Modern School

Complied Questions Bank

Subject: Accountancy Class: XII

Accountancy Assignment/ Questions Bank

Chapter – 2 (Accounting for Partnership Firms - Fundamentals)

Multiple Choice Questions (MCQs):

1) Under which act maximum numbers of partners are mentioned:

(a) Partnership Act 1932 (b) Companies Act 2013 (c) Income Tax Act (d) None of these Ans.[b]

2) In absence of partnership deed what is prescribed rate of interest on drawings?

(a) 6% p.a. (b) 8% p.a. (c) 12% p.a. (d) None of these Ans.[d]

3) In case of oral partnership deed what is prescribed rate of Interest on Loan?

(a) 6% p.a. (b) 8% p.a. (c) 12% p.a. (d) None of these Ans.[a]

4) Following are essential elements of a partnership firm except:

(a) At least two persons (b) There is an agreement between all partners

(c) Equal share of profits and losses (d) Partnership agreement is for some business Ans.[c]

5) Number of partners in a partnership firm may be:

(a) Maximum two (b) Maximum ten (c) Maximum one hundred (d) Maximum fifty Ans.[d]

6) Forming a partnership deed is :

(a) Mandatory (b) Mandatory in writing (c) Not Mandatory (d) None of the above Ans.[c]

7) Interest on capital will be paid to the partners if provided for in the partnership deed but only out of:

(a) Profits (b) Accumulated Profits (c) Reserve (d) Goodwill Ans.[a]

8) Net Profit of a firm is ₹79,800. Manager is entitled to a commission of 5% on profits after charging his commission.
Manager’s commission will be:

(a) ₹4,200 (b) ₹380 (c) ₹3,990 (d) ₹3,800 Ans.[d]

9) Asha and Deepti were partners in a firm sharing profits and losses in the ratio of 3:1. Their fixed capitals were
₹3,00,000 and ₹2,00,000 respectively. They were entitled to interest on capital @10% p.a. The firm earned a profit
of ₹20,000 during the year. The amount of interest on capital credited to Deepti will be:

(a) ₹12,000 (b)₹8,000 (c)₹20,000 (d)₹5,000 Ans.[b]

10) When there is no partnership deed between the partners, the Interest is allowed on partner’s capital as per the
provisions of Indian Partnership Act, 1932.

(a) @5% p.a. (b) @6% p.a. (c) @12% p.a. (d) No Interest is allowed Ans.[d]

11) Manu and Kanu were partners in a firm sharing profits and losses in the ratio of 2:3. Their fixed capitals were
₹10,00,000 and ₹5,00,000 respectively. They were entitled to interest on capital @10% p.a. The firm earned a profit
of ₹60,000 during the year. The amount of interest on capital credited to Kanu will be:

(a) ₹20,000 (b)₹40,000 (c)₹36,000 (d)₹24,000 Ans.[a]

12) Vidit and Seema were partners in a firm sharing profits and losses in the ratio of 3:2. Their capitals were
₹1,20,000 and ₹2,40,000 respectively. They were entitled to interest on capital @10% p.a. The firm earned a profit
of ₹18,000 during the year. The interest on Vidit’s capital will be: {AI-2020}

(a) ₹12,000 (b)₹10,800 (c)₹7,200 (d)₹6,000 Ans.[d]

13) A and B are partners in a firm without any agreement. A has withdrawn ₹50,000 out of his capital. Interest on
drawings may be charged from A by the firm:

(a) @5% p.a. (b) @6% p.a. (c) @12% p.a. (d) No Interest can be charged Ans.[d]

14) If period of drawings of the partners is not given in the question, interest is charged for how much time:

(a) 1 month (b) 3 months (c) 6 months (d) 12 months Ans.[c]

15) Vikas is a partner in a firm. His drawings during the year ended 31 st March, 2019 were ₹72,000. If interest on
drawings is charged @ 9% p.a. the interest on drawing charged will be:

(a) ₹324 (b) ₹6,480 (c) ₹3,240 (d) ₹648 Ans.[c]

16) If a fixed amount is withdrawn by a partner on the last day of every month, interest on the total amount of
drawings will be charged for how many months.

(a) 6 month (b) 6 ½ months (c) 5 ½ months (d) 12 months Ans.[c]

17) If a fixed amount is withdrawn by a partner in the middle of every month, interest on the total amount of
drawings will be charged for how many months.

(a) 6 month (b) 6 ½ months (c) 5 ½ months (d) 12 months Ans.[a]

18) If a fixed amount is withdrawn by a partner on the first day of every quarter, interest on the total amount of
drawings will be charged for how many months.

(a) 6 month (b) 4 ½ months (c) 7 ½ months (d) 12 months Ans.[c]

19) Sita and Geeta are partners sharing profits and losses in the ratio 4:1. Meeta was manager who received the
salary of ₹4,000 p.m. in addition to a commission of 5% on net profits after charging such commission. Profit for the
year is ₹6,78,000 before charging salary. Find out the total remuneration of Meeta.{CPT2011}

(a) ₹78,000 (b) ₹88,000 (c) ₹87,000 (d) ₹76,000 Ans.[a]

20) X and Y are partners sharing profit and losses in the ratio 3:2. Their capitals balances are ₹2,00,000 and
₹1,00,000 respectively. Interest on capitals is allowed @8% p.a. Firm earned profit of ₹15,000 during the year.
Interest on capital will be: Ans.[c]

(a) X ₹16,000; Y ₹8,000 (b) X ₹9,000; Y ₹6,000 (c) X ₹10,000; Y ₹5,000 (d) No interest is allowed

21) X and Y are partners sharing profit and losses in the ratio 3:2. Their capitals balances are ₹2,00,000 and
₹1,00,000 respectively. Interest on capitals is allowed @8% p.a. Firm incurred a loss of ₹60,000 during the year.
Interest on capital will be: Ans.[d]

(a) X ₹16,000; Y ₹8,000 (b) X ₹8,000; Y ₹4,000 (c) X ₹15,000; Y ₹9,000 (d) No interest is allowed

22) X and Y are partners. X draws a fixed amount at the beginning of every month. Interest on drawings is charged @
8% p.a. At the end of the year interest on X’s drawings was ₹2,600. Drawings of X were:

