Kendriya Vidyalaya Sangathan

Jaipur Region

Last Minutes Revision Material

Class: XII {2020-21}

Subject: Accountancy

UNDER THE ABLE GUIDANCE OF

Hon. Mr. B. L. Morodia
Deputy Commissioner
KVS RO JAIPUR

Mr. D. R. Meena Mr. Mukesh Kumar Dr. R. K. Meena

Assistant Commissioner Assistant Commissioner Principal
KVS RO JAIPUR KVS RO JAIPUR K. V. No. 1 Ajmer

Prepared by:
Mr. Alak Dass {PGT Commerce K. V. No. 4 Jaipur}
Mr. Dinesh Sharma {PGT Commerce K. V. AFS Suratgarh}
Ms. Ritu Vinayak {PGT Commerce K. V. Bhilwara}
Mrs. Anjali {PGT Commerce K. V. Baran}

Checked by :
Dr. Niraj Saraswat {PGT Commerce K. V. No. 2 Jaipur}
Mr. I. M. Sharma { PGT Commerce K. V. No. 1 Jaipur }
 Accounting for Not-for-Profit Organisation

There are certain organisations which are set up for providing services to its members and the public in general. Such
organisations are called Not for Profit Organisation. Eg: Clubs, charitable institutions, schools, welfare societies etc.
ACCOUNTING RECORDS OF NOT-FOR-PROFIT ORGANISATION
1. Receipt & Payment Account 2. Income & Expenditure Account 3. Balance sheet
Receipt and Payment Account: The Receipt and Payment account is a real A/c which is prepared at the end of an accounting
year giving a summary of all cash receipts and payments {either Capital or Revenues/ Previous, Current or Next Year}.
Income and Expenditure Account: It is the summary of income and expenditure for the accounting year. It is just like a profit
and loss account {Nominal A/c} prepared on accrual basis in case of the business organisations. It includes only revenue items
of current year only and the balance at the end represents surplus or deficit.
Treatment of some peculiar items:
1. Subscription – Current year subscription is to be calculated and it is shown on the credit side of Income and Expenditure
Account. Whereas, subscription received for some specific purpose like subscription for tournament fund, subscription for
construction of a building etc. should be capitalized and hence shown on the liability side of the Balance Sheet.
2. Donation a. Specific donation – Donation for building, donation for library etc. must be treated as capital receipt and shown
on the liability side of balance sheet. b. General donation can be shown on the credit side of Income and Expenditure A/c.
3. Grant received from central govt., state govt. or local bodies for day to day expense are treated as income. But grant for
specific purpose like construction of a building is to be capitalized.
4. Legacies: It is the amount received as per the will of a deceased person who may or may not specify the use of the amount.
Legacies, use of which is specified are specific legacy and is shown in the balance sheet as liability. If the use is not specified it
is considered as revenue nature and credited to income and expenditure account.
5. Honorarium -- It is the amount paid to the person who is not a regular employee of the institution. This is shown on the
expenditure side of the income and expenditure account.
5. Endowment fund – Fund meant for providing permanent means of support. It is a capital receipt.
6. Entrance Fee/Admission Fee – It is the amount of fees collected on the admission of members. In the absence of specific
information, it is preferably be revenue item.
7.Life membership fee – It is a lump sum amount received from certain members towards life membership instead of annual
subscription. It should be capitalised as it is a capital receipt.
8.Special purpose fund – E.g. Tournament fund, Charity fund, Prize fund, Endowment fund etc. If there is any expense or
income relating to that fund it will be added back or will be deducted from that fund only in the Liabilities side of Balance sheet.
Balance Sheet
as at 31st March, 2020
Liabilities Rs. Assets Rs.
Tournament fund: XXXX Tournament Fund Investment
Add: Collection for Tournament XXXX Accrued interest on T. F. Investment.
Donation for Tournament XXXX If this figure is negative (-) it s
Interest received from T. F. Invt XXXX If this figure is negative (-) it should be
Accrued interest on T. F. Invt. XXXX transferred to the expenditure (debit) side
Less: Tournament Expense XXXX XXXX of the Income and Expenditure b

Important Question NCERT Q. No. 5 and 13

Difference between Income and Expenditure A/c and Receipt and Payment A/c
Basis Income and Expenditure Receipt and Payment A/c
Nature It is a Nominal A/c. It is a Real A/c.
Nature of items It records Income and expenditure of revenue It records receipts and payments of cash and
nature bank of revenue as well as capital
Dr. and Cr. side Dr. side of this A/c records Expenses and Losses. Dr. side of this A/c records the receipts.
Cr. side of this A/c records income and gains. Cr. side of this A/c records the payments.

1
Calculation of Expense (Eg. Stationery Consumed) during the year:
Amount paid for stationery (Receipt and Payment A/c) XXXX
Add: Opening stock of stationery XXXX
Closing outstanding XXXX
Opening prepaid XXXX XXXX
Less: Closing stock of stationery XXXX
Opening outstanding XXXX
Closing prepaid XXXX (XXXX)
Stationery Consumed During the Year XXXX
*Amount of Stationery to be debited to Income and Expenditure A/c
Note: Stock of stationery is an asset, closing stock of stationery is shown on the asset side of the closing Balance Sheet.

Calculation of Subscription to be shown in Income and Expenditure A/c

Subscription received during the year XXXX
Add: Closing outstanding subscription XXXX
Opening received in advance subscription XXXX XXXX
Less: Opening outstanding subscription XXXX
Closing received in advance subscription XXXX
Subscription not receivable XXXX (XXXX)
Income from subscription during the current year {Shown in Income and Expenditure A/c} XXXX
* 1. If Sub. O/s at the end as on is given it means it includes current year as well as previous year pending amount.
2. If Subscription O/s at the end for the year ending it means it is only current year’s pending amount.
Important Question NCERT Q. No. 14

Dr. Format of Receipts and Payments A/c Cr.

