 M
5 Q
1 M

1. Reason Assertion Type
Questions
(True/False OR Yes/No)
Reason Assertion Type Questions mean
questions which have to be either True or
False / Yes or No.
These types of questions are likely to come
in Examination
Possible Type of Questions

It is also a king Missing Value Question (Fill
in the Blanks Question) where a Diagram
having one gap may have to be filled.
3. Completing a Diagram
Example:
A Pie Diagram is given having segments as
Direct Expenses, Indirect Expenses and a
blank segment. This blank segment is net
profit of the firm.

4. Multiple Choice Questions /
Multiple Response Questions
They are the questions that have more
than one options (responses) (Normally
4) and correct or more appropriate
option (response) is to be selected.
Yes, they shall come being so
declared in the syllabus.

They are the questions where items in
Set I are to be matched with items in Set
II. Matching Question should have more
than one items in each side.
Such questions are unlikely to come in
Examination because, such questions
can not be of 1 mark.
Thus, it will not be in accordance with
suggested Question Paper Design.
However, such questions are good
practice questions.
5. Matching Questions

Ranking Questions mean arranging the
options (responses) in ascending order or
descending order. Such questions should
ideally have 4 options (responses) to
arrange.
Such types of questions are unlikely to come
because such questions cannot be of 1 mark
because of the number of items and
therefore, will not be in accordance with
suggested Question Paper Design.
At the same time, such Questions are good
Practice Questions as they widen the
understanding of the subject.
6. Ranking Questions

True / False or Yes / No Type Questions
Question Framing: Recommended Do’s and Don’ts
• Statement should be complete in every respect.
• Statement made should be either True or False. But should not be the
questions where both may be correct.
• Statement made should be brief but for the sake of brevity main contents of
the statement should not be sacrificed.
Example: Amount invested by the partners in the firm is termed as Capital.
Example: Self – generated Goodwill is not accounted in the books of
account, it is so specified in AS 1.
Example: AS 26, Intangible Assets prescribes that Self – generated
Goodwill is not to be accounted in the books of account.

True / False or Yes / No Type Questions
• Statement should be relating to (a) Concepts,
(b) Principles, or
(c) Accepted positions.
• Questions should not be such as student may require special or uncommon
knowledge which has not been shared with them.
Example: AS 2, Valuation of Inventories prescribes how inventory is to be
valued.

• Avoid using two negatives since such statements are not easily interpreted.
• As far as possible questions should be thought involving.
• Avoid use of words that are not normally used.
Example: A Charitable Institution falls in the category of NPO.
• Avoid use of absolutes such as ‘always’, ‘never’ etc..
Example: A partnership firm cannot have more than 50 partners and it is not
provided in the Partnership Act, 1932.
Example: DRR is set aside out of profits available for payment of dividend.
Example: NPOs are set up for the benevolence of the society at large.
• Avoid use of clues in the Statement.
Example: The objective of a business is always to earn profit.

• Avoid framing complex sentences.
• Avoid use of words having infinite meaning (Large, small, regularly etc.).
Example: At the time of firm’s dissolution, Balance Sheet shows capitals of
each partner as Rs. 90,000, General Reserve at Rs. 1,00,000,
Loan from Bank at Rs. 50,000, Cash at Bank Rs. 2,00,000, Assets
realised 30% less resulting in loss of Rs. 66,000. Amount payable
to each partner will be……….
Example: Owners invest large amount in the business.

Fill in the Blanks
• Gap should normally be of a single word or a brief and definite answer.
• Statements should be definite and not vague.
Example: Amount withdrawn from bank is debited to ___________.
Example: Amount withdrawn from bank for personal use is debited to
_________ Account.
Example: Excess of Debit over Credit is ___________.
Example: Excess of total of Debit over total of Credit is means
_______balance.
Example: Drawings is amount withdrawn by the partner for personal use.
Example: Drawings is amount withdrawn by the partner for personal use.

Fill in the Blanks
• Gap should be that of only key word or words.
• Gap to be filled should be near the end of the statement.
• Avoid clue in the statement.
Example: For ______ debit there is a credit of _________ amount.
Example: In a transaction, for every ______ there is a ______ of equal
amount and vice versa.
Example: _______ on re-issue of forfeited shares is transferred to Capital
Reserve.
Example: Gain (Profit) on re-issue of forfeited shares is transferred to
____________.

Fill in the Blanks
• Examinees opinion should not be asked.
Example: A partner devoting more time to business as compared to other
partners should get salary.

Multiple Choice Questions (MCQ)
• Question should be based on sound theoretical base and meaningful
propositions.
• The question should be clear and specific.
• The question should not be ambiguous but precise.
• Given Options (Responses) should be similar but only one of the options
(Response) should be correct.
• The basis (source) should be stated in case of opinion based questions.

Multiple Choice Questions (MCQ)
• Avoid asking to choose incorrect options (responses).
• Question should be brief but not at the cost of clarity and essential
elements.
• Responses (options) should also be brief but complete in all respects.
• Questions should be framed in a similar manner. And so should be the
options (responses)
• Use of simple language is considered to be more appropriate.
• All Options (Responses) should look to be correct option (response).

Examples of Poorly Framed Questions
• Which of the following, in your opinion, is correct?
(a) Equity Shares normally can not be issued to public at a discount.
(b) Preference Shares are normally issued at a premium.
(c) Debentures are always issued a discount or par or premium.
(d) ESOPs are always issued at a price above the nominal value.
• Which of the following is not a revenue receipt for a NPO:
(a) Sale of old Newspapers;
(b) Subscription;
(c) General Donation;
(d) Life Membership Fee.
• It is important that partners have capitals in their profit-sharing ratio.

Examples of Poorly Framed Questions
Fantastic Ltd. Invited applications for 1,50,000 shares of Rs. 10 each issued
at Rs. 2 per share payable Rs. 3 on application, Rs. 6 on allotment (including
premium) and balance on call. Public had applied for 2,00,000 shares. Pro-
rata allotment was made in the ratio 6:5 and remaining applications were sent
letters of regret. Mr. Rajan who has been allotted 10,000 shares failed to pay
allotment money and Mr. Manoj, an applicant of 6,000 shares paid all his dues
along with allotment money. ________ amount will be received on allotment.
Do you think, it would not be appropriate to debit Profit and Loss Account for
(a) remuneration paid to the partners;
(b) Stationery Expense;
(c) Goods Donated;
(d) salary to staff.

OBJECTIVE TYPE QUESTIONS /
MULTIPLE CHOICE QUESTIONS (MCQs)

TRUE / FALSE QUESTIONS
Amount paid as a token of appreciation of service that commands
a fee is called honorarium.
Fund Based Accounting requires that further donation to the fund
and income earned from the fund be credited to it and expense be
debited.
Partners get interest @ 6% on the loan given to the firm, if the
Partnership Deed does not exist.
The Indian Partnership Act, 1932 prescribes that a Partnership firm
can have maximum 50 partners.

Partners are mutual agents of each other in the business of the
firm.
Partner is to get commission @ 5% of Net Profit. It will be debited
to Profit and Loss Account.
Change in profit-sharing ratio does not change the relationship
among the existing partners
‘Furniture reduced by 20%’ and ’Furniture reduced to 20%’ has
the same effect on Gain (Profit) or Loss on Revaluation Account.

Profit and Loss Appropriation Account is prepared to give effect to
Partnership Act, 1932 and Partnership Deed.
In the event of death of a partner, the combined share of profit of
the continuing partners will decrease.
Loan by a partner to the firm is Rs. 10,00,000. The firm is dissolved
and he accepts stocks valued at Rs. 8,00,000 in settlement.
Balance Rs. 2,00,000 will be transferred to his capital account.

