Class 12 AHSEC 2022 Accountancy Question Paper Solved English Medium

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Class 12 AHSEC 2022 Accountancy Question Paper Solved English Medium

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ACCOUNTANCY 

2022

ACCOUNTANCY OLD QUESTION PAPER SOLVED

1. (a) Fill in the blanks with appropriate word/words: (any four)

(i) Income and Expenditure Account is prepared on accrual basis.

(ii) Liability of a partner is unlimited.

(iii) Annual Report is issued by a company to its shareholders.

(iv) Liquid ratio is the relationship between current assets and current liabilities.

(v) Equity shareholders are owners of a company.

(b) Choose the correct alternative:

(i) When a new partner is admitted –          

(a) Consent of all the partners is required.

(b) Consent of majority of the partners is required.

(c) Consent of any one partner is required.

Ans: (a) Consent of all the partners is required.

(ii) Balance of shares forfeited account after re-issue is transferred to

(a) Reserve Fund.

(b) Profit and Loss Account.

(c) Capital Reserve.

Ans: (b) Profit and Loss Account.

(c) State whether the following statements are “True” or “False”: (any two)

(i) Outstanding subscription is an asset.

Ans: False.

(ii) A Preference Shareholder gets interest at a fixed rate.

Ans: True.

(iii) Company’s shares are generally transferable.    

Ans: True.

(iv) Life membership fee is a capital receipt.  

Ans: False.

2. Mention two features of a not-for-profit organisation.        

Ans: Two features of a not-for-profit organization are:

1. The primary objective of a not-for-profit organization is to serve a specific social cause or group of individuals, rather than to generate profits for its owners or shareholders.

2. Not-for-profit organizations typically rely on funding from sources such as grants, donations, and government subsidies, rather than generating revenue through the sale of goods or services.

3. What is a Profit and Loss Appropriation Account?          

Ans: Profit and Loss Appropriation Account is a financial statement that shows the distribution of profit among the partners of a partnership firm. It shows the profit earned during a particular period, the amount of profit distributed among the partners, and the amount transferred to reserves or retained in the business.

4. What is the meaning of Cash Flow from Financing Activities?

Ans: Cash Flow from Financing Activities refers to the inflow and outflow of cash that results from activities related to a company’s financing arrangements, such as the issuance of new debt or equity, the repayment of existing debt, and the payment of dividends to shareholders.

5. Mention any two features of a debenture.

Ans: Two features of a debenture are:

1. A debenture is a debt instrument issued by a company to raise capital. It typically involves the company borrowing money from investors in exchange for a promise to pay back the loan with interest at a later date.

2. Debentures are typically secured by a charge on the assets of the company, which means that the assets of the company can be used as collateral to secure the loan in case the company defaults on its repayment obligations.

6. Mention any two rights of a partner.

Ans: Two rights of a partner are:

• The right to participate in the management of the partnership firm.
• The right to share in the profits of the partnership firm.

7. A and B are partners sharing profit and losses in the ratio 3:2 C is admitted into the partnership. A surrendered 1/3^rd of his share and B surrendered 1/4^th of his share in favour of C. Determine the new profit-sharing ratio.

Ans: A and B originally shared profits in the ratio of 3:2, which means that A received 3/5 of the profits and B received 2/5 of the profits. When C is admitted into the partnership, A surrenders 1/3rd of his share and B surrenders 1/4th of his share in favor of C.

A’s original share of 3/5 can be expressed as 3/(3+2) = 3/5. When A surrenders 1/3rd of his share, his new share becomes 2/3 * 3/5 = 2/5.

B’s original share of 2/5 can be expressed as 2/(3+2) = 2/5. When B surrenders 1/4th of his share, his new share becomes 3/4 * 2/5 = 3/10.

C’s share is equal to the combined share surrendered by A and B, which is 1/3 + 1/4 = 7/12.

The new profit-sharing ratio is 2/5 for A, 3/10 for B, and 7/12 for C. This can also be expressed as 4:2:7.

Or

Write three distinctions between Fixed Capital Account and Fluctuating Capital Account.

Ans: Here are three distinctions between fixed capital account and fluctuating capital account:

1. Fixed capital refers to long-term assets used in production, while fluctuating capital refers to short-term assets used in day-to-day operations.

2. Fixed capital is used to acquire and maintain long-term assets, while fluctuating capital is used to fund short-term needs.