Receipts Rs. Payments Rs.
To Balance b/d {Cash in Hand/Bank} By Balance b/d {Bank Overdraft}
To All Receipts {Revenue and Capital} By All Payments {Revenue and Capital}
To Balance c/d {in case of Bank Overdraft as By Balance c/d {Closing Balance of Cash in
Closing Balance} Hand/Bank}

Dr. Format of Income and Expenditure A/c Cr.

Expenditure Rs. Income Rs.
To Expenses {Revenue Nature items which are By Income {Revenue Nature items which are
related to the Current Year only} related to the Current Year only}
To Tournament Exp’s {If there is no Tournament Fund} By Deficit
To Surplus

Format of Balance Sheet

as at 31st March, 2020
Liabilities Rs. Assets Rs.
Capital Fund Cash in Hand/Bank
Add: Surplus or Less Deficit O/s Subscription
Add : Life Membership Fees Other Assets
Add: Entrance Fees {Capitalised Portion} Sports Fund Investment or any other
Other Liabilities Investment
Subscription Received in Advance

Important Question NCERT Q. No. 10 and 18

2
 Accounting for Partnership: Basic Concepts
Partnership: Partnership is a relation between persons who have agreed to share the profits of a business carried on by all or
any of them acting for all.
Partnership Deed: Partnership Deed is a written agreement among the partners detailing the terms and conditions of the
partnership.
Provisions in the absence of Partnership Deed:
1.Profit and losses are to be shared equally among partners. 2. No interest is to be allowed on capital.
3. No interest is to be charged on drawings. 4. No salary, commission, remuneration to any partner.
5 Interest on Partner’s loan @ 6% per annum.
Different Cases Related to Interest on Capital:
Case 1 When partnership agreement is silent about interest on capital - Not allowed.
Case 2 When partnership agreement provides that interest on capital is to be allowed.
Situation 1 In case there is a loss Not provided
Situation 2 In case there are sufficient profits Fully allowed
Situation 3 If there are insufficient profits Profits are to be distributed in the ratio of capital.
Case 3 When partnership agreement says interest on capital is to be provided as a charge - Fully allowed.
Note: Interest on Capital is always calculated on the opening balance of capital in a year.
In case the question gives closing capital, then opening capital will be calculated first by using the following formula
Opening Capital = Closing Capital + Drawings – Profit – Additional Capital
Important Question NCERT Q. No. 15 and 16
Interest on Partner’s Drawings:
Case I. When Fixed Amount is withdrawn at Fixed intervals
Interest on Drawings = Annual Drawings x Rate of Interest x Average Period
100 12
Average Period
Various situations of Drawings Monthly Quarterly Half-yearly Monthly
Drawings for Drawings for Drawings for Drawings for
12 months 12 months 12 months 6 months
When drawings are made in the beginning of each period 6.5 7.5 9 3.5
When drawings are made in the middle of each period 6 6 6 3
When drawings are made in the end of each period 5.5 4.5 3 2.5
Case II. When Unequal Amount is withdrawn at Fixed different dates
1. Simple Method: Interest on Drawings = Amount of Drawings x Rate of Interest x Months Remaining
100 12
2. Product Method: Interest on Drawings = Total of Products x Rate of Interest x 1
100 12
Important Question NCERT Q. No. 20,24 and 25
Profit and Loss Appropriation A/c
Dr. for the year ended… Cr.
Particulars Rs. Particulars Rs.
To Profit and Loss A/c {Net Loss} By Profit and Loss A/c {Net Profit}
To Interest on Partner’s Capitals By Interest on Partner’s Drawings
To Partner’s Salary By Loss transferred to Partners’ Cap./Current A/cs
To Partner’s Commission
To General Reserve
To Profit transferred to Partners’ Cap./Current A/cs

Important Question NCERT Q. No. 7,35 and 36.

3
Methods of Capital Accounts:
I. When Capital are Fixed: (i) Fixed Capital Accounts (ii) Current Accounts
Dr. Partners’ Capital A/c Cr.
Particulars Rs. Particulars Rs.
To Cash/Bank A/c {Withdrawal of Capital} By Bal. b/d {Opening Capital}
To Bal. c/d {Closing Capital} By Cash/Bank A/c {Additional Capital}
Dr. Partners’ Current A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d {in case of Dr. opening Bal.} By Balance b/d {in case of Cr. opening Bal.}
To Drawings A/c By Interest on Capital A/c
To Interest on Drawings A/c By Partner’s Salary A/c
To P and L Appr. A/c {Share of Loss, in case of Loss} By Partner’s Commission A/c
To Balance c/d {Cr. Closing Balance} By P and L Appr. A/c {Share of Profit, in case of Profit}

II. When Capital are Fluctuating: Fluctuating Capital Accounts

Dr. Partners’ Capital A/c Cr.
Particulars Rs. Particulars Rs.
To Balance b/d {in case of Dr. opening Bal.} By Bal. b/d {Opening Capital}
To Drawings A/c By Cash/Bank A/c {Additional Capital}
To Interest on Drawings A/c By Interest on Capital A/c
To P and L Appr. A/c {Share of Loss, in case of Loss} By Partner’s Salary A/c
To Bal. c/d {Closing Capital} By Partner’s Commission A/c
By P. and L. Appr. A/c {Share of Profit, in case of Profit}