Securities Premium Reserve can be used for purchase of own
Debentures.
Securities Premium Reserve can be used for issuing Partly Paid
Bonus shares
Loss on Issue of Debentures is written off in the year the debentures
are issued from Securities Premium Reserve, if it exists and then
from Statement of Profit and Loss.
Proposed Dividend is accounted in the books when it is proposed by the
Board of Directors.

Preliminary Expense of Rs. 1,00,000 is written off from Statement of
Profit and Loss. Further adjustment is not required when Cash Flow
Statement is prepared.
Discount on Issue of Debentures written off from Securities Premium
Reserve, is added to Net profit before Tax and Extraordinary Items in
Cash Flow Statement.

FILL IN THE GAPS (BLANKS) QUESTIONS
Amount paid as a token of appreciation of service that commands
a fee is called __________.
If the Partnership Deed does not exist, partners will get interest on
the loan given to the firm ________.
A Partnership firm can have maximum 50 partners, it is so
prescribed in the _________________.
Profit and Loss Appropriation Account is prepared to give effect to
__________. [Partnership Deed]
[Honorarium]
[6% p.a.]
[Companies Act, 2013]

(a) Revenue Receipt.
(b) Capital Receipt.
(c) As an Asset.
(d) None of these.
Legacy Donation received by NPO to be used for specific
purpose is accounted as
NPO
(b) Capital Receipt.

(a) Life Membership Fees
(b) Rent Receipt
(c) Entrance fees
(d) Sports expenses.
Identify capital receipt from the following:
NPO
(a) Life Membership Fees

(a) Credit side of Income and Expenditure Account.
(b) Debit side of Income and Expenditure Account.
(c) Liabilities side of Balance Sheet.
(d) None of these.
Specific Donation received by NPO is shown in the
NPO
(c) Liabilities side of Balance Sheet.

(a) credit balances in their Capital Accounts.
(b) debit balances in their Capital Accounts.
(c) may have credit or debit balances in their Capital Accounts.
(d) None of the above.
In case of fixed capitals, partners will have
PARTNERSHIP FUNDAMENTALS
(a) credit balances in their Capital Accounts.

(a) 6% on loan amount, if profit is eraned.
(b) 6% p.a. on loan amount, if profit is earned.
(c) 6% on loan amount, whether profit is earned or loss is incurred.
(d) 6% p.a. on loan amount, whether profit is earned or loss is
incurred.
In the absence of an agreement, interest on loan given by a
partner will be
PARTNERSHIP FUNDAMENTALS
(d) 6% p.a. on their loan amount, whether profit is earned or loss is
incurred.

(a) A and B
(b) C
(c) Both A and B and also C
(d) Neither A and B nor C
A, B and C are partners in a firm. C withdraws Rs. 5,00,000 against
his Capital and starts a new business. A and B claim that they have
share in the profit because the business was started by withdrawing
capital from the firm. Whereas C reject their claim. Who is correct?
Partnership Fundamentals
(b) C is correct.

Partnership – Change in Profit Sharing Ratio
In case of change in Profit-sharing Ratio, Workmen
Compensation Reserve existing in the Balance Sheet is
transferred to Capital Accounts of partners
(a) after providing for claim of workmen, if any.
(b) ignoring the claim of workmen, if any.
(c) Both (a) and (b).
(d) None of these.
(a) after providing for claim of workmen, if any.

Partnership – Change in Profit Sharing Ratio
A, B and C are partners sharing profits in the ratio of 5 : 3 : 2.
They decide to share future profits in the ratio of 2 : 3 : 5.
Workmen Compensation Reserve existing in the Balance Sheet
on that date when no information is available for the same will be
(a) Distributed to the partners in their capital ratio.
(b) Distributed to the partners in their new profit-sharing ratio.
(c) Distributed to the partners in their old profit-sharing ratio.
(d) Carried forward to new Balance Sheet.
(c) Distributed to the partners in their old Profit-sharing
Ratio.

Partnership Admission
In case Revaluation Account is opened and the balance sheet is
prepared after the new partnership agreement, the assets and
liabilities are recorded at
(a) Historical cost.
(b) Current cost.
(c) Realisable value.
(d) Revalued amounts.
(d) Revalued amounts

Partnership Retirement / Death
On the death of the partner his legal representatives are entitled
to his share in the profit
(a) For the full year.
(b) From the date of death till the finalisation of accounts.
(c) Beginning of the financial year up to the date of death.
(d) None of the above.
(c) Beginning of the financial year up to the date of death.

Partnership Dissolution
A, B and C are partners sharing profits in the ratio 2 : 2 : 1 having
capitals of Rs. 1,00,000 each. Their personal assets are Rs. 25,000,
Rs. 50,000 and Rs. 75,000 respectively. The firm is dissolved with net
liability of Rs. 5,00,000. Maximum liability that each partner will bear is
(a) Rs. 1,00,000 each.
(b) Rs. 1,25,000 each.
(c) A, B and C will bear Rs. 1,25,000, Rs. 1,50,000 and Rs. 1,75,000
respectively.
(d) A, B and C will bear the liability in their Profit-sharing Ratio i.e.,
Rs. 2,00,000, Rs. 2,00,000 and Rs. 1,00,000 respectively.
(c) A, B and C will bear Rs. 1,25,000, Rs. 1,50,000 and Rs. 1,75,000
respectively.

Share Capital
X Ltd. forfeited 2,000 shares of Rs. 10 each (which were issued
at par) held by Naresh for non-payment of allotment money
of Rs. 4 per share. The called-up value per share was Rs. 9. On
forfeiture, amount debited to Share Capital Account will be
(a) Rs. 10,000.
(b) Rs. 8,000.
(c) Rs. 2,000.
(d) Rs. 18,000.
(d) Rs. 18,000.

Debentures
William Ltd. issued 10,000, 7% Debentures of Rs. 100 each at a
discount of Rs. 4. It has balance in Securities Premium Reserve
of Rs. 25,000. It will write off Discount on Issue of Debentures.
(a) Rs. 40,000 from Securities Premium Reserve
(b) Rs. 40,000 from Statement of Profit and Loss
(c) Rs. 25,000 from Securities Premium Reserve and Rs. 15,000
from Statement of Profit and Loss (Finance Cost)
(d) Rs. 15,000 from Securities Premium Reserve and Rs. 25,000
(c)Rs. 25,000 from Securities Premium Reserve and Rs. 15,000

Accounting Standards
Thus, Guidelines to Accounting Standards (Issued and Notified by Ministry of
Corporate Affairs) should be read before applying the Accounting Standards.
Accounting Standards as applicable to Companies are notified in the
Companies Act, 2013 (Section 133)
Thus, Preface to Accounting Standards (Issued by ICAI) should be read before
applying the Accounting Standards.
Accounting Standards as applicable to Enterprises (Other than Companies)
standards as notified by ICAI

• Accounting Standards apply to General Purpose Financial Statements
and Other Financial Reporting which are subject to attest function of the
members of ICAI.
• ‘General Purpose Financial Statements’ include Balance Sheet,
Statement of Profit and Loss, Cash Flow Statement and Explanatory Notes
which form part thereof issued for the use of various stakeholders,
Governments and their agencies and the public.
• Accounting Standards apply to Enterprises.

• Accounting Standards do not override the law.
• Accounting Standards are intended to apply only on material items.
• Emphasis is on laying down accounting principles and not detailed rules
of application and implementation thereof i.e., accounting procedures.
• Accounting Standards applicable to companies are notified by the
Government under the Companies Act, 2013 vide Section 133 of the Act.
• Accounting Standards are not complied unless they are applied fully.
• Accounting Standards applicable to enterprises (Other than companies)
are made mandatory by ICAI.