(a) ₹8,000 p.m. (b) ₹7,000 p.m. (c) ₹6,000 p.m. (d) ₹5,000 p.m. Ans.
[d]

23) A and B are partners in a firm. They are entitled to interest on their capitals but the net profit was not sufficient
for this interest, then the net profit will be distributed among partners in:

(a) Agreed Ratio (b) Profit Sharing Ratio (c) Capital Ratio (d) Equal Ratio Ans.[c]
24) A and B are partners sharing profit and losses in the ratio 2:1. Their capitals balances are ₹3,00,000 and
₹2,00,000 respectively. They are allowed 6% p.a. interest on their capitals and are charged 10% p.a. interest on their
drawings. Their drawings during the year were A ₹60,000 and B ₹40,000. B’s share of net profit as per P/L
Appropriation A/c amount to ₹40,000. Net profits of the firm before any appropriation were:

(a) ₹1,45,000 (b) ₹1,17,000 (c) ₹1,22,000 (d) None of these Ans.[a]

25) P, Q and R are partners in [Link]. R is guaranteed that his share of profit will not be less than ₹70,000. Any
deficiency will be borne by P and Q in the ratio of 2:1. Firm’s profit was ₹2,40,000. Share of P will be:

(a) ₹1,20,000 (b) ₹1,00,000 (c) ₹1,02,000 (d) None of these Ans.[b]

26) Which one of the following is NOT an essential feature of a partnership?

(A) There must be an agreement
(B) There must be a business
(C) The business must be carried on for profits
(D) The business must be carried on by all the partners

27) X, Y and Z are partners sharing profits and losses equally. Their capital balances on March, 31, 2012 are ₹80,000,
₹60,000 and ₹40,000 respectively. Their personal assets are worth as follows : X — ₹20,000, Y — ₹15,000 and Z —
₹10,000. The extent of their liability in the firm would be : (C.S. Foundation; June 2013)
(A) X — 80,000 : Y — 60,000 : and Z — 40,000
(B) X — 20,000 : Y — 15,000 : and Z — 10,000
(C) X — 1,00,000 : Y — 75,000 : and Z — 50,000
(D) Equal

28) Every partner is bound to attend diligently to his in the conduct of

the business.
(A) Rights
(B) Meetings
(C) Capital
(D) Duties

Assertion and Reasoning questions:

Q1) Assertion (A):A Firm should have a Partnership Deed.

Reason (R) :In case of dispute or any misunderstanding among partners , partnership deed acts as an evidence in the
court of law.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[d]

Q2) Assertion (A):In absence of a deed, a sleeping partner who contributed 75% of total capital would get 75% of the
profit earned.

Reason (R):A sleeping partner, in absence of a deed, gets equal share of profit, irrespective of his capital share.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[d]

Q3) Assertion (A):Fixed Capital Accounts of a partner never shows a debit balance inspite of regular and consistent
losses year after year.

Reason (R):When Capital Accounts are fixed , losses are recorded in Partners’ Current Account.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[b]

Q4) Assertion (A):A firm can change its existing agreement.

Reason (R):Any change in its partnership agreement, will be treated as punishable offence.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[c]

Q5) Assertion (A):In order to compensate a partner for contributing capital to the firm in excess of the profit sharing
ratio, firm pays such interest on Partners’ Capital.

Reason (R): Interest on Capital is treated as a charge against profits.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[c]

Q6) Assertion (A): When partners capitals are fixed, it means that the capitals of the partners remain
unchanged unless additional capital is introduced or withdrawal is made from the existing capital.
Reason (R): Withdrawal from the capital for personal use will not be treated as drawings whether
Capitals are fixed or fluctuating.
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Both Assertion and Reason are not correct.
d. Reason is correct and Assertion is not correct.
Q7) Assertion (A): Commission payable to the partner on sales OR on the net profit of the firm, will be
shown in Profit and Loss Appropriation Account.
Reason (R): All appropriation are shown in the Profit and Loss Appropriation Account.
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
 c. Only Assertion is correct but Reason is not correct.
d. Reason is correct and Assertion is not correct.
Q8) Assertion (A): Net profit (after all charge items) is to be transferred to the Profit and Loss Appropriation
Account. In Profit and Loss Appropriation Account, after providing all Appropriation to the partners,
balance (remaining profit) if any will be distributed among the partners in their profit sharing ratio. Profit
and Loss Appropriation Account will not show loss.
Reason (R): Profit and Loss Appropriation Account will not show loss because, appropriation can not
be allowed more than the profits.
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Only Assertion is correct but Reason is not correct.
d. Reason is correct and Assertion is not correct.
Q9) Assertion (A): In the absence of provision in the partnership deed, loan given to a partner by the firm
without any agreement to interest on loan. It is treated as interest free loan.
Reason (R): In the absence of provision in the partnership deed, interest on loan to partner should be
charged @ 6% p.a..
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Only Assertion is correct but Reason is not correct.
d. Reason is correct and Assertion is not correct.
Q10) Assertion (A): When partners capitals are fluctuating, Salary of a partner should be shown in the credit
side of partner’s Capital Account.
Reason (R): All appropriations are shown in credit side of partners capital account irrespective of
capitals are fixed or fluctuating.
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Only Assertion is correct but Reason is not correct.
d. Reason is correct and Assertion is not correct.
Q11) Assertion (A): Whether partner’s capital is fixed or fluctuating, withdrawal of capital will reduced the
capital of that partner immediately.
Reason (R): Drawing against the anticipated profit will not reduce the capital immediately.
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Only Assertion is correct.
d. Reason is correct and Assertion is not correct.
Q12) Assertion (A): Personal assets of the partners can be used to meet the firm’s liability, if firm’s assets
are insufficient to meet its liabilities.
Reason (R): As per Law, a partnership firm is not a separate legal entity from its partners.
Choose the correct Option from the following:
 a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Only Assertion is correct.
d. Reason is correct and Assertion is not correct.
Q13) Assertion (A): Rent is paid for the use of Assets of a partner in the business, Rent paid is an expense
for the business, It is a charge against the profit so it is shown in profit and loss Account.
Reason (R): When rent paid to partner is treated as an appropriation, it is shown in the credit side
Profit and Loss Appropriation Account.
Choose the correct Option from the following:
a. Assertion and Reason both are correct and Reason is the correct explanation of assertion.
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion.
c. Only Assertion is correct.
d. Reason is correct and Assertion is not correct.