Past Adjustments:
Statements Showing Adjustments to be made
Particulars A B Firm
Dr. Cr. Dr. Cr. Dr. Cr.
Wrong Appropriation (I) XXX XXX XXX
{Profits wrongly credited}
Correct Appropriation (II)
Appropriations to be taken into A/c XXX XXX XXX
(i) Interest on Capital (Cr.) XXX XXX XXX
(ii) Salary/Commission (Cr.)
(iii) Interest on Drawings (Dr.) XXX XXX XXX
(iv) Net Divisible Profit in P/S Ratio (Cr.) or XXX XXX XXX
Divisible Loss (Dr.)
Net effect Dr./Cr. (I) –(II) Dr./Cr. Balance Dr./Cr. Balance NIL
Adjustment Journal Entry:
Gaining Partners’ Capital/Current A/c Dr.
To Sacrificing Partners’ Capital/Current A/c
(Being partners’ capital accounts adjusted for past adjustment)
Important Question NCERT Q. No. 38,40 and 43.
Guarantee of Profit to a Partner:
Sometimes a partner is admitted into the firm with a guarantee of certain minimum amount by way of his share of profits of the
firm. Such assurance may be given by all the old partners in a certain ratio or by any of the old partners, individually to the new
partner. The minimum guaranteed amount shall be paid to such new partner when his share of profit as per the profit-sharing
ratio is less than the guaranteed amount.
Journal Entry:
Guarantor’s Partner’s Capital/Current A/c Dr.
To Guaranteed Partner’s Capital/Current A/c
(Being guarantee of profit adjusted)
Important Question NCERT Q. No. 29 and 31. {Prepared by Sh. Alak Dass Page No. 1-4}
4
 Reconstitution of Partnership
Any change in the existing agreement of partnership is called reconstitution of a firm.
Modes of Reconstitution
1) Change in profit sharing ratio
2) Admission of a new partner
3) Retirement of an existing partner
4) Death of a partner
5) Amalgamation of two partnership firm.
6) Change in profit sharing ratio
When one or more partners acquire an interest in the business from another existing partner. It is said to be a change in profit
sharing ratio.
New profit-sharing ratio- it is the rationale in which partners are to share profits/ losses in future.
Sacrificing ratio - It is ratio in which the partner has to agree to sacrifice their share of profit in favour of another partner.
Sacrifice Ratio = Old ratio - New ratio
Gaining ratio - It is ratio in which the partner has to agree to gain their share of profit from another partner.
Gaining Ratio = New ratio - Old ratio

Valuation of Goodwill:-
Average profit method :- Average profit x Number of years purchase
Average profit :- Sum total of profits or loss/ Number of years
Weighted average profit method : - Weighted Average profit x number of years
Weighted average profit :- Total of products of actual profits and weights/ Total of weights
Super profit method:- super profit x number of years purchase
Super profit : Average profit - Normal profit
Normal profit : Capital Employed x Normal rate of Return/ 100
Accounting treatment of Goodwill at the time of change in ratio
I) For writing- off goodwill appearing in All partner’s capital/ current A/c Dr. In old ratio
the balance sheet To Goodwill A/c

II) For recording of Goodwill without Gaining partner’s capital/ current A/c. Dr. In GR
opening goodwill account To sacrificing partner’s capital/ current A/c In SR

Accounting treatment of Accumulated profits, Reserves and losses

When want to transfer/ distribute or no a. For transfer of reserves and accumulated profits
specific information is given Reserves/ profits A/ c. Dr.
Workmen compensation Res. A/c . Dr. In old
Investment fluctuation Res. A/c. Dr.
ratio
To all partner’s capital/ current A/c
b. For transfers of accumulated losses.
All partner’s capital/ current a/c. Dr.
To Profit and loss a/c.
To advertisement suspense A/c.
To deferred Revenue Expenditure A/c
When don’t want to transfer/ distribute Gaining partner’s capital/ current A/c. Dr. In GR
or ask to pass single journal entry To sacrificing partner’s capital/ current A/c In SR
(With the amount of net effect)

5
Accounting treatment of Revaluation of Assets and Liabilities
I) when revised values are to be recorded in the books:
Dr. Revaluation A/c Cr.
Particulars ₹ Particulars ₹

To Decrease in value of assets ……. By Increase in value of assets …….

To Increase in value of liabilities ……. By Decrease in value of liabilities …….
To Unrecorded liabilities ……. By Unrecorded assets …….
To Profit transferred to old partners’ capital/ By Loss transferred to old partners’
current A/c …….. capital/current A/c ……..
———— ————
——

When revised values are not to be recorded in the books of accounts: (single entry will be pass)
Firstly, calculate the net effect through workings
For Profit on Revaluation Gaining partner’s capital/ current A/c. Dr.
To Sacrificing partner’s capital/ current A/c
(With the amount of net effect)

For Loss on Revaluation Sacrificing partner’s capital/ current A/c. Dr.

To Gaining partner’s capital/ current A/c.
Important questions NCERT EXAMPLE No. 9,12,13,16
Admission of a Partner
Calculation of New Ratio and Sacrificing Ratio:
New Ratio = Old Ratio - Sacrificing Ratio
Sacrificing Ratio = Old Ratio - New Ratio
Accounting treatment of Goodwill at the time of admission of partner:
When goodwill already Old partner’s capital/ current A/c Dr. In Old Ratio
appears in the books To Goodwill A/c

Case I When premium for No entry in the books of the firm.

goodwill is paid by new For capital bring by new partner
partner privately Cash/ Bank A/c. Dr.
To New partner’s capital A/c

Case II (a) When premium Cash/ Bank/ Assets A/c. Dr.

for goodwill is brought by To New partner’s capital A/c
new partner in cash / kind To Premium for goodwill A/c
and retained in the Premium for goodwill A/c Dr.
business To (Old) Sacrificing partner’s capital/current A/c In Sacrificing
(b) When not retained in In addition of above two entries Ratio
business or goodwill (Old) Sacrificing partner’s capital/ current A/c. Dr.
withdrawn To Cash / Bank A/c

6
 Case III When the new New partner’ Current A/c Dr. with the share
partner is unable to bring To (Old) Sacrificing partner’s capital/ current A/c of new partner
his share of premium for in G/W in GR
goodwill in cash

Case IV When the new Cash/ Bank/ Assets A/c. Dr.