Accounting Standards (AS) and
Indian Accounting Standards (IND – AS)

Presently, we have three sets of accounting standards.
Applicable on
non-companies
Applicable on
companies other
than on which
IND-AS is applicable
Applicable on
specified companies
Accounting
Standards Issued by
ICAI
Accounting
Standards notified
under the
Companies Act,
2013
Indian Accounting
Standards(IND-AS)
notified under
Companies Act, 2013

Ind-AS are applicable on the following companies:
1. Companies listed on the Stock Exchange in India;
2. Companies having net worth of Rs. 250 crores and above;
3. Holding, Subsidiaries, Associates or Joint Venture Companies of
companies at (1) and (2).

Fundamental Accounting Concepts under Accounting Standards
1. Going Concern Concept;
2. Accrual Concept; and
3. Consistency Concept.

Differences between Accounting Standards (AS) and Indian Accounting
Standards (IND – AS)
Accounting Standards (AS) Indian Accounting Standards
(IND – AS)
AS are Rule Based Standards. IND-AS are Principle Based Standards.
Consistency Concept is fundamental. Consistency Concept is not
fundamental.
Materiality Concept is followed. Materiality Concept replaced with
Nature and Materiality.
Full Disclosure is followed. Gains may be shown at Net of
Expenses.
Similarly, Expenses may be shown at
Net of Income.

(IND – AS)
Historical Cost Concept is followed. Any of the following or combination of
the following are followed:
1. Historical Cost;
2. Current Cost;
3. Realisable (Settlement) Cost;
4. Present Value; or
5. Fair Value (Must for Valuation of
Securities)

(IND – AS)
Financial Statements (Balance Sheet,
Statement of Profit and Loss) is
prepared as per Schedule III given in
Companies Act, 2013.
Balance Sheet starts with Equity and
Liabilities followed by Assets.
Financial Statements (Balance Sheet,
Statement of Profit and Loss) is
prepared as per Schedule III given in
Companies Act, 2013 for IND-AS
based financial statements.
Balance Sheet starts with Assets,
followed by liabilities and thereafter
Changes in Equities.

Accounting Treatment
Of
Discount or Loss on Issue of Debentures

Accounting Standard (AS 16)
on Writing off of Discount or Loss
AS 16, Borrowing Costs prescribes that Borrowing Cost of revenue nature
should be written off in the year it is incurred.
Section 52(2) of the Companies Act, 2103 prescribes that Securities
Premium Reserve can be used for writing off Discount on Issue of
Debentures or Premium Payable on Redemption of Debentures.
Discount or Loss is incurred in the year when debentures are allotted.
Therefore, it should be written of in the year when debentures are allotted.

Writing off of Discount or Loss
Discount or Loss on Issue of Debentures may be written off in the year when
Debentures are allotted from
 Securities Premium Reserve, or
 Statement of Profit and Loss.
CBSE has prescribed that Discount or Loss on Issue of Debentures is to be
written off from
 Securities Premium Reserve, if it exists; and
 Statement of Profit and Loss.

Question:
Hero Business Ltd. issued 10,000, 9% Debentures of Rs. 100 each on 1st April,
2018 at a discount of Rs. 10 redeemable at a premium of 10%.
The company has balance of Rs. 5,00,000 in Securities Premium Reserve
Account.
Pass the Journal Entries for Issue of Debentures and Writing off Loss on Issue
of Debenture.

Question
What will be the effect of writing off Loss on Issue of Debentures of Rs.
2,00,000 (in the previous question) on
(a) Cash Flow from Operating Activities, and
(b) Cash Flow from Financing Activity.

Answer
(a) Effect on Cash Flow from Operating Activities - Nil
(b) Effect on Cash Flow from Financing Activity:
Proceeds (Inflow) from Issue of Debentures
Rs. 9,00,000
(10,000 X Rs. 90)
Premium on Redemption of Debentures
Rs. 1,00,000
will be shown as Outflow
under Financing Activities
in the year of redemption.

Illustration
Woodlock Ltd issued 20,000, 8% Debentures of Rs. 100 each on
1st April, 2018 redeemable at 20% premium.
It has a balance of Rs. 1,50,000 in Securities Premium Reserve
Account.
Pass the necessary Journal Entries for Issue of Debentures and
Writing Off Loss on issue of Debentures.

Date Particulars LF Dr. Amount Cr. Amount
2018
April 1,
Bank A/c …Dr.
To Debentures Application and
Allotment A/c
(Being the subscription received for
20,000, 8% Debentures of Rs. 100 each)
20,00,000
20,00,000
2018
April 1
Debentures Application
and Allotment A/c …Dr.
Loss on issue of Debentures A/c …Dr.
To 8% Debenture A/c
To Premium on redemption of
Debentures A/c
(Being 20,000, 8% Debentures Issued)
20,00,000
4,00,000
20,00,000
4,00,000
2019
March
31
Securities Premium Reserve A/c …Dr.
Statement of Profit and Loss A/c …Dr.
To Loss on issue of Debentures A/c
(Being the loss on issue of Debentures
written off)
1,50,000
2,50,000
4,00,000
Journal Entries

Question
What will be the effect of Writing off Loss on Issue of Debentures (in the
previous question) of Rs. 4,00,000 on

Answer
(a) Effect on Cash Flow from Operating Activities -
Add: Rs. 2,50,000 to Net Profit before Tax Extraordinary Item as it is
debited as expense i.e., has gone into profit determination.
No adjustment will be made of Rs. 1,50,000, it being written off from
Securities Premium Reserve, which has not gone into profit determination.
No further adjustment needs to be made because it is premium payable at
the time of redemption.
Proceeds (Inflow) from Issue of Debentures
Rs. 20,00,000
(20,000 X Rs. 100)
Premium on Redemption of Debentures NIL

Illustration
Woodcraft Ltd issued 20,000, 8% Debentures of Rs. 100 each on 1st
April, 2018 redeemable at 20% premium.
Pass the necessary Journal Entries for Issue of Debentures and
Writing Off Loss on issue of Debentures.

2018
April 1
Bank A/c …Dr.
To Debentures Application and
Allotment A/c
(Being the subscription received for
20,000, 8% Debentures of Rs. 100 each)
20,00,000
20,00,000
2018
April 1
Debentures Application
To 8% Debenture A/c
To Premium on redemption of
Debentures A/c
(Being 20,000, 8% Debentures Issued)
20,00,000
4,00,000
20,00,000
4,00,000
2019
March
31
Statement of Profit and Loss A/c …Dr.
To Loss on issue of Debentures A/c
(Being the loss on issue of Debentures
written off)
4,00,000
4,00,000
Journal Entries

Question
What is the effect of Writing off Loss on Issue of Debentures (in the
previous question) of Rs. 4,00,000 on

Answer
(a) Effect on Cash Flow from Operating Activities -
Add: Rs. 4,00,000 to Net Profit before Tax Extraordinary Item as it is
debited as expense i.e., has gone into profit determination.
No further adjustment needs to be made because it is premium payable at the
time of redemption.
Proceeds (Inflow) from Issue of Debentures. It will be shown at
Nominal Value
Premium on Redemption of Debentures NIL

Question:
Citizen Ltd. issued 10,000, 9% Debentures of Rs. 100 each on 1st April, 2018 at
a discount of Rs. 10 redeemable at a premium of 10%. On 1st January, 2019, it
issued 1,00,000 Equity Shares of Rs. 10 each at a premium of Re. 1 per share.
The debentures as well as, shares were subscribed.
The company had balance of Rs. 50,000 in Securities Premium Reserve
Account as on 1st April, 2018.
Pass the Journal Entries for Issue of Debentures and Shares.