Q14) Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and
the other as ‘Reason (R)’. You are to examine these two statements carefully and select the answers using
the code given below:
(a) Both A and R are individually true and R is the correct explanation of A.
(b) Both A and R are individually true but R is not the correct explanation of A.
(c) A is true but R is false.
(d) A is false but R is true.
Q1) Assertion (A): The partners are the agents as well as principals of the firm.
Reason (R): Partnership is a business relationship among two or more persons to share profits and losses
of the business, carried on by all or any of them acting for all. Hint:[a]
Q2) Assertion (A): Partnership Deed is a legal document signed by all the partners.
Reason (R): Any type of charitable institution running as a not for profit organization will not be
considered as a business. Hint:[b]
Q3) Assertion (A): Salary and Commission are payable to the working partners for their efforts.
Reason (R): No partner shall be paid such remuneration as salary, commission etc. if the partnership
deed is silent on such matter. Hint:[d]
Q4) Assertion (A): The partnership deed may be either written or oral.
Reason (R): In order to avoid all misunderstandings and disputes, it is always the best course to have a
written agreement duly signed and registered under the act. Hint:[b]
Q5) Assertion (A): A Profit and Loss Appropriation Account is prepared to show the distribution of profits
among partners as per the provision of Partnership Deed.
Reason (R): Only working partner can inspect the books of accounts. Hint:[c]
Q6) Assertion (A): In order to compensate a partner for contributing capital to the firm in excess of the profit
sharing ratio, firm pays such interest on partner’s capital.
Reason (R): Interest on capital is treated a charge against profit. Hint:[c]
Competency Based Questions / Case Study Based Questions:
1) A and B are partners in a pertnership firm without any agreement. A has withdrawn ?50,000 out of his Capital as
drawings. Interest on drawings may be charged from A by the firm :
(A) @ 5% Per Annum
(B) @ 6% Per Annum
(C) @ 6% Per Month
(D) No interest can be charged

2) X, Y, and Z are partners in a firm. At the time of division of profit for the year, there was dispute between the
partners. .Profit before interest on partner’s capital was 6,000 and Y determined interest @24% p.a. on his loan of
80,000. There was no agreement on this point. Calculate the amount payable to X, Y, and Z respectively.
(A) 2,000 to each partner.
(B) Loss of 4,400 for X and Z; Twill take 14,800.
(C) 400 for A, 5,200 for Land 400 for Z.
(D) None of the above.

3) X, Y, and Z are partners in a firm. At the time of division of profit for the year, there was dispute between the
partners. Profit before interest on partner’s capital was 6,00,000 and Z demanded minimum profit of 5,00,000 as his
financial position was not good. However, there was no written agreement on this point.
(A) Other partners will pay Z the minimum profit and will share the loss equally.
(B) Other partners will pay Z the minimum profit and will share the loss in capital ratio.
(C) Xand T will take 50,000 each and Z will take 5,00,000.
(D) 2,00,000 to each of the partners

4) According to Profit and Loss Account, the net profit for the year is 4,20,000. Salary of a partner is 5,000 per month
and the commission of another partner is 10,000. The interest on drawings of partners is 4,000. The net profit as per
Profit and Loss Appropriation Account will be :
(A) 3,54,000
(B) 3,46,000
(C) 4,09,000
(D) 4,01,000

5) A and B are partners. According to Profit and Loss Account, the net profit for the year is ₹2,00,000. The total
interest on partner’s drawings is ₹1,000. As salary is ₹40,000 per year and B’s salary is ₹3,000 per month. The net
profit as per Profit and Loss Appropriation Account will be :
(A) ₹1,23,000
(B) ₹1,25,000
(C) ₹1,56,000
(D) ₹1,58,000

6) According to Profit and Loss Account, the net profit for the year is ₹1,40,000. The total interest on partner’s capital
is? 8,000 and a partner is to be allowed commission of ₹5,000. The total interest on partner’s drawings is ₹1,200. The
net profit as per Profit and Loss Appropriation Account will be :
(A) ₹1,28,200
(B) ₹1,44,200
(C) ₹1,25,800
(D) ₹1,41,800

7) Sangeeta and Ankita are partners in a firm. Sangeeta’s capital is ₹70,000 and Ankita’s Capital is ₹50.000. Firm’s
profit is ₹60,000. Ankita share in profit will be :
(A) ₹25,000
(B) ₹3 0,000
(C) ₹35,000
(D) ₹20,00

CASE STUDY – 1
Anu and Satish started a new business in partnership and decided to share profits and losses in the ratio of
3:1. They contributed Capitals of ₹50,000 and ₹30,000 respectively on April 1, [Link] is a sleeping
partner whereas Satish is a full time working partner. During the year ended 31st March, 2019 they earned a
net profit of ₹50,000. The terms of partnership are:
(i) Interest on capital is to allowed @ 6%p.a.
(ii) Anu will get a commission @ 2% onturnover.
(iii) Satish will get a salary of ₹500 permonth.
(iv) Satish will get commission of 5% on profits after deduction of all expenses including such commission.
Partners’ drawings for the year were: Anu ₹8,000 and Satish ₹6,000. Turnover for the year was
₹3,00,[Link] the basis of the information given above , answer the following questions -
Q1) What will be Anu’s and Satish’s Commission?
(a) Anu ₹6,000 ,Satish-₹1,660 (b) Anu ₹30,000 ,Satish-₹1,660
(c) Anu ₹6,000 ,Satish-₹1,660 (d) Anu ₹6,000 ,Satish-₹1,581 Hint:[d]
Q2) How much share of profits will be given to Anu and Satish?
(a) Anu ₹23714 ,Satish-₹7,905 (b) Anu ₹15809.50 ,Satish-₹15809.50
(c) Anu ₹22,000 ,Satish-₹7,000 (d) None of above Hint:[a]
Q3) What will be the balance in Partners’ Capital Account at the end of the year?
(a) Anu ₹74,000 ,Satish-₹43,000 (b) Anu ₹74,714 ,Satish-₹41,286
(c) Anu ₹74,147 ,Satish-₹41,826 (d) Anu ₹70,714 ,Satish-₹41,286 Hint:[b]
Q4) Satish wants that his share in profits should be higher than Anu as he is putting more efforts to carry on
the business. Is he correct in saying so?
(a) Yes (b) No (c) Can’t Say (d) May or may not be Hint:[b]