3. Fixed capital is managed by the owners or senior management, while fluctuating capital is managed by the operational level of the business.

8. Explain three uses of financial statement.

Ans: Here are three uses of financial statements:

1. Financial statements are used for decision-making by stakeholders such as investors, creditors, and management.

2. Financial statements can be used to evaluate the financial performance of a company over a period of time.

3. Financial statements are often required by law for compliance purposes

9. Mention any three objectives of preparing Comparative Statement.

Ans: The Following are three objectives of preparing comparative statements:

1.To facilitate the analysis of the financial position and performance of a company over a period of time.

2. To identify trends and patterns in the financial performance and position of a company.

3. To facilitate the comparison of a company’s financial performance and position with industry benchmarks or with the financial performance and position of other companies.

Or

A company’s stock is Rs. 2,00,000. Total liquid assets are Rs. 8,00,000 and quick ratio is 2:1. Calculate current ratio.

Ans: To calculate the current ratio, you need to divide the total liquid assets by the current liabilities. The quick ratio is defined as the ratio of liquid assets to current liabilities, so you can use the quick ratio to calculate the current liabilities.

Since the quick ratio is 2:1, the current liabilities can be calculated as Rs. 8,00,000/2 = Rs. 4,00,000.

The current ratio can then be calculated as the total liquid assets divided by the current liabilities, which is Rs. 8,00,000/Rs. 4,00,000 = 2:1.

Alternatively, you can use the stock to calculate the current assets. The current assets are equal to the liquid assets plus the stock, which is Rs. 8,00,000 + Rs. 2,00,000 = Rs. 10,00,000. The current ratio can then be calculated as the current assets divided by the current liabilities, which is Rs. 10,00,000/Rs. 4,00,000 = 2.5:1.

10. Explain the following terms:             

(i) Capital Fund.

(ii) Life Membership Fee.

(iii) Entrance Fee.

Ans: (i) Capital Fund: A capital fund refers to the money or assets that are used to finance long-term investments or projects. Capital funds may include investments in physical assets such as land, buildings, or machinery, as well as intangible assets such as patents or trademarks.

(ii) Life Membership Fee: A life membership fee is a one-time payment made by a member to join an organization as a lifetime member. This fee is typically used to fund the operations and activities of the organization and may entitle the member to certain privileges or benefits.

(iii) Entrance Fee: An entrance fee is a payment required to enter a specific event or venue. Entrance fees are often used to cover the costs of organizing and hosting the event or to generate revenue for the organization hosting the event

Or

Write three features of Fund Based Accounting.

Ans: 1. Fund-based accounting: involves the classification of financial transactions and assets according to the purpose for which they are used.

2. Funds: are established for specific purposes, such as capital projects, debt service, or operating expenses, and transactions are recorded in the appropriate fund.

3. Fund-based accounting: allows for the tracking and management of specific sources of funding and the use of those funds. It helps ensure that funds are used for their intended purposes and helps to maintain the integrity and accountability of the financial management of an organization.

Or

Calculate the amount of stationery consumed to be shown in the Income and Expenditure A/c for the year ended 31^st December, 2020-

During the year 2020 payment made for stationery was Rs. 40,000.

Ans: Students do yourself.

11. Write three differences between Realisation Account and Revaluation Account.     

Ans: The following are three differences between a realization account and a revaluation account in very short form:

Purpose: A realization account is used to track the sale of goods or assets and to record the resulting gain or loss. A revaluation account is used to adjust the value of an asset to reflect its current market value.

Frequency: A realization account is typically prepared and updated on an ongoing basis as goods or assets are sold. A revaluation account is typically prepared periodically, such as annually, to reflect changes in the value of the assets being revalued.

Impact on financial statements: A realization account is used to record gains or losses on the sale of goods or assets, which can impact the profitability of a company. A revaluation account is used to adjust the value of an asset on the balance sheet, which can impact the overall net worth of a company.

Or

Write any three uses of Cash Flow Statement.

Ans: The Following are three uses of a cash flow statement:

1. To assess the ability of a company to generate cash: A cash flow statement shows the inflow and outflow of cash for a company, which can help stakeholders assess the company’s ability to generate cash from its operations.

2. To identify trends in cash flow: A cash flow statement can be used to identify trends in a company’s cash flow, such as an increase or decrease in cash inflow or outflow over time.