2018
April 1
Bank A/c …Dr.
To Debenture Application and
Allotment A/c
(Application Money received on 10,000, 9%
Debentures)
9,00,000
9,00,000
2018
April 1
Debenture Application
To 9% Debentures A/c
To Premium on Redemption of
Debentures A/c
(10,000, 9% Debentures Issued)
9,00,000
2,00,000
10,00,000
1,00,000
2019
Jan. 1
Bank A/c …Dr.
To Shares Application and Allotment A/c
(Application Money received on 1,00,000
Equity Shares @ Rs. 11 per share)
11,00,000
11,00,000
Journal Entries

2019
Jan 1
Shares App. And Allotment A/c …Dr.
To Share Capital A/c
To Securities Premium Reserve A/c
(Shares allotted and Application Money
appropriated)
11,00,000
10,00,000
1,00,000
2019
Mar 31
Securities Premium reserve A/c …Dr.
Statement of Profit and Loss …Dr.
(Finance Cost)
To Loss on Issue of Debentures A/c
(Loss on Issue of Debentures Written off)
1,50,000
50,000
2,00,000
Journal Entries

Important Issues – Cash Flow Statement
3. Financial Statements are prepared to determine financial performance
and financial position following the prescribed Accounting Standards
including AS 4, Contingencies and Events Occurring After the Balance
Sheet.
2. Starting point is net profit for the year determined either as difference
between Closing and Opening Balance in Surplus i.e., Balance in
Statement of Profit and Loss or taking net profit from the Statement of
Profit and Loss.
1. Cash Flow Statement, under Indirect Method, is prepared on the
basis of Financial Statements ie Balance Sheet and Statement of
Profit and Loss.

Important Issues
Example, Bank Overdraft or Cash Credit is shown as Current Liabilities
in the Balance Sheet but are shown as Cash Flow from Operating
Activities in Cash Flow Statement.
4. What does AS 4, Contingencies and Events Occurring After the
Balance Sheet Date prescribe for Proposed Dividend?
5. Items shown as Current Liabilities or Current Assets in a Balance Sheet
may or may not be categorised under Working Capital Changes in
Cash Flow from Operating Activities.
It prescribes that
Proposed Dividend is to be accounted as a liability after it is declared
(approved) by the Shareholders. Till the time it is declared it is to be
shown as Contingent Liability in the Notes to Accounts.
Since, it is not accounted in the books, it will not affect Cash Flow
Statement.

Important Issues
7. Proposed Dividend may be given in the question as
Proposed Dividend 2017 – 18 2016 – 17
20% 15%
OR
Dividend declared during the year Rs. ….. or 15%.

Important Issues
8. At the time of preparing Cash Flow Statement, nature of each item is
determined in the light of the definitions of Operating, Investing and
Financing Activities as given in AS 3, Cash Flow Statement.
Accordingly, they are shown under each activity.
Operating Activities are the principal revenue producing activities of
the enterprise and those activities which are not Investing or Financing
Activities.
Investing Activities are the acquisition and disposal of Long-term
Assets and other investments not included in Cash Equivalents.
Financing Activities are the activities that result in change in the size
and composition of the owners’ capital (including Preference Share
Capital in case of companies) and borrowings of the enterprise.

Treatment of Dividends
under
AS 3, Cash Flow Statement

Interim Dividend
Interim Dividend is declared by the Board of Directors of the Company. It
does not require approval (declaration) by the shareholders.
It being an appropriation of profits, is debited to Surplus i.e., Balance in
Statement of Profit and Loss Account.
It is a dividend paid during the year it is declared.
After Interim Dividend is declared by the Board of Directors, it is accounted
in the Books of Accounts as Dividend Payable.
Interim Dividend declared is added to Net Profit before Tax and
Extraordinary Items under Cash Flow from Operating Activities because it is
shown as outflow under Financing Activities.

Amount of dividend paid (Dividend Declared less Unclaimed / Unpaid
Dividend, if any) during the year is shown as outflow in Cash Flow from
Financing Activities.
Interim Dividend

Proposed (Final) Dividend
It is proposed by the Board of Directors and declared (approved) by the
Shareholders of the Company in their AGM.
Once Proposed (Final) Dividend is declared by the Shareholders, it is
accounted as a liability in the Books of Accounts.
AGM is held after the end of the financial year i.e., in the next financial year.
In the AGM held in next year, Proposed Dividend of this year will be
declared. For example, in the AGM held in financial year 2019 – 20,
Proposed Dividend of financial year 2018 – 19 will be declared.
Proposed Dividend is the final dividend for the year proposed by the Board
of Directors after accounts are finalised.

It is added to Net Profit before Tax and Extraordinary Items under Cash
Flow from Operating Activities being an payment to be shown in Financing
Activities.
Dividend, if any) is shown as outflow in Cash Flow from Financing Activity.
It is paid in the year it is declared.
It being an appropriation of profit is debited to Surplus i.e., Balance in

Dividend on Preference Shares
Dividend on Preference Shares is declared and paid subject to availability
of profits.
It is proposed by the Board of Directors and declared (approved) by the
shareholders in their AGM like in the case of Proposed (Final) Dividend on
Equity Shares.
It is payable before payment of dividend on equity shares. It means if
Interim Dividend is paid, Dividend on Preference Shares must be paid even
though final dividend is not paid on Equity Shares.
Dividend on Preference Shares is agreed to be paid at the specified rate or
specified amount at the time of issue of Preference Shares.

It is added to Net Profit before Tax and Extraordinary Items under Cash
Flow from Operating Activities.
Dividend, if any) is shown as outflow in Cash Flow from Financing Activity.
It is paid in the year it is declared.
It is also an appropriation of profit and is debited to Surplus i.e., Balance in
Dividend on Preference Shares

Process of Dividends Payment
Dividend
Interim Dividend
(Including Preference Dividend)
• Declared by the Board of
Directors.
• Shareholders Approval is
not required.
• Dividend is paid within 30
Days.
• Proposed by the Board
• Proposed Dividend (may or may
not be) declared by Shareholders’
in AGM
• Declared Dividend is Paid within
30 Days of AGM.
Accounted in the
year it is declared
and paid.
Accounted in the year in
which AGM held and is
also paid.

Process of Dividends Payment
Accounted in the year
it is declared and
paid.
Surplus i.e., Balance in Statement
Profit and Loss A/c …Dr
To Dividend Payable A/c
Accounted in the year
in which AGM held
and also paid.
In Cash Flow Statement
Add to:
Net Profit Before Tax and Extraordinary Items
and Show as
Outflow under Financing Activity.

Example
Prepare Note on Surplus ie Balance in Statement of Profit and Loss as
at 31st March, 2019.
2018 – 19 2017 – 18
(Rs.) (Rs.)
Equity Share Capital 10,00,000 10,00,000
Surplus ie Balance in Statement
of Profit and Loss (Opening) 4,00,000 3,90,000
Profit for the year 4,00,000 1,50,000
Interim Dividend 50,000 40,000
Proposed Dividend 15% 20%
Proposed Dividend for the year ended 31st March, 2017 was 5% on
Rs. 10,00,000 (Equity Share Capital).