CASE STUDY – 2

Vinod, Gagan and Kamlesh are partners sharing profits in the ratio [Link] their capital balances as on 1 st
April, 2020 were:
Vinod’s Capital Account ......................................................... ₹6,00,000 Credit
Gagan’s Capital Account ......................................................... ₹4,00,000 Credit
Kamlesh’s Capital Account ......................................................₹50,000 Debit
On 1st October 2020 it was decided that their capitals should be ₹5,00,000 each. The necessary adjustments
were made on the same day by introducing or withdrawing cash. Interest on capital is allowed @10% p.a.
as per partnership deed.
You are required to answer the following questions:
Q1) How much interest on capital is to be allowed to Vinod?
(a) ₹60,000 (b) ₹50,000 (c) ₹55,000 (d) ₹45,000 Hint:[c]
Q2) How much interest on capital is to be allowed to Gagan?
(a) ₹60,000 (b) ₹50,000 (c) ₹55,000 (d) ₹45,000 Hint:[d]
Q3) How much interest on capital is to be allowed to Kamlesh?
(a) No Interest (b) ₹20,000 (c) ₹25,000 (d) ₹15,000 Hint:[c]
Q4) Identity the wrong statement from the following:
(a) Vinod has withdrawn ₹1,00,000 out of his capital.
(b) Gagan has introduced ₹1,00,000 as additional capital.
(c) Kamlesh has introduced ₹1,00,000 as additional capital.
(d) Total interest allowed by the firm ₹1,25,000 Hint:[c]

CASE STUDY – 3
X, Y, and Z running business in partnership since last 8 years. They are sharing profits in the ratio of [Link].
It was observed in the current year that there was problem in their accounts. It was discovered on capital and
interest on drawings had been omitted.
On 31st March 2021, the balances in their capital accounts after making adjustments for profits and drawing
were Rs. 1,60,000; Rs. 1,20,000 and Rs. 80,00,000 respectively. The profit for the year ended 31st March
2021 was Rs. 40,000.
During the year X and Y each withdrew a total sum of Rs. 24,000 in equal instalment in the beginning of
each month and Z withdrew a total sum of Rs. 48,000 in equal instalments at the end of each month.
The interest on drawings was to be charged @5p.a. and interest on capital was to be allowed @10%p.a.
You are required to answer the following questions:
a. Opening capital of Z was:
i. 1,64,000 ii. 1,34,000
iii. 1,18,000 iv. 1,20,000
b. Opening capital of Y was:
i. 1,64,000 ii. 1,34,000
iii. 1,18,000 iv. 1,40,000
c. Opening capital of X was:
i. 1,64,000 ii. 1,60,000
iii. 1,50,000 iv. 1,66,000
d. At the time of final adjustment, Y’s Capital Account will be:
i. Credited with Rs. 2,950 ii. Credited with Rs. 900
iii. Credited with Rs. 3,850 iv. Credited with Rs. 13,400
e. At the time of final adjustment, Z’s Capital Account will be:
i. Debited with Rs. 900 ii. Credited with Rs. 900
iii. Credited with Rs. 2,950 iv. Credited with Rs. 3,850
f. At the time of final adjustment, X’s Capital Account will be:
i. Credited with Rs. 3,850 ii. Credited with Rs. 900
iii. Credited with Rs. 2,950 iv. Debited with Rs. 3,850

CASE STUDY – 4
Vinod, Gagan, Ranji and Simran are partners sharing profits and losses in the ratio of [Link]. Respectively.
The have withdrawn the following amounts for their personal use.
 Vinod withdrew Rs. 6,000 during the year against anticipated profit and Rs. 20,000 against
his capital.
 Gagan withdrew Rs. 1,000 in the beginning of each month for nine months ending 31 st March
2021.
 Rajni withdrew Rs. 2,000 in the middle of each month for nine months ending 31 st March
2021.
 Simran withdrew Rs. 3,000 at the end of each month for nine months ending 31st March 2021.
Interest on drawings is to be charged @10% p.a.
You are required to answer the following questions:
i. Interest on Vinod’s Drawing will be:
i. 600 ii. 300
iii. 500 iv. 250
ii. Interest on Ganga’s Drawing will be:
i. 300 ii. 350
iii. 375 iv. 400
iii. Interest on Rajni’s Drawing will be:
 i. 600 ii. 625
iii. 650 iv. 675
iv. Interest on Simran’s Drawing will be:
i. 900 ii. 925
iii. 950 iv. 975
v. Interest Drawing is not calculated in case of loss:
i. True ii. False
vi. Vinod’s Capital will be reduced by Rs. 20,000 immediately at the time of withdrawal:
i. True ii. False
CASE STUDY – 5
Three partners A, B and C are doing well in business since last 8 years. B has provided his personal
storeroom to the firm for the purpose of business, monthly rent of Rs. 2,000 to be paid by the firm for the
same. They share profits in the ratio of [Link]. A was guaranteed a minimum profit of Rs. 1,00,000. Any
deficiency on this account was to be borne by B and C as 60% and 40%. The net profit of the firm for the
year ended 31st March 2021 was Rs. 4,74,000.
You are required to answer the following questions:
i. Net profit to be transferred to Profit and Loss Appropriation Account.
a. 4,50,000 b. 4,74,000
c. 4,60,000 d. 4,98,000
ii. Deficiency borne by C:
a. 4,000 b. 5,000
c. 6,000 d. 3,000
iii. Deficiency borne by B:
a. 4,000 b. 5,000
c. 6,000 d. 3,000
CASE STUDY – 6
A and B are partners. Their capitals on 1 st April 2020 capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively.
On August 1, 2020 they introduced further capitals of Rs. 50,000 and Rs. 40,000 respectively B withdrew
Rs. 15,000 from his capital on March 1, 2021. The profit for the year ended 31 st March 2021 was Rs.
4,00,000 before allowing interest on partners loan.
According to partnership agreement:
a. A has given a loan of Rs. 1,50,000 to the firm on 1st July 2020.
b. Interest on capital to be allowed @12p.a.
c. Interest on drawing @6%p.a. Drawings were A Rs. 60,000 B Rs. 40,000
d. B is to be allowed a Commission (Charge) of 2% on sales. Sales for the year were Rs.
30,00,000
e. Profit is to be distributed in the following manner.
i. Upto 1,00,000: Equally
ii. Above 1,00,000 in the ratio of 3:2
Answer the following question from the above Information:
i. Interest on capital of Y will be:
a. 64,500 b. 64,000
 c. 39,050 d. 38,050
ii. Interest on capital of X will be:
a. 9,000 b. 6750
c. 6,000 d. 4750
iii. Amount of net profit transferred to Profit and Loss Appropriation Account will be.
a. 3,33,250 b. 3,40,000
c. 3,93,250 d. 4,00,000
iv. Profit to be credited to Y’s capital account will be:
a. 1,29,920 b. 1,03,280
c. 1,16,600 d. 93,280
v. Profit to be credited to Y’s capital account will be:
a. 1800 b. 1200
c. 3600 d. 2400