3. To evaluate the adequacy of a company’s cash resources: A cash flow statement can be used to evaluate whether a company has sufficient cash resources to meet its short-term and long-term financial obligations. This is especially important for creditors and investors, who rely on a company’s cash flow to determine its creditworthiness and investment potential.

12. Prepare Income and Expenditure Account from the following Receipts and Payments Account and other details of Surya Club for the year ended 31^st December, 2019:  

Receipts and Payment Account

Other details:

(i) Outstanding Salaries – Rs. 1,000

(ii) Subscription outstanding – Rs. 2,000

(iii) Subscription for 2019 received in 2018 – Rs.200

Income and expenditure A/C of Surya Club 

For the year ended 31st December, 2019

Note: The surplus of Rs. 2,400 represents the net income earned by Surya Club for the year ended 31st December, 2019.

Ans: Students Do Yourself.

Or

Write five distinctions between Receipts and Payments Account and Income and Expenditure Account.   

Ans: The following are the five distinctions between a receipts and payments account and an income and expenditure account:

1. Purpose: A receipts and payments account is used to track the inflow and outflow of cash for a period of time, while an income and expenditure account is used to track the income and expenditure of an organization over a period of time.

2. Scope: A receipts and payments account is typically a summary of all cash transactions, including both revenue and capital transactions, while an income and expenditure account is focused on the revenue transactions of an organization.

3. Format: A receipts and payments account is usually presented in the form of a T-account, with receipts on the left side and payments on the right side. An income and expenditure account is usually presented in the form of a traditional income statement, with income at the top and expenditure at the bottom.

4. Information provided: A receipts and payments account provides information about the inflow and outflow of cash for a specific period of time, while an income and expenditure account provides information about the net income or loss earned by an organization over a period of time.

5. Use: A receipts and payments account is typically used by small organizations or non-profit organizations to track their financial transactions, while an income and expenditure account is typically used by larger organizations or businesses to track their revenue and expenditure.

13. Explain the method of calculating “Cash flows from Operating Activities” under direct method.

Ans: A calculation method implements a piece of the calculation framework. Different calculation method classes are used for the different operations that are required to complete a calculation within the calculation framework.

Definition, Formula and Examples

• Key takeaways: …
• Operating Cash Flow = Total Cash Received for Sales – Cash Paid for Operating Expenses. …
• OCF = (Revenue – Operating Expenses) + Depreciation – Income Taxes – Change in Working Capital.

Or

Calculate cash from operating activities from the following information:

Ans: Students do Yourself.

14. What is Ratio Analysis? Mention any three limitations of ratio analysis.    

Ans: Ratio analysis is referred to as the study or analysis of the line items present in the financial statements of the company. It can be used to check various factors of a business such as profitability, liquidity, solvency and efficiency of the company or the business.

There are any three limitations of ratio analysis.

• Inflation Effects.
• Aggregation Issues.
• Operational Changes.

Or

Briefly explain the meaning and significance of any two of the following ratios –

(i) Debt-Equity Ratio.

(ii) Gross Profit Ratio.

(iii) Quick Ratio.

(iv) Stock Turnover Ratio.

Ans: (i) Debt-Equity Ratio: The debt-equity ratio is a financial ratio that measures the relative proportion of shareholders’ equity and debt used to finance a company’s assets. It is calculated by dividing a company’s total debt by its total shareholders’ equity. A higher debt-equity ratio indicates that a company has been using more debt to finance its assets, while a lower debt-equity ratio indicates that a company has been using more equity to finance its assets.

(ii) Gross Profit Ratio: The gross profit ratio is a financial ratio that measures the profitability of a company’s core business operations, excluding expenses such as taxes, interest, and other overhead expenses. It is calculated by dividing a company’s gross profit (revenue minus the cost of goods sold) by its total revenue. A higher gross profit ratio indicates that a company is able to generate more profit from its core business operations, while a lower gross profit ratio indicates that a company is less profitable in its core business operations.

(iii) Quick Ratio: The quick ratio, also known as the acid-test ratio, is a financial ratio that measures a company’s ability to meet its short-term financial obligations. It is calculated by dividing a company’s total current assets (such as cash, marketable securities, and accounts receivable) by its total current liabilities (such as accounts payable and short-term debt). A higher quick ratio indicates that a company is more liquid and has a stronger ability to pay its short-term debts, while a lower quick ratio indicates that a company is less liquid and may have difficulty paying its short-term debts.