Particulars 31st March,
2019 (Rs.)
31st March,
2018 (Rs.)
of Profit and Loss
Opening Balance
Add: Profit for the year
Less: Interim Dividend
Dividend Payable (PY)
4,00,000
4,00,000
8,00,000
50,000
2,00,000
5,50,000
3,90,000
1,50,000
5,40,000
40,000
50,000
4,00,000
Solution:

Treatment of Dividend
in Cash Flow Statement
Cash Flow from Operating Activities
Net Profit Before Tax and Extraordinary Items
Surplus ie Balance in SPL – Closing Balance 5,50,000
Surplus ie Balance in SPL – Opening Balance 4,00,000
1,50,000
Add: Interim Dividend 50,000
Final Dividend 2,00,000
Net Profit Before Tax and Extraordinary Items 4,00,000

Cash Flow from Financing Activities
Dividend Paid – Interim Dividend (50,000)
Dividend Paid – Final Dividend (2,00,000)

Question
From the following Balance Sheet of Boom Ltd. as at 31st March,
2019 and additional information prepare Cash Flow Statement for the
year:
Particulars Note
No.
31st Mar.,
2019
31st Mar.,
2018
Equity and Liabilities
Shareholders Funds
Equity Share Capital
Reserves and Surplus
Non – Current Liabilities
10% Debentures
Other Long term Liabilities
Current Liabilities
Trade Payables
Other Current Liabilities
Total
1
2
25,00,000
9,00,000
20,00,000
1,00,000
14,50,000
1,00,000
70,50,000
20,00,000
5,00,000
10,00,000
Nil
6,00,000
70,000
41,70,000

Balance Sheet Contd/-
Particulars Note
No.
31st Mar.,
2019
31st Mar.,
2018
Assets
1. Non – current Assets
Fixed Assets
Tangible (Machinery)
Intangible (Goodwill)
2. Non–Current Investments
3. Current Assets
Inventories
Trade Receivables
Cash and Cash Equivalents
Total
30,00,000
3,00,000
7,00,000
14,00,000
12,00,000
4,50,000
70,50,000
20,00,000
3,40,000
1,50,000
6,00,000
9,00,000
1,80,000
41,70,000

Notes to Accounts
Note
No.
Particulars 31st March,
2019 (Rs.)
31st March,
2018 (Rs.)
1
2.
Reserves and Surplus
Surplus ie Balance in
Statement of Profit and Loss
Unpaid Dividend
Outstanding Expenses
Total
9,00,000
60,000
40,000
1,00,000
5,00,000
Nil
70,000
70,000

Additional Information:
1. Machinery costing Rs. 4,00,000, on which depreciation provided
was Rs. 2,20,000 was sold at a profit of Rs. 60,000 during the
year.
2. Depreciation debited to Statement of Profit and Loss for the year
was Rs. 7,00,000.
3. On 1st October, 2018, shares were issued at a premium of Rs. 2
per share and Debentures were issued at a Discount of 10%.
Debentures are redeemable at 10% premium
4. Dividend declared for the year was 20%.

Particulars Rs. Rs.
A. Cash Flow from Operating Activities
Net Profit for the Year
Surplus ie Balance in SPL – Closing
Less: Surplus ie Balance in SPL – Opening
Add: Dividend
Add: Non–cash and Non–Operating Items
Depreciation
Goodwill Amortised
Interest on Debentures
Loss on Issue of Debentures written off
9,00,000
5,00,000
7,00,000
40,000
1,50,000
1,00,000
4,00,000
4,00,000
9,90,000
17,90,000
Cash Flow Statement of Boom Ltd.
for the year ended 31st March, 2019

….
Particulars Rs. Rs.
Less: Gain on Sale of Machinery
Operating Profit before Working Cap.
Changes
Add: Increase in C L
Trade Payables
Less: Decrease in C L/Increase in CA
Inventories
Trade Receivables
Cash Flow from Operating Activities
30,000
8,00,000
3,00,000
17,90,000
60,000
17,30,000
8,50,000
25,80,000
11,30,000
14,50,000

Particulars Rs. Rs.
B. Cash Flow from Investing Activities
Payment for Machinery
Proceeds from Sale of Machinery
Payment for Purchase of
Investments
Cash Used in Investing Activities
C. Cash Flow from Financing Activity
Proceeds from Issue of Shares
Proceeds from Issue of Debentures
Securities Premium
Payment of Interest on Debentures
Dividend Paid 4,00,000
Less: Unpaid Dividend 60,000
Cash Flow from Financing Activity
Net Increase
Add: Opening Cash & Cash Equivalents
Closing Cash and Cash Equivalents
(18,80,000)
2,40,000
(5,50,000)
5,00,000
9,00,000
1,00,000
(1,50,000)
(3,40,000)
(21,90,000)
10,10,000
2,70,000
1,80,000
4,50,000

Activities in Cash Flow Statement
1. Preliminary Expenses of Rs. 50,000 is debited to Other Expenses in
Statement of Profit and Loss.
What will be the treatment in Cash Flow Statement?
2. A company sold its Marketable Securities of Book Value Rs. 20,000
for Rs. 15,000 and debited the loss to Statement of Profit and Loss.
How will be the loss of Rs. 5,000 shown in Cash Flow Statement?
99

Some Issues in Cash Flow Statement
3. Preference Shares were redeemed at a premium and
premium was written off from Securities Premium
Reserve.
What will be the treatment in Cash Flow Statement?
4. Discount on Issue of Debentures written off from
Statement of Profit and Loss.
What will be the effect on Cash Flow Statement?

Some Issues in Cash Flow Statement
5. From the following Statement of Profit and Loss and
information determine Net Profit before Tax and
Extraordinary Activities:
Income:
Revenue from Operations 10,00,000
Expenses:
Change in Inventories 2,00,000
Employees Benefit Expenses 4,00,000
Other Expenses 1,00,000
7,00,000
Profit Before Tax 3,00,000
Provision for Tax 90,000
Profit After Tax 2,10,000
Interim Dividend Declared and paid during the year was Rs. 50,000.
Other Expenses are Preliminary Expenses.

Debentures Redemption Reserve (DRR)
And
Debenture Redemption Investment (DRI)

When DRR is not to be created
• In the case of Convertible Debentures
DRR is not created on Fully Convertible Debentures
or
on Convertible part of partly Convertible Debentures.
• Besides following types of Companies are exempt from creating DRR:
1. All India Financial Institutions, regulated by RBI; and
2. Banking Companies.

Debenture Redemption Reserve (DRR)
• A company is required to create DRR
• out of profits available for payment of dividend; and
• the amount credited to DRR will not be used for purposes other than
redemption of debentures.
DRR is created for
• an amount at least equal to 25% of the nominal (face) value of Outstanding
Debentures.
• CBSE requires that where the redemption is out of profit, DRR should be equal
to 100% of the nominal (face) value of Outstanding Debentures.

Question
Sunlight Ltd. is to redeem debentures of face value Rs. 20,00,000 on 31st
December, 2018 and has following credit balances as on 31st March, 2018 under
the main head Reserves and Surplus:
Workmen Compensation Reserve Rs. 7,50,000;
General Reserve Rs. 2,00,000;
of Profit and Loss Rs. 2,00,000.
Can the company proceed to redeem the debentures? Give Reason.

Answer
No, Sunlight Ltd. cannot proceed to redeem the debentures.
Reason:
Workmen Compensation Reserve cannot be used for payment as dividend to
shareholders, it being a specific reserve.
Sunlight Ltd. should have credit balance of Rs. 5,00,000 in DRR whereas it
has Rs. 2,00,000 each in General Reserve and Surplus i.e., Balance in
Statement of Profit and Loss, which is the maximum amount that can be
transferred to DRR.
CA. (D G.S. Grewal

Question
Rain Forest Resorts Ltd. has credit balances as on 31st March, 2018 under the main
head Reserves and Surplus as follows:
Securities Premium Reserve Rs. 2,00,000;
Dividend Equalisation Reserve Rs. 2,00,000;
The company is to redeem debentures of face value Rs. 20,00,000 on 30th June,
2018.
How much amount it can transfer to DRR?

Answer
Securities Premium Reserve can be utilised for the purposes prescribed in section
52(2) of the Companies Act, 2013, which does not include utilisation towards
payment of dividend.
Rain Forest Resorts Ltd. can transfer Rs. 5,00,000 because Dividend Equalisation
Reserve, General Reserve and Surplus i.e., Balance in Statement of Profit and Loss
can be used for payment of Dividend.

Question
Star Ltd. has credit balances under Reserves and Surplus as follows:
Securities Premium Reserve Rs. 3,00,000;
The company is to redeem debentures of face value Rs. 20,00,000.
Which of the following option is correct?

Solution
Particulars LF Debit (Rs.) Credit (Rs.)
General Reserve A/c …Dr.
Surplus i.e., Balance in SPR A/c …Dr.
To DRR A/c
(Being the amount transferred to DRR being
25% of nominal value)
2,50,000
2,50,000
5,00,000

Question
Sky Bank Ltd. is to redeem 8% Debentures of nominal (face) value ₹ 50,00,000
and has credit balances as on 31st July, 2017 as follows:
Pass the necessary journal entries?