Chapter – 3 (Goodwill Nature and Valuation)

Multiple Choice Questions (MCQs):

1) Following are the factors affecting goodwill except:

(a) Nature of Business (b) Location of the customers

(c) Technical Know-how (d) Efficiency of management Ans.[b]

2) Total Capital employed in the firm is ₹8,00,000, Normal Rate of Return is 15% and profit for the year is
₹1,20,000. Value of goodwill as per Capitalization Method would be:

(a) ₹8,20,000 (b) ₹1,20,000 (c) Nil (d) ₹4,20,000 Ans.[c]

3) A firm earns profit of ₹1,10,000. The Normal rate of return is 10%. Assets of the firm are ₹11,00,000 and
liabilities ₹1,00,000. Value of goodwill by Capitalization of average profit will be:

(a) ₹2,00,000 (b) ₹10,000 (c) ₹5,000 (d) ₹1,00,000 Ans.[d]

4) Which of the following is NOT true in relation to goodwill?

(a) It is an Intangible asset (b) It is fictitious asset

(c) It has a realizable value (d) None of the above Ans.[b]

5) The Goodwill of the firm is Not affected by:

(a) Location of the firm (b) Reputation of firm

(c) Better customer service (d) None of the above Ans.[d]

6) Weighted average method of calculating goodwill is used when:

(a) Profit are not equal (b) Profit show a trend

(c) Profit are fluctuating (d) None of the above Ans.[b]

7) Total Capital Employed in the firm is ₹8,00,000, reasonable rate of return is 15% and Profit for the year is
₹12,00,000. The value of goodwill of the firm as per capitalization method would be:

(a) ₹82,00,000 (b) ₹12,00,000 (c) ₹72,00,000 (d) ₹42,00,000 Ans.[c]

8) Capital invested in a firm is ₹5,00,000. Normal rate of return is 10%. Average profits of the firm are ₹64,000
(after an abnormal loss of ₹4,000). Value of goodwill at four times the super profits will be:
 (a) ₹72,000 (b) ₹40,000 (c) ₹2,40,000 (d) ₹1,80,000 Ans.[a]

9) The net assets of a firm including fictitious assets of ₹5,000 are ₹85,000. The net liabilities of the firm are
₹30,000. The normal rate of return is 10% and the average profits of the firm are ₹8,000. Calculate the goodwill as
per capitalization of super profits.

(a) ₹20,000 (b) ₹30,000 (c) ₹25,000 (d) ₹80,000 Ans.[b]

10) Capital employed by a partnership firm is ₹5,00,000. Its average profit is ₹60,000. The normal rate of return in
similar type of business is 10%. What is the amount of goodwill by capitalization of super profits?

(a) ₹50,000 (b) ₹10,000 (c) ₹60,000 (d) ₹1,00,000 Ans.[d]

Q11) The Formula for Capitalization of Super Profit Method is:

(a) Super Profit × No. of years Purchase

(b) Super Profit × 100/Normal rate of return

(c) (Super Profit – NormalProfit) × 100/Normal Rate of Return

(d) None of the above Ans.[b]

Q12) Which of the following is not true in relationto Goodwill?

(a) It is an intangible asset (b) It is a fictitious asset.

(c) It has a realizable value (d) All of these Ans.[b]

Q13) Capital employed by a firm is ₹5,00,000. Itsaverage profit is ₹60,000. The normal rate of return in similar type
of business is 10%.The amount of super profits is:

(a) ₹50,000 (b) ₹10,000 (c) ₹6,000 (d) ₹56,000 Ans.[b]

Q14) A firm earns ₹2,20,000. The normal rateof return is 10%. The assets of the firmamounted to ₹22,00,000 and
liabilities are₹2,00,000. Value of goodwill by capitalization of actual average profits will be: (a)
₹10,000 (b) ₹4,00,000 (c) ₹2,00,000 (d) ₹20,000 Ans.[c]

Q15) Profits of last three years are ₹4,20,000;₹3,90,000 and ₹4,50,000. The value ofgoodwill on the basis of two
years purchaseof three year average profit is:

(a) ₹3,60,000 (b) ₹8,40,000 (c) ₹12,60,000 (d) ₹4,20,000 Ans.[b]

Q16) The profits of last three years are ₹4,20,000,₹3,90,000 and ₹4,50,000. Capital employed is ₹40,00,000 and
normal rate of return is10%. The amount of goodwill calculatedon the basis of super profit method for threeyears of
purchase will be:

(a) ₹80,000 (b) ₹20,000 (c) ₹40,000 (d) ₹60,000 Ans.[d]

Q17) Total capital employed by a partnershipfirm is ₹10,00,000 and its actual averageprofit is ₹2,50,000. Normal
rate of return is20% in similar firms working in similarconditions. The firm earns super profit of:

(a) ₹50,000 (b) ₹40,000 (c) ₹30,000 (d) ₹20,000 Ans.[a]