partner brings only a part of To New partner’s capital a/c In cash
premium for goodwill in To Premium for goodwill a/c Not in cash
cash Premium for goodwill a/c. Dr. (In SR)
New partner’ Current a/c Dr.
To (Old) Sacrificing partner’s capital/ current a/c
Accounting treatment of Accumulated profits, Reserves and losses
Transfer/ distribute or no specific a) For transfer of reserves and accumulated profits
information is given Reserves/ Profits a/ c. Dr.
Workmen Compensation Reserve A/c. Dr. In old
Investment Fluctuation Reserve A/c. Dr.
ratio
To Old partner’s capital/ current a/c
b) For transfers of accumulated losses.
Old partner’s capital/ current a/c. Dr.
To Profit and loss a/c.
To Advertisement suspense a/c.
To Deferred Revenue Expenditure a/c

Hidden Goodwill : Calculation of Hidden Goodwill ₹

Total capital of the firm on the basis of new partner’s capital ………
(Capital of new partner’s Capital x Reciprocal of share of new partner)
Less: Adjusted Capital of all partner (including capital of new partner) ………
Hidden goodwill
Accounting treatment of revaluation of Assets and liabilities will be same as given in changes in profit sharing ratio (revised
value)
Important Questions NCERT Q. No. 18,27,30 and 35

Retirement of a Partner
Calculation of New Ratio and Gaining Ratio
New Ratio = Old Ratio - Sacrificing Ratio AND Gaining Ratio = New Ratio - Old Ratio
Accounting treatment of Goodwill at the time of retirement and death of a partner:
When goodwill already appears All partner’s capital/ current a/c Dr. In Old ratio
in the books To Goodwill a/c

Treatment of Goodwill Gaining (remaining) Partner’s capital/ current A/c. Dr. With the share of
To Retiring partner’s Capital/ Current A/c retiring partner In GR

Hidden Goodwill Amount paid to retiring partner - Adjusted Capital of retiring

partner

7
Accounting treatment of Accumulated profits, Reserves and losses
Transfer/ distribute or no specific ● For transfer of reserves and accumulated profits
information is given Reserves/ profits a/ c. Dr.
Workmen compensation res. A/c. Dr. In Old Ratio
Investment fluctuation res. A/c. Dr.
To All partner’s capital/ current a/c
● For transfers of accumulated losses.
All partner’s capital/ current a/c. Dr.
To Profit and loss a/c
To Advertisement suspense a/c
To Deferred Revenue Expenditure a/c
Death of a Partner
Calculation of profit or loss share of deceased partner:
1) On the basis of time: Actual/Average Profit x Share of deceased partner x Time period {In months}/12
2) On the basis of Sales:
Profit up to date of death = Profit of last year x Sales up to death / Sales of last year
Profit of deceased partner = Profit up to death x Share of deceased partner
Entry of Profit of deceased partner’s share: -
Case 1:- If profit sharing ratio remains same:-
Profit and Loss Suspense Account Dr.
To Deceased partner’s capital account
Case 2:- If new ratio given:-
Remaining partner’s capital account. Dr.
To Deceased partner’s capital account
( In Gaining ratio)
Important Questions NCERT Q. No. 1,3,10,11
Dissolution of Partnership Firm
When the business of the firm comes to an end and when there is discontinuance of existing relationship among the partners
then it is called dissolution of partnership firm. It is different from dissolution of partnership. In dissolution of partnership
business remains continue but there is changes in the existing relationship between partners.
Modes of dissolution of partnership firm: - 1. Dissolution by intervention of court 2. Dissolution by mutual agreement.
3.Dissolution by notice. 4. On the happening of an event 5. Compulsory dissolution.
Accounts under dissolution: -
1. Realisation Account 2. Partner’s Loan Account 3. Partner’s Capital Account 4.Cash/ Bank Account
Entries related with dissolution expenses as there are two parties 1. Firm 2. Partners.
Dissolution Expenses

Borne (Dr.) Paid (Cr.)

Firm Partner Firm Partner

{Realisation Dr.} {Partner’s Capital Dr.} {Bank Cr.} {Partner’s Capital Cr.}
For Example: Realisation Expenses ₹ 6,000. (In case of no specific information it will be assumed that borne and paid by Firm)
Realisation Account. Dr. 6,000
To Bank Account 6,000

8
Entries related with Assets and Liabilities at the time of dissolution:

When assets transfer to Realisation Account. Dr.

realisation account To Assets A/c

When assets realised Bank Account. Dr.

To Realisation Account
When assets taken over by Partner’s Capital Account. Dr.
partner To Realisation Account
When Liabilities transfer to Liabilities Account. Dr.
realisation account To Realisation Account

When liabilities taken over Realisation Account. Dr.

by partner To Partner’s Capital Account

When liabilities paid Realisation Account. Dr.

To Bank
When liabilities take over 1) If assets are less than liabilities then upto value of assets no entry and
the assets remaining liabilities will be paid.
2) Realisation Account Dr.
To Cash Account
3) If assets are more than liabilities and remaining assets are to be realised ( ask
in question) upto value of Liabilities no entry
Cash Account Dr.
To Realisation
Entries related with ● If Liabilities side given: - (Payments of loan due to partner)
partner’s loan Partner’s Loan Account Dr.
To Bank Account
● If Assets side given (Settlement of loan by firm to partners)
Bank Account Dr.
To Partner’s Loan Account

Entries related with profit and loss and related with profit and loss on realisation:
When credit balance of profit and loss Profit and Loss Account. Dr.
account given To Partner’s Capital/ Current Account

When debit balance of profit and loss Partner’s Capital/ Current Account. Dr.
account given To Profit and Loss account

When Profit on realisation Realisation Account. Dr.

To Partner’s Capital Account

When loss on realisation Partner’s Capital Account. Dr.