Debenture Redemption Investment (DRI)
Rule 18(7)(c) of the Companies (Share Capital and Debentures) Rules, 2014
prescribes:
• that a company shall invest an amount
• not less than15% of the nominal (face) value of the debentures to be
redeemed (maturing) during the year ending 31st March of the next
year
• in specified securities
• on or before 30th April of the current year.

Specified Securities
Specified Securities in which investment can be made are:
• In deposits with any Scheduled Bank, free from any charge;
• In unencumbered securities of the Central Government or any State
Government;
• In unencumbered securities mentioned in sub-clauses (a) to (d) and (e) of
section 20 of the Indian Trust Act, 1882;
• In unencumbered bonds issued by a company which is notified under section
20(f) of the Indian Trust Act, 1882.

Some Issues on Debentures
1. What should be the sequence of entries on redemption of Debentures?
2. Should DRR be transferred to General Reserve (when Debentures are
redeemed in parts) after every redemption of Debentures?
3. What should be the date of amount of investment in Debenture Redemption
Investment (DRI)?
4. Should Debenture Redemption Investment (DRI) be realised before each
redemption?
5. What is the effect of redemption of debentures on Debt Equity Ratio?

Minimum Subscription
• SEBI has prescribed that a company must receive subscription of at
least 90% of the Share issue. It is known as Minimum Subscription.
• In case Minimum Subscription is not received, shares cannot be
allotted and the amount received is refunded within fifteen days from the
closure of the issue.

Reserve Capital
• It is that part of Uncalled Capital which a company decides to call at the time of
winding up;
• Shares in such cases is shown as Subscribed but Not Fully Paid up.
• It is not disclosed in the Company’s Balance Sheet.

Treatment of Securities Premium on Forfeiture
Securities Premium credited to Securities Premium Reserve and also received
is not reversed i.e., cancelled on forfeiture.
Securities Premium credited to Securities Premium Reserve but not received is
reversed on forfeiture.

Some Important Points Related to Accounting for Share Capital
1. Whether the issue is fully subscribed.
2. If the issue is undersubscribed, has the company received minimum
subscription i.e., 90% or more of issued shares are subscribed.
3. In case, minimum subscription is not received, application money received is
refunded to the applicants.
4. If the shares are undersubscribed but minimum subscription is received,
shares are allotted to all the applicants. fully subscribed up to the number of
shares issued, shares are allotted to all the applicants.
5. Entries for Allotment Money and Call Money due is passed for the number of
shares subscribed.

6. If the shares are oversubscribed, shares may be allotted to:
(i) all the applicants on pro rata basis, or
(ii) full allotment to some applicants and on pro rata basis to some applicants
and reject the remaining applicants, or
(iii) full allotment to some applicants and no allotment to remaining applicants.
Forfeiture of Shares
7. Shares are forfeited for non – payment of allotment or call money.
8. Share Capital Account is debited by the amount called up by the company
up to the date of forfeiture.
9. Securities Premium, if received and credited to Securities Premium Reserve
is not reversed on forfeiture. If it is not credited to Securities Premium
Reserve, whether received or not, is reversed on forfeiture.

10. Forfeited shares can be reissued by the company on the terms and
conditions different from other shares.
11. Discount on reissue of forfeited shares cannot be more than the amount
forfeited on reissued shares.
12. Gain (Profit) on reissue of forfeited shares is a capital profit hence, is
transferred to Capital Reserve.
13. Excess Application Money is first adjusted against Share Capital and
Balance if any is adjusted against Securities Premium.
Pro rata Allotment
13. It is important to determine the allotment ratio.
14. Shares Applied or Shares Allotted is determined on its basis.

Calculation of Amount not Received on Allotment in Case of Pro rata:
When Shares Allotted are Given
Calculate Number of Shares Applied as:
Total Shares Applied X No. of Shares Allotted
Total Shares Allotted
Step 1: Calculate Number of Shares Applied/Shares Allotted:
When Shares Applied are Given
Calculate Number of Shares Allotted as:
Total Shares Allotted X No. of Shares Applied
Total Shares Applied

Calculation of Amount not Received on Allotment in Case of Pro rata:
Amount due on Allotment (Shares Allotted X Allotment Money per share)
Less: Excess Application Money Adjusted on Allotment
(Shares Applied – Shares Allotted) X Application Money per share
Allotment Amount due but not paid
Rs.
XXXX
XXXX
XXXX
Step 2: Calculate the Allotment Amount not paid by defaulting shareholders as
follows:

XYZ Ltd. issued for subscription 2,000 shares of Rs. 10 each at a premium of Rs. 4
per share payable:
On application - Rs. 6 (including Re. 1 premium)
On allotment - Rs. 2 (including Re. 1 premium)
On first call - Rs. 3 (including Re. 1 premium)
On second and final call - Rs. 3 (including Re. 1 premium)
Applications were received for 3,000 shares and pro rata allotment was made on the
applications for 2,400 shares.
Arun, to whom 40 shares were allotted, failed to pay the allotment money and on his
subsequent failure to pay the first call, his shares were forfeited.
Rajan, who applied for 72 shares failed to pay the two calls and on his such failure,
his shares were forfeited.
Of the shares forfeited, 80 shares were sold to Sam as fully paid up for Rs. 9 per
share, Rajan’s shares being included.
Give necessary Journal Entries and Cash Book.

Arun (Number of Shares Applied is 48)
Amount Received Rs. 288 (48 x Rs. 6)
Shares Allotted 40
Share Capital Rs.
200 (40 x Rs.5)
Securities Premium
Rs. 40
(40 x Rs.1)
Excess Application
Money Rs. 48
(Rs. 288 – Rs. 200 –
Rs. 40)
Dt Particulars LF Dr. (Rs.) Cr. (Rs.)
Bank A/c (48 x Rs 6) …Dr.
To Shares Application A/c
(Being application money received)
288
288
Shares Application A/c …Dr.
To Share Capital A/c (200 x Rs. 5)
(Rs.40 x Re. 1)
To Shares Allotment A/c
288
200
40
48

Amount Due on Allotment Rs. 80 (40 x Rs. 2)
Share Capital
Amount Due Rs. 40
Excess Application
Money Adjusted Rs. 40
Balance Due NIL
Securities Premium
Amount Due Rs.
40
Excess Application
Amount not Recd. Rs. 32
Shares Allotment A/c (40 x Rs 2) …Dr.
80
40
40

Amount Due on First Call Rs. 120 (40 x Rs. 3)
Share Capital
Amount Due Rs. 80
Securities Premium
Amount Due Rs. 40
Shares First Call A/c (40 x Rs 3) … Dr.
(Being First Call Due)
120
80
40
Share Capital A/c (40 X Rs. 8) …Dr.
(40 X Rs. 2 – Rs. 8)
To Shares Allotment A/c (WN 1,2 and 3)
To Shares First Call A/c ( 40 X Rs. 3)
To Forfeited Shares A/c (Balance)
(Being 40 shares forfeited for non payment of allotment
and first call money)
320
72
32
120
240

Rajan (Number of Shares Applied is 72 and Allotted 60)
Amount Received Rs. 432 (72 x Rs. 6)
Shares Allotted 60
Share Capital Rs.
300 (60 x Rs.5)
Securities Premium
Rs. 60
(60 x Rs.1)
Excess Application
Money Rs. 72
(Rs. 432 – Rs. 300 –
Rs. 60)
Bank A/c (72 x Rs 6) … Dr.
432
432
Shares Application A/c … Dr.
To Share Capital A/c (200 x Rs. 5)
(Rs. 60 x Re. 1)
432
300
60
72