(iv) Stock Turnover Ratio: The stock turnover ratio is a financial ratio that measures the efficiency with which a company is able to sell its inventory. It is calculated by dividing a company’s total cost of goods sold by its average inventory for a given period of time. A higher stock turnover ratio indicates that a company is able to sell its inventory more quickly, while a lower stock turnover ratio indicates that a company is taking longer to sell its inventory.

Or

Cost of Goods Sold – Rs. 3,00,000

Stock Turnover Ratio – 6 times

Find out the value of Opening Stock, if Opening Stock is Rs. 10,000 less than the Closing Stock.

Ans: Students do Yourself.

15. From the following Income Statement, prepare Common Size Income Statement and give your comments:

Ans: Students do Yourself.

Or

Give the new format of the Balance Sheet of a company (main headings only) as per the requirements of the revised Schedule-VI of the Companies Act.

Ans: Proforma of Balance Sheet Name of the Company……………………………

Balance Sheet as at……………………………

Or

Give five points of distinctions between under-subscription and over-subscription.

Ans: Under-subscription and over-subscription refer to the situation in which the demand for securities, such as shares or bonds, is less than or greater than the supply of those securities, respectively.

Here are five points of distinction between under-subscription and over-subscription:

Definition: Under-subscription refers to the situation in which the demand for securities is less than the supply, while over-subscription refers to the situation in which the demand for securities is greater than the supply.

Impact on the issuing company: Under-subscription may result in the issuing company not being able to raise the desired amount of capital, while over-subscription may result in the company raising more capital than it intended.

Impact on investors: Under-subscription may lead to investors not being able to secure the desired number of securities, while over-subscription may result in investors being allocated fewer securities than they applied for.

Allocation of securities: In under-subscription, the issuing company may allocate the securities on a pro rata basis, while in over-subscription, the securities may be allocated through a lottery system or through the discretion of the issuing company.

Pricing of securities: Under-subscription may lead to a lower price for the securities, while over-subscription may result in a higher price for the securities.

16. A, B and C were in partnership sharing profits and losses in the ratio of 3:2:1. On 1^st January, 2020, B retired from the firm. On that date their Balance Sheet was as follows:

Balance Sheet

The terms of the retirement were:

(i) Building is to be appreciated by Rs. 14,000.

(ii) Provision for doubtful debts is to be made at 5% on the debtors.

(iii) The goodwill of the firm is to be valued at Rs. 36,000.

(iv) No cash is to be paid to B immediately and balance of his capital account is to be transferred to his loan account.

Prepare Revaluation Account and Partners’ Capital Account.

Ans: Students Do Yourself.

Or

Write the uses of the securities premium amount.

Ans: The securities premium is the excess amount received by a company when it issues new securities (such as shares or bonds) at a price higher than the face value or par value of the securities. Some of the uses of the securities premium amount are:

To finance the expansion of the company: The securities premium can be used to fund the expansion of the company’s operations, such as building new facilities, acquiring new equipment, or entering new markets.

To pay off debts: The securities premium can be used to pay off existing debts, such as loans or bonds, and reduce the company’s overall debt burden.

To pay dividends to shareholders: The securities premium can be used to pay dividends to shareholders, which is a distribution of profits to shareholders as a return on their investment in the company.

To increase reserves: The securities premium can be used to increase reserves, which are funds set aside for a specific purpose, such as to cover future expenses or to fund new projects.

To invest in new opportunities: The securities premium can be used to invest in new opportunities, such as acquiring other companies or investing in new technologies.

To increase share capital: The securities premium can be used to increase share capital, which is the total value of a company’s outstanding shares of stock. This can be done through a rights issue, where the company offers new shares to existing shareholders, or through a private placement, where the company sells new shares to a select group of investors.

17. P, Q and R were in partnership sharing profit and losses in the ratio of 4:3:3. On 31^st March, 2020 their Balance Sheet was as follows: 

Balance Sheet

‘Q’ died on 30.06.2020. Under the partnership agreement the executors of a deceased partner were entitled to:

(a) Amount standing to the credit of deceased partner’s capital account.

(b) Interest on capital @12% p.a.

(c) His share of goodwill. The goodwill of the firm on Q’s death was valued at Rs. 2,70,000.