To Realisation Account

9
 Dr. Realisation Account Cr.
Particulars ₹ Particulars ₹

To Assets (By name) By provision for doubtful debts

(except cash in hand, cash at bank and fictitious By Liabilities (By name)
assets) (except General Reserve, Reserve fund, Partner’s
To Bank (liabilities paid) capital and loan)
To Bank (dissolution expenses) By Investment Fluctuation Fund
To Bank (Unrecorded liabilities) By Bank (Assets realised)
To Partner’s Capital Account (liability taken over) By Bank (Unrecorded Assets)
To Profit transfer to Partner’s By Partner’s Capital Account
Capital Account (Assets taken over)
By loss transfer to Partner’s Capital account
Partner’s Loan Account
1.If Liabilities side given: -
Particulars ₹ Particulars ₹
To Bank account xxxx By balance b/d xxxx
Partner’s Loan Account
2. If Assets side given: -
Particulars ₹ Particulars ₹

To Balance b/d xxxx By Bank account xxxx

Dr. Partner’s Capital Account Cr.
Particulars A(₹) B(₹) Particulars A(₹) B(₹)
To Undistributed losses xxx xxx By balance b/d xxx xxx
To Realisation a/c By accumulated reserve xxx xxx
(Assets taken over) xxx xxx By Realisation a/c
To Realisation a/c (Liabilities taken over) xxx xxx
(loss on realisation) xxx xxx By Realisation a/c xxx
xxx
To Bank (final payment) xxx xxx (Profit on realisation)
By Bank (Final Settlement) xxx xxx

Dr. Cash /Bank Account Cr.

Particulars ₹ Particulars ₹
To Balance b/d xxx By Realisation account
To Realisation a/c (Assets realised) (Liabilities paid) xxx
To Realisation a/c (Unrecorded Asset) xxx By Realisation account
To Partner’s Capital account (Dissolution expenses) xxx
(Final Settlement) xxx By Realisation account
(Unrecorded Liability) xxx
xxx By Partner’s Loan account xxx
By Partner’s Capital account
(Final payment) xxx
Important questions NCERT QUESTION No. 4, 8,19, 20 {Prepared by Mrs. Anjali Page No. 5-10}

10
 Company Accounts (20 marks)
Part I- Issue of Shares
Topic- A. Types of share capital (1 mark)
● Authorised/nominal/registered capital: maximum number of shares issued by company given in MOA.
● Issued Capital: offered to the public.
● Subscribed capital- Capital for which public subscribe.
c. Subscribed and fully paid-up capital -entire nominal (face) value is called and also paid-up by the shareholders.
d. Subscribed but not fully paid-up capital is-
• the company has called-up the entire nominal (face) value of the share but has not received it.
• the company has not called-up the entire nominal (face) value of share.
● Called up Capital= subscribed shares × face value called up
● Paid up capital= called up capital - calls in arrears
● Reserve capital= uncalled capital called at the time of winding up to pay debts.
Topic-B. Issue of shares for consideration other than cash (4 marks and probably Q.16)

Topic-C. Entries for issue of shares at par/ Premium (full subscription/

under subscription/oversubscription) (8 marks and Q.22)
i. For receipt of Application money:
Bank A/c ...Dr. [amount received on application/ if issued at premium then including premium]
To Shares Application A/c

ii. For Allotment of Shares:

Shares Application A/c Dr. [application money on shares allotted]
To Share Capital A/c. [amount paid towards face value of share capital]
To Securities Premium Reserve A/c. [if premium is given with application]
To Bank A/c ( If money refund in case of over subscription)
To Share allotment A/c. ( if excess application money is adjusted on allotment)
To calls in advance A/c. (if excess application money is adjusted towards any call)

11
 iii. For Amount due on Allotment:
Shares Allotment A/c …Dr. [amount due on shares allotted]
To Share Capital A/c [amount due towards face value of share]
To Securities Premium Reserve A/c. [amount due towards premium]

iv. For receipt of Allotment money:

Bank A/c Dr. [amount received on shares allotted]
Calls-in-Arrears A/c ...Dr. [amount not received against allotment money]
To Shares Allotment A/c ( amount excluding excess application money)

v. For first call being due:

Shares First Call A/c …Dr. [amount payable on first call]
To Share Capital A/c. [amount due towards face value of share]
To Securities Premium Reserve A/c. [amount due to towards premium]

vi. For receipt of first call:

Bank A/c … Dr. [amount received on first call]
Calls-in-Arrears A/c …Dr. [amount not received towards first call money due]
Calls-in-Advance A/c...Dr. (excess application money adjusted towards call)
To Shares First Call A/c

Topic-D. Entries for Forfeiture and Reissue (4 marks/ additional entries to 8 marks Question)
Forfeiture entry Description

Share capital A/c. Dr. No. of shares forfeited face value called up

Securities premium reserve A/c. Dr. No. of shares forfeited × unpaid premium

To calls in arrears A/c Amount not received on allotment and calls including premium not received

To share forfeited A/c Amount received by the company

Reissue entry Description

Bank. A/c. Dr. Amount received on reissue

Share forfeited A/c Dr. Discount on reissue

To Share Capital A/c A/c Reissued shares× called up/ paid up value of share

To security premium reserve A/c Reissued shares × premium on reissue of shares

Transfer of gain to Capital reserve Description

Share forfeited A/c. Dr. Credit balance of share forfeited (on reissued shares) - Debit balance/
To Capital Reserve A/c discount of reissued shares.