Amount Due on Allotment Rs. 120 (60 x Rs. 2)
Share Capital
Amount Due Rs. 60
Excess Application
Balance Due NIL
Securities Premium
Amount Due Rs. 60
Excess Application
Amount yet to be Recd. Rs. 48
Shares Allotment A/c (60 x Rs 2) … Dr.
120
60
60
Bank A/c (Rs. 120 – Rs. 72) … Dr.
(Being allotment money received)
48
48

Amount Due on First Call Rs. 180 (60 x Rs. 3)
Share Capital
Amount Due Rs. 120
Securities Premium
Amount Due Rs. 60
Shares First Call A/c (60 x Rs 3) … Dr.
(Being First Call Due)
180
120
60

Amount Due on Second Call Rs. 180 (60 x Rs. 3)
Share Capital
Amount Due Rs. 120
Securities Premium
Amount Due Rs. 60
Shares Second Call A/c (60 x Rs 3) … Dr.
(Being Second Call Due)
180
120
60
(60 X Rs. 2)
To Shares Second Call A/c ( 60 X Rs. 3)
(Being 40 shares forfeited for non payment of allotment
and first call money)
600
120
180
180
360

In the Books of XYZ Ltd.
CASH BOOK (BANK COLUMN ONLY)
Particulars Rs. Particulars Rs.
(3,000 X Rs. 6)
(Rs. 4,000 – Rs. 2,400 – Rs.
32)(WN 1,2 and 3)
To Shares First Call A/c (Rs.
6,000 – 100 X Rs. 3)
To Shares final Call A/c
(Rs. 5,880-60 X Rs. 3)
(80 X Rs. 9)
18,000
1,568
5,700
5,700
720
31,688
By Shares Application A/c
(600 X Rs. 6)
By Balance c/d
3,600
28,088
31,688

Shares Application A/c (2,400 X Rs. 6) …Dr.
To Share Capital (2,000 X Rs. 5)
(2,000 X Re. 1)
To Shares Allotment A/c (400 X Rs. 6)
(Being application money adjusted on allotment)
14,400
10,000
2,000
2,400
Shares Allotment A/c (2,000 X Rs. 3) …Dr.
To Share Capital A/c (2,000 X Rs. 2)
To Securities Premium Reserve
(2,000 X Re. 1)
(Being allotment money due)
4,000
2,000
2,000
Shares First Call A/c (2,000 X Rs. 3) …Dr.
(2,000 X Re. 1)
(Being the First Call due)
6,000
4,000
2,000

(40 X Rs. 2 – Rs. 8)
To Shares Allotment A/c (WN 1,2 and 3)
(Being 40 shares forfeited for non payment of
allotment and first call money)
320
72
32
120
240
Shares Final Call A/c (1,960 X Rs. 3) Dr.
To Securities Premium Reserve A/c (1,960
X Re. 1)
(Being final call money due)
5,880
3,920
1,960

Dt Particulars L.F. Dr.
(Rs.)
Cr.
(Rs.)
Securities Premium Reserve A/c (60 X Rs. 2 …Dr.
To Shares First Call A/c (60 X Rs. 3)
To Shares Final Call A/c (60 X Rs. 3)
To Forfeited Shares A/c (60 X Rs. 6)
(Being 60 shares forfeited for non payment of first
call and final call money)
600
120
180
180
360
Forfeited Shares A/c …Dr.
(Being 80 forfeited shares reissued @ Rs. 9 per
share as fully paid-up)
80
80
Forfeited Shares A/c …Dr.
To Capital Reserve A/c
(Being the gain (Profit) on reissue of forfeited
shares transferred to Capital Reserve)
400
400

(5) No. of Shares Allotted to X = 2,000 X 72 = 60 Shares
2,400
(6) Calculation of Profit on reissue to be transferred to Capital Reserve:
X Y Total
Amount transferred on Reissued Shares ₹360 ₹120 480
Less: Reissue Discount 80
Gain (Profit) on Reissue to be transferred
To Capital Reserve 400

Pankaj Ltd. Invited applications for 10,000 Equity Shares of 100 each. The
amount was payable as follows:
a)On Application ₹ 30 per Share;
b)On Allotment ₹ 20 per Share;
c) On First and Final Call ₹ 50 per Share.
Applications were received for 22,000 shares. Applications for 2,000 shares
were rejected and their application money was refunded. Shares were allotted
to the remaining applicants as follows:
QUESTION (ON PRO-RATA ALLOTMENT)
i. Allotted 50% shares to Ashok who had applied for 4,000 shares.
ii. Allotted in full to Amar who had applied for 2,000 shares.
iii. Allotted balance of the shares on pro rata basis to the other applicants.

Excess application money was applied in payment of allotment and call. All calls
were made and received except the first and final call on 60 shares allotted to on
applicant in Category (iii).
Pass the necessary journal entries in the books of Pankaj Ltd.

Categories Shares
Applied
Shares
Applied
Application
Money
Received
₹
Appropriation of Application Money Received
Equity Share
Capital
₹
Equity Share
Allotment
₹
Calls-in- Advance
₹
Refund
₹
I.
II.
III.
2,000
4,000
2,000
14,000
…
2,000
2,000
6,000
60,000
(4,000 x ₹30)
= 1,20,000
(2,000 x ₹30)
= 60,000
(14,000 x ₹30)
= 4,20,000
…
(2,000 x ₹30)
= 60,000
(2,000 x ₹30)
= 60,000
(6,000 x ₹30)
= 1,80,000
…
(2,000 x ₹20)
= 40,000
…
(6,000 x ₹20)
= 1,20,000
…
1,20,000-60,000 -
40,000 = 20,000
…
4,20,000 -
1,80,000 -1,20,000
= 1,20,000
60,000
…
…
…
Total 22,000 10,000 6,60,000 3,00,000 1,60,000 1,40,000 60,000
TABLE SHOWING APPROPRIATION OF APPLICATION MONEY RECEIVED
Working Notes:

Date Particulars L.F. Dr.(₹) Cr.(₹)
Bank A/c (22,000 x ₹30) ...Dr.
To Equity Shares Application A/c
(Being the application money received)
6,60,000
6,60,000
Equity Shares Application A/c …Dr.
To Equity Share Capital A/c
(10,000 x ₹30)
To Equity Shares Allotment A/c (WN1)
To Bank A/c (2,000 x ₹30)
To Calls-in-Advance A/c (WN 1)
(Being the application money adjusted and
Surplus refunded)
6,60,000
3,00,000
1,60,000
60,000
1,40,000
Equity Shares Allotment A/c …Dr.
(10,000 x ₹20)
(Being the allotment money due)
2,00,000
2,00,000
JOURNAL

Date Particulars L.F. Dr.(₹) Cr.(₹)
Bank A/c (₹2,00,000 - ₹1,60,000) ..Dr.
To Equity Shares Allotment A/c
(Being the allotment money received)
40,000
40,000
Equity Shares First and Final Call A/c
(10,000 x ₹50)
…Dr.
(Being the first and final call money due)
5,00,000
5,00,000
Bank A/c (WN 4) …Dr.
Calls-in-Advance A/c
…Dr.
Calls-in-Arrears A/c (WN 3)
…Dr.
To Equity Shares First and Final Call A/c
(Being the first and final call money
received except on 60 shares and calls-in-
advance adjusted)
3,58,200
1,40,000
1,800
5,00,000

Dissolution of a Partnership Firm

Realised Value of Assets
As per CBSE Guidelines realised value of an
asset.
Thus, in case, Realised Value is not given,
realised value of the asset is taken as “NIL”
Treatment of Assets given in Balance Sheet

As per CBSE Guidelines it should be clearly stated
who is bearing Realisation Expenses.
It means, if Realisation Expenses are borne by a
partner, it should be clearly stated.
It also means if the question is silent as to who is
bearing the Realisation Expenses, it is borne by the
firm.
It is presumed that Realisation Expenses are paid
by the firm / partner, who is bearing it.
Realisation Expenses