(d) Share of profit from the closing of the last financial year to the date of death on the basis of last year’s profits.

The profit of the firms for the year ended 31.03.2020 was Rs. 2,40,000. Prepare Q’s capital account on the date of his death.

Solution: Students Do Yourself. 

Or

Distinguish between Profit and Loss account and Profit and Loss Appropriation account.

Ans: Profit and Loss (P&L) account and Profit and Loss Appropriation (P&L Appropriation) account are two financial statements that are used to report a company’s financial performance. 

However, there are several differences between the two:

Purpose: The purpose of a P&L account is to show a company’s revenue, expenses, and net profit or loss for a specific period of time. On the other hand, the purpose of a P&L Appropriation account is to show how a company’s net profit is distributed or appropriated among its shareholders and other stakeholders.

Content: A P&L account contains a summary of a company’s income and expenses, including revenue, cost of goods sold, gross profit, operating expenses, and net profit or loss. A P&L Appropriation account, on the other hand, contains information on the distribution of the company’s net profit, such as dividends, reserves, and retained earnings.

Preparation: A P&L account is prepared based on a company’s financial transactions and is typically prepared at the end of an accounting period. A P&L Appropriation account, on the other hand, is prepared based on the decision of the company’s management and is typically prepared after the P&L account has been prepared.

Format: A P&L account is typically presented in a single-step format, where all revenues and expenses are shown in a single statement. A P&L Appropriation account is typically presented in a multi-step format, where the net profit is shown after deducting all expenses from revenues, and then the appropriation of the net profit is shown in separate sections.

Users: A P&L account is used by a variety of stakeholders, including shareholders, investors, creditors, and management, to assess a company’s financial performance and make decisions about the company. A P&L Appropriation account is primarily used by shareholders to understand how the company’s net profit is being distributed among them.

18. What is Realisation Account? Write three cases where a partnership firm may be dissolved by a court. 

Ans: At the time of dissolution of a firm all the books of account are closed, all assets are sold and all liabilities are paid off. In order to record the sale of assets and discharge of liabilities a nominal account is opened known as realisation account.

Compulsory Dissolution: A firm is dissolved compulsorily in the following cases: 

(a) When all the partners or all but one partner, become insolvent, rendering them incompetent to sign a contract..

(b) When the business of the firm becomes illegal. or 

(c) When some event has taken place which makes it unlawful for the partners to carry on the business of the firm in partnership, e.g., when a partner who is a citizen of a country becomes an alien enemy because of the declaration of war with his country and India.

Or

Amal and Bimal are two partners in a firm. They share profits as 3:2. Following is their Balance Sheet as on 31^st March, 2021 on which date the firm is dissolved:

Balance Sheet

Fixed Assets are realised at Rs. 28,000. Stock at Rs. 8,000 and Debtors at Rs. 13,000. Expenses on realisation are Rs. 1,500. Creditors are paid at a discount of 10%.

Prepare Realisation Account Partners Capital Account and Cash Account.

Ans: Students do yourself.

19. Pradeep and Pranab are partners in a firm. The Trial Balance of the firm as on 31^st March, 2020 was as under:

Trial Balance

Prepare Profit and Loss Account, Profit and Loss Appropriation Account and the Balance Sheet of the firm for the year ended 31^st March, 2020, after considering the following information:

(i) Write off Rs. 1,000 as Bad Debt and provide a 5% Provision on Sundry Debtors for Doubtful Debts.

(ii) Interest on Investment Accrued Rs. 600.

(iii) Interest on Partner’s capital is allowed @ 5% p.a.

(iv) Create a General Reserve by taking Rs. 5,000 out of profit.

Ans: Students Do Yourself.

20. (a) Write two differences between Authorised Capital and Issued Capital of a company.

Ans: Two differences between authorized capital and issued capital of a company are:

Purpose: Authorized capital is the maximum amount of capital that a company is legally allowed to issue, while issued capital is the actual amount of capital that the company has issued to shareholders.

Flexibility: Authorized capital is a fixed amount that cannot be changed without the approval of shareholders and regulatory authorities, while issued capital can be increased or decreased depending on the company’s needs and the decisions of its management.

(b) What is Minimum Subscription? 

Ans: Minimum subscription refers to the minimum amount of capital that a company must raise from shareholders in order to complete an issue of securities, such as shares or bonds. It is the minimum amount of capital that the company must receive from investors in order to complete the issuance of securities. If the company does not receive the minimum subscription amount, it may have to cancel the issue and return the money to the investors. 