Q18) Goodwill is to be calculated at one year'spurchase of the average of last three yearsprofit. The profit of the first
year was₹60,000, second year twice the profit ofthe first year and the third year one and halftimes of the profit of
second year, goodwillamount will be:

(a) ₹1,50,000 (b) ₹1,00,000 (c) ₹1,20,000 (d) ₹1,30,000 Ans.[c]

Q19) The profits earned by a business over the last5 years are as follows: 12,000; 13,000; 14,000; 18,000 and 2,000
(loss). Basedon two years purchase of the last 5 yearsprofits, value of goodwill will be:

(a) ₹23,600 (b) ₹1,10,000 (c) ₹22,000 (d) ₹1,18,000 Ans.[c]

Q20) The goodwill of a firm is ₹54,000 valued at4 years purchase of super profit. The capitalemployed of firm is
₹2,00,000 and normalrate of return is 10%. The average profit firm is:

(a) ₹23,500 (b) ₹33,500 (c) ₹20,000 (d) ₹24,500 Ans.[b]

Q21) If average capital employed in a firm is₹5,00,000 actual profit is ₹70,000 andnormal rate of return is 10%, then
superprofit is:

(a) ₹40,000 (b) ₹30,000 (c) ₹50,000 (d) ₹20,000 Ans.[d]

Q22) New partner gets a right of:

(a)Share of profit (b) Share of asset (c) Both (d)None

Q23) Gaining ratio is:
(a) New ratio-old ratio (b) New ratio+ Old ratio
(b) New ratio- profit sharing ratio (d) None
Q24) Investment Fluctuation reserve is created for:
(a)Increase in debtors (b) Decrease in creditor
(c) Fall in the value of Investment (d) To settle the claim of worker
Q25) Decrease in asset is recorded:
(a)Dr. side Rev. A/c (b) Cr. side Rev. A/c
(c) Dr. side Cap. A/c (d) Cr. side Cap A/c

Competency Based Questions:

CASE STUDY – 1

From the following information of Mr. Sharma and Gupta give the answer of following questions.

Information:

Average capital employed - ₹10,00,000

Net profit of the firm for the past years 2019 - ₹1,60,000; 2020 - ₹1,40,000; 2021- ₹2,70,000

Normal rate of return on capital employed is11%

Remuneration to each partner for his service to be treated as a charge on profit - ₹2,500 permonth

Q1) Value of Goodwill at three year's purchase of Average Profit:

(a) ₹3,90,000 (b) ₹1,30,000 (c) ₹1,90,000 (d) None of theabove Hint:[a]

Q2) Value of Goodwill at three year's purchase of Super Profit:

(a) ₹1,50,000 (b) ₹2,00,000 (c) ₹60,000 (d) ₹3,90,000 Hint:[c]

Q3) Value of Goodwill on the basis of Capitalization of Super Profit:

(a) ₹60,000 (b) ₹1,81,818 (c) ₹3,90,000 (d) ₹40,000Hint:[b]

Q4) Value of Goodwill on the basis of Capitalization of Average Profit:

(a) ₹40,000 (b) ₹ 60,000 (c) ₹300,000 (d) ₹1,81,818Hint:[d]

CASE STUDY – 2

Read the following information carefully and answer of the following questions on thatbasis:

Information:

The profit for the last five years were:

Year Ended Profits (₹)

 31st March,2017 2,00,000 (including gain of ₹ 25,000 from sale of fixed assets

31st March,2018 1,70,000 (Including abnormal loss of ₹ 50,000)

31st March,2019 2,10,000

31st March,2020 2,30,000

31st March,2021 2,50,000

Capital employed in the firm is ₹15,00,000 and normal rate of return in similar businesses is 10%

Q1) What is the amount of Actual Average Profit:

(a) ₹2,50,000 (b) ₹1,20,000 (c) ₹2,17,000 (d) None of theabove Hint:[c]

Q2) What is the amount of Normal profit:

(a) ₹1,50,000 (b) ₹15,00,000 (c) ₹2,50,000 (d) ₹1,00,000 Hint:[a]

Q3) What is the amount of Super profit:

(a) ₹60,000 (b) ₹55,000 (c) ₹62,000 (d) ₹67,000 Hint:[d]

Q4) Value of Goodwill at 3 years' purchase by super profit method:

(a) ₹2,00,000 (b) ₹2,01,000 (c) ₹2,50,000 (d) ₹1,50,000Hint:[b]

Assertion and Reasoning questions:

Q1) Assertion (A): Goodwill is the good name or reputation of the business which brings benefit to the business.

Reason (R): It is an intangible asset as it has no physical existence.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[b]

Q2) Assertion(A): Average Normal Profit as Calculated is multiplied by number of years' purchase to determine the
value ofgoodwill.

Reason(R ): Number of years' purchase means the number of years for which the firm is likely to earn different
amount of profit after change in ownership becomes of the efforts put in the past.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[a]

Q3) Assertion(A): Any abnormal gain is excluded by deducting from and any abnormal loss is included by adding to
thepast.

Reason(R): Normal business profits earned by the business for the specified number of years are
considered.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[a]

Q4) Assertion (A): Large customer base results in higher valuation ofGoodwill

Reason(R): If a customer is large in size then they demand more of goods and ultimately goodwill of that product
increases.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[a]

Q5) Assertion(A): Both purchase and self generated goodwill are accounted in the books of account.

Reason (R): According to AS-26 only purchase goodwill is accounted in the books of account. Self generated goodwill
is not accounted in the books ofaccount.

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[d]

Q6) Assertion(A): Two factors affecting goodwill are efficient management, repeated customer leading to higher
sales and profit thus; It leads to higher value ofgoodwill

Reason (R): Management is efficient leads to higher profit and thus, increase in the value of goodwill.

Similarly repeated customer' leads to increased sale and thus higher profits increase in value of goodwill

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true. Hint:[a]

Chapter – 4 (Change in Profit Sharing Ratio among the Existing Partners)

Multiple Choice Questions (MCQs):

Q1) Any change in the relationship of existing partners which results in an end of the existing agreement and
enforces making of a new agreement is called:

(a) Revaluation of Partnership (b) Reconstitution of Partnership

 (c) Realization of Partnership (d) None of the above Ans.[b]

Q2) State the occasions on which a firm can be reconstituted?