12
Topic-E. Pro-rata Allotment of shares in oversubscription ( 8 marks Q.22)
Meaning of Pro-rata Allotment of Shares: alternative available with the company for allotment of shares when shares applied
> shares allotted and As per this alternative, all applicants are allotted shares in proportion which is called Partial or Pro rata
Allotment. Let us look at an example======
Example: - A Ltd issued 2000 equity shares @ Rs.10 each together with a premium of Rs.2. Amount was called as follows
on application Rs.2 on allotment Rs.5 including premium on first call Rs.3 and balance on final call. Applications were
received for 3000 shares. It was decided to refund application money to the applicants of 600 shares and remaining were
made pro rata. X who was allotted 40 shares did not paid allotment and first call subsequently his shares were forfeited
after first call. Y who applied for 72 shares did not paid both the calls and his shares were also forfeited. Out of forfeited
shares 80 shares were reissued to Z @8 per share fully paid up (including all the shares of X and remaining of Y).
Pro-rata Allotment
Share applied Share Extra shares Extra Money = (3) × Money Refund Money adjusted on
by public (1) allotted by (3)= (1)- (2) application money allotment
company (2)

600 nil 600 1200 1200 nil

2400 2000 400 800 nil 800

Total 3000 Total 2000 Total 1000 Total 2000 Refund1200 Adjusted 800
Calculation of Calls - in - arrears
Category App-2 Allotment-5 First call-3 Final call-2

X-40 alloted Paid 200 unpaid 120 unpaid Not called

48 applied -16 (advance app money on
8 shares adjusted)
184 ( final arrear on allotment)

Y-72 applied Paid Paid 180 unpaid 120 unpaid

60 alloted
Note: Share applied by X = Shares Applied in pro-rata category × Share allotted to X
---------------------------------------------—————————-
Shares allotted in pro-rata category.

Share allotted to Y = Shares allotted in pro-rata category × Share applied by Y.

--------------------------------------------——————————
Shares Applied in pro-rata category

Part II- Issue of Debentures

Topic-A Debentures issued as collateral security (can be sub-part of 4 mark ques)
Collateral security means when debentures are issued as secondary security along with primary security against loan taken by
the company.
Bank a/c. Dr. Amount of Loan taken by Company
To Bank loan

Debenture suspense a/c Dr. Amount of debentures issued as collateral security

To x% Debentures a/c

13
Topic-B Six cases of issue and redemption of Debentures (can be sub-part of 4 marks question or 6-mark question)

Topic-C Interest on Debentures ( can be a part of 4 Marks Question)

Key Points- 1. Issue of Debentures For consideration other than cash is same as Issue of shares except the fact that debentures
can be issued at discount and discount will be debited in Vendors entry. Vendor a/c Dr.
Discount on issue Dr.
To x% Debentures
2. Discount or loss on issue of debentures now will be written off in the year of the issue of debentures and the entry will be-
Securities premium reserve a/c Dr.
Statement of profit and loss a/c Dr.
To Discount/Loss on issue of Debentures a/c {Prepared by Ms. Ritu Vinayak Page No. 11-14}
ANALYSIS OF FINANCIAL STATEMENTS (20 Marks)
Financial Statements are statements which are prepared at the end of the year to find out the profitability and financial position
of a business. Financial Statements includes: - 1. Statement of Profit and Loss 2. Balance Sheet
Objectives/Importance of Financial Statement Analysis/Ratios/Cash Flow Analysis (1 marks)
1. To Know the Profitability (Operational Profit in case of Cash Flow Statement):- Provide information about the earning
capacity of the business.
2. To Know the Financial Strength (In terms of Liquidity in case of Cash Flow Statement):- Provide information about
economic resources and obligations of a business.

14
 Limitations of Financial Statements Analysis/Ratios/Cash Flow Analysis
(i) Window Dressing:- Manipulation of Accounts to show the better picture of business
(ii) Ignores Price level changes:- as a change in price level makes analysis of financial statements of
different accounting years invalid.
(iii) Ignores qualitative aspect:- as the quality of management, quality of staff etc. are ignored while
carrying out the analysis of financial statements.
Financial Statement Analysis
Financial Statement Analysis is the critical examination of the financial information contained in financial
statements in order to understand and make decision regarding the operation of the firm.
Tools and Techniques of Financial Statement Analysis
1.Comparative Analysis 2. Common Size Analysis 3. Ratio Analysis 4. Cash Flow Analysis
PRESENTATION OF BALANCE SHEET ITEMS-3 Marks
MAIN HEADS SUB-HEADS ITEMS UNDER SUB-HEADS
(a) Share Capital Equity Share Capital, Preference
Share Capital, Calls in arrears {-},
Share Forfeiture A/c {+}
1. SHARE (b) Reserve and Surplus Capital Reserve, Capital Redemption
HOLDERS
FUND Reserve, Security Premium Reserve,
Debenture Redemption Reserve,
General Reserve, Surplus/Deficit in
Statement of Profit and Loss
(a) Long Term Borrowings Debentures, Bonds, long term loans,
2. NON- public deposits
CURRENT (b) Long Term Provisions Provision for Employees Benefits,
LIABILITIES Provision for Warranties, Encashment
of Employees leave on Retirement
I. EQUITY (a) Short Term Borrowings Bank Overdraft, Cash Credits, Short
AND term Loan (repayable within a year)
LIBILITIES (b) Trade Payables Sundry Creditors, Bills Payable
(c) Short term Provisions Provision for taxation, Provision for
Expenses, Provision for Doubtful
Debts, Provision for Employees
Benefit (Short Term)
(d) Other Current Liabilities Unpaid Dividend, Unclaimed
3. CURRENT
LIABILITIES Dividend, Outstanding Expenses,
Income Received in Advance, Call in
Advance and Interest thereon,
Current Maturities of Long-term Debts
(Debenture payable within 12 month),
Unpaid Matured Debenture/debts and
interest thereon, Interest Accrued but
due on borrowing, Interest Accrued
but not due on borrowing.
(a) Fixed Asset (Tangible and Tangible Assets: - Land, Building,
Intangible Assets) Furniture and Fixtures, Vehicles,
Leasehold Property, Office equipment
(Computer), Plant and Machinery
1.NON-
Intangible Assets: -Goodwill,
II. ASSETS CURRENT
ASSETS Brands/Trademarks, Computer
Software, Mining Rights, Mastheads
and Publishing Titles, Copyrights and
Patents, Recipes, formulae, Models,
Licenses, Franchise
15
 (b)Non-Current Investments Trade Investment, Investment in
equity, Preference share, Government
or Trust Securities, Debenture, Bonds,
Mutual Funds,
(c) Long Term loans and Capital Advances, Security Deposits
Advances
(a) Current Investments Short term Investments realizable
within 12 months include investment
in Equity shares, Preference Shares,
Government securities, Treasury bill
etc.
(b)Inventories Raw Material, Work-in-Progress,
Finished Goods, Stock-in-trade,
2.CURRENT stores and spares, loose tools.
ASSETS (c)Trade Receivables Sundry Debtors and Bills Receivables
(d)Cash and Cash Equivalents Cash in hand, Balance with Banks,
Cheques, Drafts in hand, Digital cash
(e)Short term loans and Advances recoverable in cash,
Advances Advances given for purchases of
goods
(f)Other Current Assets Prepaid expenses, Accrued Incomes,
Payment of Advance Tax
Remembrance: -
1. Preparation of Statement of Profit and Loss: -Part II, Schedule III. Companies Act 2013
2. Preparation of Balance Sheet: - Part I. Schedule III, Companies Act 2013