(c) What is Reserve Capital?

Ans: Reserve capital refers to that part of the authorised capital which is yet to be called up and will be available for drawing when needed.

(d) What is Call-in-Arrear?

Ans: The portion of called up capital which is not paid by the shareholder within a specified time is known as calls-in-arrears. In other words, when a shareholder fails to pay the amount due on allotment or any subsequent calls, then it is termed as call-in-arrears.

Or

Arnab Company Ltd. Issued 10,000 equity shares of Rs. 100 each at a premium of 10% payable as under:

Rs. 30 on Application

Rs. 60 on Allotment (including premium)

Rs. 20 on call Kamalesh holding 400 shares failed to pay the allotment and call money and Monalisha holding 700 shares failed to pay the call money.

Show the Entries in the Cash book and Journal of the company for the above transactions.

Ans: Students Do Yourself.

21. Give Journal entries for issue and redemption of Debentures in respect of the following:       

(a) Debentures issued at a discount and redeemable at premium.

(b) Debentures issued at premium and redeemable at premium.

(c) Debentures issued at par and redeemable at par.

(d) Debentures issued at premium and redeemable at par.

Ans: (a) Debentures issued at a discount and redeemable at premium:

When debentures are issued at a discount, the company records a debit to the debenture account and a credit to the cash account for the amount received from the debenture holders.

Journal entry: 

Debenture account (dr)

Cash account (cr)

When the debentures are redeemed at a premium, the company records a debit to the cash account and a credit to the debenture account for the amount paid to the debenture holders.

Journal entry: 

Cash account (dr)

Debenture account (cr)

(b) Debentures issued at premium and redeemable at premium:

When debentures are issued at a premium, the company records a debit to the debenture account and a credit to the cash account for the amount received from the debenture holders, plus a credit to the premium on debenture account for the premium amount.

Journal entry:

Debenture account (dr)

Cash account (cr)

Premium on debenture account (cr)

When the debentures are redeemed at a premium, the company records a debit to the cash account and a credit to the debenture account for the amount paid to the debenture holders, plus a debit to the premium on debenture account for the premium amount.

Journal entry:

Cash account (dr)

Debenture account (cr)

Premium on debenture account (dr)

(c) Debentures issued at par and redeemable at par:

When debentures are issued at par, the company records a debit

Or

What are the differences between a shareholder and a debenture holder?

Ans: Debentures are long-term debt instruments issued by a company to raise capital. Debentures can be redeemed, or repaid, by the issuing company in a number of ways. Here are five methods of redemption of debentures:

Call redemption: Call redemption is a method of redeeming debentures before their maturity date. In this method, the issuing company has the option to buy back the debentures from the holders at a predetermined price, known as the call price. The call price is typically higher than the face value of the debentures, and the issuing company may decide to redeem the debentures if the market interest rates have fallen, making it cheaper for the company to borrow from other sources.

Put redemption: Put redemption is a method of redeeming debentures that gives the debenture holders the option to sell the debentures back to the issuing company at a predetermined price, known as the put price. The put price is typically lower than the face value of the debentures, and the debenture holders may decide to redeem the debentures if the market interest rates have risen, making it more expensive for the company to borrow from other sources.

Sinking fund redemption: Sinking fund redemption is a method of redeeming debentures in which the issuing company sets aside a portion of its profits or revenue to be used to redeem the debentures on a regular basis, usually annually. The amount of debentures redeemed in each sinking fund redemption is typically a fixed percentage of the total outstanding debentures.

Drawback redemption: Drawback redemption is a method of redeeming debentures in which the issuing company repays the debenture holders the principal amount of the debentures along with a predetermined rate of interest. The rate of interest is typically higher than the rate at which the debentures were issued, and the issuing company may decide to redeem the debentures if the market interest rates have fallen, making it cheaper for the company to borrow from other sources.

Conversion redemption: Conversion redemption is a method of redeeming debentures that allows the debenture holders to exchange their debentures for a different type of security, such as shares in the issuing company. This method of redemption is typically used when the issuing company wants to convert its debt into equity.

Or

Explain different methods of redemption of debentures.