(a) On Admission of a partner (b) On Change in Ratios of existing partners

(c) On Retirement of a partner (d) All of above Ans.[d]

Q3) In the event of change in profit sharing ratio, general reserve existing in the Balance Sheet is transferred to
Capital Accounts of partners in their:

(a) Sacrificing Ratio (b) Gaining Ratio

(c) Old Profit Sharing Ratio (d) New Profit Sharing Ratio Ans.[c]

Q4) Out of the following which is not a part of change in the profit sharing ratio: Ans.[c]

(a) Accounting for Goodwill (b) Accounting for Reserve Fund

(c) Accounting for Dissolution of firm (d) Accounting for Accumulated Profits/Losses

Q5) A and B were partners in a firm sharing profit or loss equally. With effect from 1 st April, 2019 they agreed to
share profits in the ratio of 4:3. Due to change in profit sharing ratio, A’s gain or sacrifice will be:

(a) Gain 1/14 (b) Sacrifice 1/14 (c) Gain 4/7 (d) Sacrifice 3/7 Ans.[a]

Q6) P, Q and R were partners in a firm sharing profits in [Link] ratios. They decided to share future profits in [Link]. For
this purpose the goodwill of the firm was valued at ₹1,20,000. In adjustment entry for the treatment of goodwill due
to change in the profit sharing ratio:

(a) Cr. P by ₹24,000; Dr. R by ₹24,000 (b) Cr. P by ₹60,000; Dr. R by ₹60,000

(c) Cr. P by ₹36,000; Dr. R by ₹36,000 (d) None of these Ans.[c]

Q7) Arun and Varun are partners sharing profits in the ratio of 4:3. Their Balance Sheet showed a balance of ₹56,000
in the General Reserve Account and a debit balance of ₹14,000 in profit and loss account. They now decided to share
the future profits equally. Instead of closing the General Reserve Account and Profit & Loss Account, it is decided to
pass an adjustment entry for the same. In adjustment entry: Ans.[d]

(a) Dr. Arun by ₹3,000; Cr. Varun by ₹3,000 (b) Dr. Arun by ₹5,000; Cr. Varun by ₹5,000

(c) Cr. Arun by ₹5,000; Dr. Varun by ₹5,000 (d) Cr. Arun by ₹3,000; Dr. Varun by ₹3,000

Q8) X and Y shared profits and losses in the ratio of 3:2. In future they agreed to share profits equally. The goodwill
of the firm was valued at ₹30,000. The necessary single adjusting entry will involve:

(a) Debit Y and credit X by ₹3,000 (b) Debit X and credit Y by ₹3,000

(c) Debit Y and credit X by ₹300 (d) Debit X and credit Y by ₹300 Ans.[a]

Q9) A, B and C are partners in a firm. They wantedto change their profit sharing ratio into 4 : 3:2. The goodwill was
valued at 90,000. Theadjusting journal entry will be:

(a) Dr. A's Capital A/c and Cr. C's CapitalA/c by 10,000

(b) Dr. B's Capital A/c and Cr. A's CapitalA/c by 10,000

(c) Dr. C's Capital A/c and Cr. A's CapitalA/c by 10,000

(d) Dr. C's Capital A/c and Cr. B's CapitalA/c by 10,000 Ans.[a]

Q10) A, B, C, D and E are in partnership sharingprofits and losses equally. They mutuallyagree to change the profit
sharing ratio to[Link]. In this process, E losses:

(a) 1/15thshare (b) 2/15th share (c) 1/5th share (d) None of these Ans.[b]
Q11) Out of the following which is not a reconstitution of a firm?

(a) Admission of a partner (b) Retirement of a partner

(c) Death of a partner (d) Dissolution of a partnership firm Ans.[d]

Q12) Arun and Vijay are partners ina firm sharing profits andlosses in the ratio of 5:1.

Balance Sheet (Extract)

Liabilities Amount Assets Amount

Machinery 40,000
If value of machinery in the balance sheet is undervalued by 20%, then at what value willmachinery be shown in new
balance sheet?

(a) ₹44,000 (b) ₹48,000 (c) ₹32,000 (d) ₹50,000 Ans.[d]

Q13) Choose the correct order to match the following with their correct meaning.

Column A Column B
(i) Gaining Ratio (1) Ratio in which partners share profits
andlosses before reconstitution of firm.
(ii) Old Ratio (2) Ratio is which partners acquire the
sharefrom other.
(iii) Sacrificing Ratio (3) Ratio in which partners surrender
theirshare in favour of other partner.
(4) Ratio in which partners share future
profitsand losses.
(a) (i) 2, (ii) 3, (iii) 4 (b) (i) 4, (ii) 2, (iii) 1

(c) (i) 2, (ii) 1, (iii) 3 (d) (i) 1, (ii) 2, (iii) 3 Ans.[c]

Q14) A and B are sharing profit and losses in the ratio 4:3. They agreed to share profits in the ratio 3:2in [Link]
statement is correct in this regard?

(a) A and B sacrificed 1/35th of their share of profit.

(b) A gained 1/35th share and B sacrificed 1/35th share of profit.

(c) A gained 2/35th share and B sacrificed 2/35h share of profit.

(d) A sacrificed 1/35th share and B gained 1/35th share of profit. Ans.[b]

Q15) In case of change in profit sharing ratio, increase in the value of machine will be:

(a) Debited to Revaluation A/c (b) Credited to Revaluation A/c

(c) Debited to Partners Capital in old ratio (d) None of these Ans.[b]

Q16) A, B and C are partners sharing profits inthe ratio [Link]. As per the new agreement,A agreed to give 1/2 of his
share to B andC in the ratio 3:2. The new profit sharingratio will be:

(a) [Link] (b) [Link] (c) [Link] (d) None of these Ans.[c]

Q17) The excess amount which the firm can get on selling its assets over and above the saleable value of its assets is
called:

(a) Surplus (b) Super profits

(c) Reserve (d) Goodwill Ans.[d]

Q18) When Goodwill is not purchased goodwill account can:

 (a) Never be raised in the books (b) Be raised as per the agreement of the partners

(c) Be partially raised in the books (d) Be raised in the books Ans.[a]

Q19) P,Q and R sharing profits in the ratio of [Link]. They decided to change their profit sharing ratio to [Link] From
1stApril 2021. On that date:

Liabilities Amount Assets Amount

Debtors 60,000
Additional information:

Bad Debts ₹6,000 were to be written off and a provision of ₹3,000 was to be made for bad and doubtful debts. What
will be the Revaluation Profit/Loss?