FORMAT OF STATEMENT OF PROFIT AND LOSS

Particulars Note Figures for the Figures for the
No. Current reporting previous reporting
Period period
I. Revenue from Operations …… …..
II. Other Incomes …… …..
III. Total Revenue(I+II) …… ……
IV. Expenses …… ……
(a) Cost of Materials Consumed …… ……
(b) Purchases of Stock-in-Trade …… ……
(c) Changes in inventories of finished …… ……
goods, work-in-progress and …… ……
stock-in-trade …… ……
(d) Employee Benefits Expenses …… ……
(e) Finance costs …… ……
(f) Depreciation and Amortization …… ……
Expenses …… ……
(g) Other Expenses …… ……
Total Expenses(a+b+c+d+e+f+g) …… ……
V. Profit before Tax (III-IV) …… ……
VI. Tax Expense …… ……
VII. Profit after Tax(V-VI) …… ……

Question for Practice: -Prepare Comparative and Common Size income statement from the following
information year’s ended march 31, 2019 and 2020. – 4 Marks

16
 Particulars 2019(Rs.) 2020(Rs.)
1.Net Revenue from Operations 8,00,000 10,00,000
2.Cost of material consumed 60% of Revenue from operations 60% of Revenue from operations
3.Employee Benefit Expenses 10% of Gross profit 10% of Gross Profit
4.Income Tax rate 50% 60%
Sol. Comparative Income statement
Absolute Percentage
2020 Change Absolute Change
Particulars 2019 (Rs)
(Rs) (Increase/Dec (Increase/
rees) Decrease)
Net Revenue from Operations 8,00,000 10,00,000 2,00,000 25%
Less: Cost of material consumed (4,80,000) (6,00,000) 1,20,000 25%
Employee Benefit Expenses (32,000) (40,000) 8,000 25%
Profit Before Tax 2,88,000 3,60,000 72,000 25%
Less: Tax (1,44,000) (2,16,000) 72,000 50%
Profit after tax 1,44,.000 1,44,000 ---------- ------------