Ans: Methods of Redemption of Debentures

Various companies may opt for different methods of redemption of debentures. These following are some popular ways of doing so – 

1. Lump-sum payment on a prefixed date This one-time method is considered to be among the simplest redeeming options. As per this method, debenture holders receive the promised sum on the prefixed date.

If the debentures are not redeemed at discount or premium, the lump sum amount, calculated by the summation of the principal value of all debentures, is paid out on the prefixed or maturity date that is mentioned on debenture agreement. The issuing company may decide to pay off the debenture amount before its maturity. Since companies know in advance, when they have to pay off for debenture, they are better positioned to streamline it. 

The accounting treatment of redemption of debentures in this method is given below –

22. Ram and Mohan are partners sharing profit and losses equally. Their Balance Sheet on 1^st April, 2021 was follows:

Balance Sheet

They decided to admit Sanjoy into partnership for 1/3^rd share on the following terms:

(i) Machinery and Building were revalued at Rs. 20,000 and Rs. 42,000 respectively.

(ii) Creditors were reduced by Rs. 2,000.

(iii) Provision for doubtful debts on debtors is to be created at Rs. 1,000.

(iv) Sanjoy is to bring in Rs. 40,000 as his capital and Rs. 24,000 as premium for goodwill.

Pass Journal entries for the above information and prepare Balance Sheet of the firm after the admission of Sanjoy.

Ans: Students Do Yourself.

Or

(i) Write any three limitations of partnership business.    

Ans: Three limitations of partnership business are:

Limited liability: Partners in a partnership business are personally liable for the debts and obligations of the partnership. This means that if the partnership is unable to pay its debts, the partners’ personal assets may be seized to pay off the debts.

Lack of continuity: A partnership business is dissolved upon the death, withdrawal, or bankruptcy of any partner. This means that the business may have to be dissolved if any of the partners leaves the business, which can disrupt the continuity of the business.

Limited resources: A partnership business typically has limited resources, such as capital and expertise, compared to a corporation. This can limit the business’s ability to expand and take on larger projects.

(ii) Explain five factors affecting the goodwill of a firm.

Ans: Five factors affecting the goodwill of a firm are:

Quality of products or services: Goodwill is often associated with the quality of a company’s products or services. A company that offers high-quality products or services is more likely to have a good reputation and high goodwill.

Customer service: Good customer service is an important factor in building goodwill. Companies that provide prompt, efficient, and helpful customer service are more likely to be well-regarded and have a positive reputation.

Location: The location of a company can also affect its goodwill. For example, a company that is located in a prime location, such as a busy shopping district, is more likely to have a good reputation and high goodwill.

Brand reputation: A company’s brand reputation is a key factor in its goodwill. Companies that have a strong brand reputation, such as well-known brands that are associated with quality and reliability, are more likely to have high goodwill.

Market competition: The level of competition in a company’s market can also affect its goodwill. A company that is able to stand out in a competitive market is more likely to have a good reputation and high goodwill.

Or

Distinguish between dissolution of Partnership and dissolution of Partnership firm.

Ans: Here are eight differences between dissolution of partnership and dissolution of partnership firm:

Definition: Dissolution of partnership refers to the termination of a partnership relationship, while dissolution of partnership firm refers to the winding up of a partnership business.

Nature: Dissolution of partnership is a process of ending the partnership relationship between the partners, while dissolution of partnership firm is a process of winding up the partnership business and distributing its assets.

Impact on partnership business: Dissolution of partnership does not affect the partnership business, while dissolution of partnership firm results in the termination of the partnership business.

Impact on partnership relationship: Dissolution of partnership ends the partnership relationship between the partners, while dissolution of partnership firm does not affect the partnership relationship.

Impact on partnership assets: Dissolution of partnership does not affect the partnership assets, while dissolution of partnership firm involves the distribution or sale of the partnership assets.

Decision-making: Dissolution of partnership is typically initiated by one or more partners, while dissolution of partnership firm is typically initiated by the partnership business.

Legal requirements: Dissolution of partnership may or may not require legal formalities, depending on the terms of the partnership agreement, while dissolution of partnership firm typically requires legal formalities, such as filing the appropriate documents with the relevant authorities.

Continuing liability: In dissolution of partnership, the partners may continue to be liable for the debts and obligations of the partnership, depending on the terms of the partnership agreement, while in dissolution of partnership firm, the partners are typically not liable for the debts and obligations of the partnership once the assets have been distributed or sold.