Journal Entries
When Realisation Expenses are borne and also
paid by the firm.
Realisation A/c …Dr.
To Cash/Bank A/c
When Realisation Expenses are borne by the firm
but are paid by a partner.
To Concerned Partner’s
Capital A/c
Journal Entries of Realisation Expenses

When Realisation Expenses are borne and also
paid by the same partner.
No Entry
When Realisation Expenses are borne by a
partner and paid by firm.
Concerned Partner’s Capital A/c ...Dr.
To Cash/Bank A/c

When a partner agrees to carry out dissolution
work for an agreed remuneration. Dissolution
Expenses are borne by the partner.
Realisation A/c ...Dr.
To Concerned Partner’s Capital A/c
When a partner agrees to carry out dissolution
work for an agreed remuneration. Dissolution
Expenses are borne by the firm.
Realisation A/c ...Dr.
To Concerned Partner’s Capital A/c
For Dissolution Expenses
To Cash / Bank A/c

When Realisation Expenses are to be borne by
one partner (Say X) and are paid by another
partner (Say Y).
Either
X’s Capital A/c ...Dr.
To Y’s Capital A/c
Or
No entry.

Rohit, a partner is to carry out dissolution of the firm
and he gets Rs. 50,000 as remuneration. Realisation
Expenses were Rs. 25,000. Pass the journal entry.
Illustrations
Realisation A/c …Dr. 75,000
To Rohit’s Capital A/c 50,000
To Cash / Bank A/c 25,000
(Being the Realisation Expenses paid)

The firm paid realisation expenses of Rs. 50,000 on
behalf of Nihar, a partner with whom it was agreed
at Rs. 75,000. Realisation Expenses came to Rs.
1,00,000. Realisation Account will be debited by
(a) Rs. 50,000;
(b) Rs. 75,000;
(c) Rs. 1,00,000;
(d) Rs. 1,50,000.
Answer:(b) Rs. 75,000

A firm is dissolved, Rohit, a partner is to carry out
dissolution. Rs. 50,000 is fixed as his remuneration.
Realisation Expenses were Rs. 25,000, which were
paid by Rohit. Pass the journal entry.
To Rohit’s Capital A/c 75,000
(Being the Realisation Expenses Paid)

A firm is dissolved, Param, a partner is to carry out
dissolution for which he will get Rs. 50,000,
including expenses. Realisation Expenses were Rs.
25,000. Pass the journal entry.
To Param’s Capital A/c 50,000
(Being the Realisation Expenses Paid)

A firm is dissolved, Param, a partner is to carry out
dissolution for which he will get Rs. 50,000,
including expenses. Realisation Expenses were Rs.
25,000, which were paid by the firm.
Pass the journal entry.
To Param’s Capital A/c 50,000
Realisation Expenses Paid)
Param’s Capital A/c …Dr. 25,000
Realisation Expenses paid on
behalf of Param)

Maira, a partner is to carry out dissolution of the firm
for an agreed remuneration of Rs. 15,000.
Dissolution expenses came to Rs. 18,000, which
were paid by the firm.
To Maira’s Capital A/c 15,000
(Being the Realisation Expenses)
(Realisation Expenses paid)

Harman carried out dissolution of the firm for a
remuneration of Rs. 20,000. He later agreed to take
stock valued at Rs. 18,000 in settlement of his
remuneration.
What accounting treatment will be given for this
arrangement.
No Entry

LOAN BY PARTNER TO THE FIRM
Action Points
• It is not an external liability. But, is to be paid before
repayment of Capitals to partners.
• It is not transferred to Realisation Account.
• After Outside Liabilities are paid, Partner’s Loan is
repaid.
• If the partner accepts firm’s asset, entry is passed.
• If the partner loan is settled for lesser amount,
difference is transferred to realisation Account, it
being a gain for all the partners.

LOAN BY THE FIRM TO PARTNER
Action Points
• It is an asset for the firm.
• It is not transferred to Realisation Account.
• It is not transferred to his Capital Account because
if it is transferred, it will mean repayment of
partners capitals before payment of outside
liabilities.
• It is realised in cash.

1. Nature of realisation Account is:
a) Nominal Account
b) Real Account
c) Personal Account
d) Asset Account
Answer: [a]
2. Partners Loan Account is:
a) Personal Account
b) Real Account
c) Nominal Account
d) Expense Account
Answer: [ a ]

Outside liabilities are shown in the Realisation
Account in the:
a) Debit side of Realisation Account
b) Credit side of Realisation Account
c) Debit side of Partner Capital Account
d) Credit side of Partner Capital Account
Answer: [ b ]

If a partner has taken some of the Sundry Asset at
Rs. 7,200 ( being 10% less than book value ) its
book value is:
a) Rs. 7,920
b) Rs. 8,000
c) Rs. 7,200
d) Rs. 7,000
Answer: [b]

There were investments of Rs. 1,20,000, 75% of
the investments were taken by a Partner at 75% of
their book value. Partner’s Capital Account will be
debited by:
a) Rs. 90,000
b) Rs. 67,500
c) Rs. 80,000
d) Rs. 65,000
Answer: [b]

50% of the Furniture valued at Rs. 20,000, taken
by a Partner for Rs. 18,000, and remaining 50%
were sold at 20% less of the book value, amount
received from sale of furniture will be:
a) Rs. 20,000
b) Rs. 10,000
c) Rs. 16,000
d) Rs. 18,000
Answer: [c]

1.If and asset is taken by the partner at the time of
the firm’s dissolution, ______ Account is credited.
[Realisation]
2. In case of dissolution of the partnership firm,
Provision for Doubtful Debts is transferred to
__________Account.
[Realisation]
3. Dissolution of Partnership may or may not
involve ___________ of the firm.
[Dissolution]

4. Profit on realisation is credited to Partner’s
Capital Account in their ______________.
[Profit-Sharing Ratio]
5. Asset taken by a partner at the time of
dissolution is_______ to partner’s capital Account.
[debited]
6. Realisation expenses paid by a partner on behalf
of the firm, his Capital Account is ________.
[Credited]

7. Firm’s Property is applied first for payment of
_____.
[firm’s debts]
8.In case of dissolution of a firm ______relationship
between/among the partners come to an end.
[Economic]
9. Furniture of Rs. 5,500 exist in the balance sheet
on the date of dissolution of the firm, which was
realised at a loss of 10% on selling price. Amount
collected from sale of furniture is ________.
[Rs. 5,000]

10. If Workmen Compensation Reserve exists at
Rs. 20,000 in the Balance Sheet and also a claim
of Workmen Compensation of Rs. 15,000 is to be
paid against it, then out of Workmen Compensation
Reserve _______ will be transferred to Realisation
Account.
[Rs. 15,000]

1.Dissolution of Partnership Dissolution of
Partnership Firm means same.
[ F ]
2. The court can order the Dissolution of a
Partnership Firm, if any of the partners become a
person of unsound mind.
[ T ]
3. For paying firm’s debts all partners are jointly
and severally liable to pay.
[ T ]

4. Change in Business Relationship among the
Partners is Dissolution of Partnership.
[ T ]
5. Assets having provisions are recorded in
Realisation Account at its net value.
[ F ]
6. Partners Loan is an outside Liability.
[ F ]
7. Partners’ wife’s loan is transferred to Realisation
Account.
[ T ]

8. If creditors are Rs. 20,000, loan from bank is
Rs. 10,000 and capital is Rs. 1,50,000 cash in
hand is Rs. 30,000, then Remaining Assets will be
Rs. 1,80,000.
[ F ]
9. Debtors of Rs. 50,000 are realized at a loss of
2% the amount thus realised is Rs. 49,000.
[ T ]

ACCOUNTANCY, 2019-20.

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