Common Size Income Statement

Percentage to Revenue from
Absolute Amount
Operation
Particular
2019 2020
Percentage 2019 Percentage 2020
(Rs) (Rs)
Net Revenue from Operations 8,00,000 10,00,000 100% 100%
Less: Cost of material consumed (4,80,000) (6,00,000) 60% 60%
Employee Benefit Expenses (32,000) (40,000) 4% 4%
Profit Before Tax 2,88,000 3,60,000 36% 36%
Less: Tax (1,44,000) (2,16,000) 18% 21.6%
Profit after tax 1,44,.000 1,44,000 18% 14.4%
Ratio Analysis
An Analysis of financial Statements with the help of Ratios is termed as Ratio Analysis. It Can be Expresses in
Percentage, Fractions, Times etc.
S.NO TYPE OF RATIOS SUB TYPES FORMULA AND ITS COMPOSITION
WITH OBJECTIVE
1 Liquidity Ratios: Current Ratio= Current Assets
-To Determine Current Liabilities
Short Term
Liquid/Quick/ Acid Test Ratio= Liquid Assets
Financial Position
Current Liabilities
Working Capital=Current Assets – Current Liabilities
Liquid Assets=Current Assets- (Stock+ Prepaid Exp+ Advance Payment of Tax)
2 Solvency Ratios: Debt Equity Ratio= Debt/Equity
-To Determine Debt=Long term Debt (Non-Current Liabilities)
Long Term Non-Current Liabilities=Long term borrowing+ Long term Provision
Financial Position Equity=Shareholders fund
Shareholders fund=Share Capital+ Reserve and Surplus
Total Assets to Debt Ratio=Total Assets/Debt
Proprietary Ratio=Shareholder fund/Total Assets
Interest coverage Interest=EBIT/Fixed Interest Charge (Calculated in
Times)
17
 3 Turnover Ratios Inventory Turnover Ratio = Cost of Revenue from operation/Average Inventory
(Other Name of Average Inventory= opening Inventory+ closing inventory
Turnover Ratios- 2
Activity Tr. Rece. Turn. Ratio= Net credit revenue from operation/Av. A/c Receivable
Ratios/Efficiency Average Accounts Receivables= opening receivables +closing Receivable
Ratios/Asset 2
Movement Trade Payable Turnover Ratio = Net Credit Purchase/Average Trade Payables
Ratios/Operation Average Trade payables=Opening payables+ closing trade payables
al Ratios)-To 2
Determine Working Capital Turnover Ratio = Net Revenue from Operation (Cost of revenue
Operational from Operation)/Net working Capital
Efficiency
4 Profitability Gross profit Ratio = (Gross Profit/Net Revenue from operations) X 100
Ratios: -To Net Revenue from operations =Total Revenue from operations-Revenue
Determine from operations returns
Profitability and Operating Ratio = (Cost of revenue from operation+ operating expenses)/Net
Earning Capacity Revenue from operations X 100
of Business Operating profit Ratio = (Operating profit/Net revenue from operation) X 100
Operating Profit Ratio = 100-operating ratio
Net profit Ratio = Net Profit /Net Revenue from operation
Return on Investment (ROI) = (Profit before interest and tax/cap. Emp.) X 100
CASH FLOW STATEMENT
Cash Flow Statement is a Statement that shows flow of Cash and Cash Equivalents during a particular
period under each activity i.e. operating, investing and financing. Cash flow Statement is Prepared as
per AS (Accounting Standard)-3(Revised)-
Remembrance: Cash means ready cash which include Cash in hand, Cash at Bank
Cash Equivalent are short term highly liquid investments that are readily convertible into cash within a
short period, short period here means within 3 months or less. They are not subject to insignificant risk of
change in value. Examples are Treasury Bill, Commercial Bill, Marketable Securities etc.
Classification of Cash Flows (Non-Financing Companies)-Learn Any Two Examples under each
category and recall items resulting in inflows and outflows of Cash-1 Mark
Part A:- Cash Flow From Operating Part C: -Cash Flow From Financing
Part B:-Cash Flow From Investing Activities
Activities Activities
Cash Inflows Cash Outflows Cash Inflows Cash Outflows Cash Inflows Cash Outflows
Cash Sale of Fixed Cash Purchase of
Buy Back of
Cash Sales Cash Purchase Assets Fixed Assets Issue of Shares
Equity Shares
(Tangible/Intangible) (Tangible/Intangible)
Cash Purchase of
Cash Received
Cash Paid to Trade Cash Sale of investment (Other Issue of Redemption of
from Trade
Payables Investment Than Marketable Debentures Preference Shares
Receivables
Securities)
Payment of Redemption/
Royalties, Proceeds from
Operating Income Tax Paid Repayment of
Fees, Long term
Expenses such as Dividend Received (related to investing Debenture
Commission Borrowing/Short
Rent, wages, Activity including
Received Term Borrowing
Salaries etc. premium
Proceeds from Repayment of
Income Tax Payment of Income
Interest Received bank Overdraft/ Bank Overdraft/
Refund Tax
Cash Credit Cash Credit
Rent Received from Increase in Short Share Issue
Property held as Term Loans & Expense,
Interest received
Investment Advances Dividend paid,
on calls in
Decrease in Short Interest on Loans,
arrears
Term Loans & Debenture and
Advances Public Deposit

18
 Remembrance-1 Mark
S.N. Particulars Trading, Manufacturing Enterprises Bank, Financing Enterprises
1 Interest Paid: Out-Flow Financing Operating
2 Dividend Paid: Out-Flow Financing Financing
3 Interest Received: In-Flow Investing Operating
4 Dividend Received: In-Flow Investing Operating

CASH FLOW STATEMENT

AS PER AS-3 (REVISED) {INDIRECT METHOD}
I. CASH FLOW FROM OPERATING ACTIVITIES
(A) NET PROFIT BEFORE TAXATION AND EXTRAORDINARY ITEMS * XXXXX
Adjustment for Non-operating and Non-Cash items
(B) Add:- Depreciation during the year XXXX
Interest on borrowings and debentures XXXX
Preliminary expenses/Discount on issue of debentures written off. XXXX
XXXX
Goodwill/ Patents/ Trademarks/Copyrights amortised
XXXX
Loss on sale of Fixed Assets/Investments XXXX
Increase in provision for doubtful debts XXXX
Premium on redemption of debentures written off (XXXX)
(C) Less: Interest/Dividend/ Rental income (XXXX)
Profit on sale of Fixed Assets/Investments (XXXX)
Decrease in provision for doubtful debts
OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES(A+B+C) XXXXX
Add: Decrease in C. A. and increase in C. L.
Less: Increase in C. A. and decrease in C. L.
Cash generated from operations
Less: Tax Paid (XXXX)
NET CASH FLOW/USED IN OPERATING ACTIVITIES XXXXX
II. CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of tangible/intangible fixed assets/non-current investment XXXX
Interest/dividend/rent received XXXX
Purchase of tangible/intangible fixed assets/non-current investment (XXXX)
NET CASH FLOW/ USED IN INVESTING ACTIVITIES XXXXX
III. CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of shares/debentures XXXX
Increase in long term borrowings/bank overdraft/cash credit XXXX
Decrease in long term borrowing/ bank overdraft/cash credit (XXXX)
Payment of final dividend/interest/interim dividend (XXXX)
(XXXX)
Redemption of debentures/preference shares
XXXXX
NET CASH FLOW/ USED IN FINANCING ACTIVITIES
IV. NET INCREASE/DECREASE(I+II+III) XXXXXX
V. ADD: CASH AND CASH EQUIVALENT IN THE BEGINNING OF THE YEAR (INCLUDING CURRENT XXXXXX
INVESTMENT AND MARKETABLE SECURITIES)
VI CASH AND CASH EQUIVALENT END OF THE YEAR (INCLUDING CURRENT INVESTMENT AND XXXXXX
MARKETABLE SECURITIES)

*Net Profit Before Tax = Profit of the year {CY-PY} + Transfer to Reserve+ Provision for Tax {CY} + Interim
Dividend+ Proposed Dividend {PY} {Prepared by Sh. Dinesh Sharma Page No. 14-19}

*************************************************************************************************************************

19