(a) Profit ₹6,000 (b) Loss ₹ 6,000

(c) Profit ₹9,000 (d) Loss ₹9,000 Ans.[d]

Q20) P,Q and R sharing profits in the ratio of [Link]. They decided to change their profit sharing ratio to [Link] form
1stApril 2021. On that date:

Liabilities Amount Assets Amount

Debtors 2,60,000
Less : Provision for Doubtful
Debts 20,000 2,40,000
Additional information:

Bad Debts ₹40,000 were to be written off. A provision of 5 % on Debtors is to be made for bad and doubtful debts.
What will be the Revaluation Profit /Loss?

(a) Profit ₹40,000 (b) Loss ₹ 31,000

(c) Profit ₹31,000 (d) Loss ₹40,000 Ans.[b]

Assertion and Reasoning questions:

Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and the other as
‘Reason (R)’. You are to examine these two statements carefully and select the answers using the code given below:

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true.

Q1) Assertion (A): A firm is reconstituted in the event of change in the profit sharing ratio among existing partners,
admission of a partner, retirement of a partner and death of a partner.

Reason (R): Reconstitution of the firm leads to change in profit sharing ratio among the partners.

Hint:[a]

Q2) Assertion (A): Investment Fluctuation Reserve is a reserve which is set aside out of the profits to meet fall in the
market value of investments.

Reason (R): When fall in value of investment is more than investment Fluctuation Reserve, the excess is credited
to Partners’ Capital Account. Hint:[c]

Q3) Assertion (A): Sacrificing Ratio is the ratio in which one or more partners of the firm sacrifice their share of
profits in favour of one or more partners of the firm.
 Reason (R): The partner whose share of profit increases should compensate the partner or partners whose share
is decreased i.e. gaining partners should compensate sacrificing partner. Hint:[b]

Q4) Assertion (A): The reserves and accumulated profits or losses exiting in the books of firm at the time of change in
profit sharing ratio, they are to be transferred to the partners’ capital accounts or their current accounts in their old
profit sharing ratio.

Reason (R): The reserves and profits existing in the books of the firm are earned before the reconstitution of the
firm. Hint:[a]

Q5) Assertion (A): Gaining Ratio = Old Ratio – New Ratio

Reason (R): Gaining Ratio is the ratio in which one or more partners gain share of profits as a result of sacrificed
share in profits by one or more partners of the firm. Hint:[d]

Q6) Assertion (A):Reconstitution of a firm always leads to change in profit sharing ratio among the partners.

Reason (R):The main purpose of Reconstitution is to find Sacrificing Ratio or Gain Ratio.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[d]

Q7) Assertion (A):Change in profit sharing ratio among the existing partners leads to dissolution of partnerships the
existing agreement comes to an end and the firm continues under new agreement.

Reason (R):Reconstitution of partnership will brings change in economic/business relationship among the partners.
Business will continue and books of accounts of the firm not to be closed.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[a]

Q8) Assertion (A):At the time of reconstitution of partnership firm, goodwill is not recognized in the books of
accounts of the firm because consideration in money or money’s worth is not paid for it.

Reason (R):Goodwill can be calculated by using Average Profit method, Super Profit method or Capitalization method
. After that an adjustment entry is passed for goodwill share by debiting the gainer partner’s capital /current account
and by crediting the sacrificing partner’s capital/current account.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

 (d) Only Assertion is correct. Hint:[a]

Competency Based Questions:

CASE STUDY – 1

Nadim, Kadar and Muna were partners ina firm sharing profits and losses equally. The capital of Nadim, Kadar and
Munawere ₹2,50,000; ₹3,50,000 and ₹5,00,000respectively.

The firm was engaged in manufacturing anddistribution of surgical mask in differentplaces in India. Because of
increase inbusiness activity in area managed by Nadim,he had to devote more time. Finally Nadimdemanded that his
share in the profit of thefirm be increased, to which Kadar and Munaagreed.

After final discussion between all partners,the new profit sharing ratio was agreed [Link]. On this date, General
reserve appeared inthe books of the firm ₹30,000. For this purpose the goodwill of the firmwas valued at ₹7,46,400

Based on the above information you arerequired to answer the following questions.

Q1) Change in profit sharing ratio betweenexisting partners is _________ firm.

(a) Revaluation of Partnership (b) Reconstitution of Partnership

(c) Realization of Partnership (d) None of the above Hint:[b]

Q2) General Reserve of 30,000 will bedistributed between partners in their:

(a) Sacrificing Ratio (b) Gaining Ratio

(c) Old Profit Sharing Ratio (d) New Profit Sharing Ratio Hint:[c]

Q3) Individual partners' gain and sacrificedue to change in profit sharing ratiowill be:

(a) Kadar and Muna sacrifice by 1/3 each and Nadim gain by 2/3

(b) Nadim gain by 1/6 and Munasacrifice by 1/6

(c) Nadim gain by 1/6 and Kadar andMuna sacrifice by 1/12 each

(d) Nadim sacrifice by 1/12 and Kadargain by 1/12 Hint:[c]

Q4) For Goodwill:

(a) Nadim is debited by ₹1,24,400 (b) Nadim is credited by ₹62,200

(c) Nadim is debited by ₹62,200 (d) Nadim is credited by ₹1,24,400 Hint:[a]

CASE STUDY – 2

Sidhu and Sourav were best friends livingin Palampur. Sidhu was completed his MBA and gave a proposal to Sourav
to start asanitary items business with him under apartnership agreement. Sourav was accepted the offer. They
decided to share the profits and lossesin the ratio of 2:1. The capital of Sidhu andSourav were ₹3,00,000 each
respectively.

Sidhu by using his professional knowledgeand Sourav with his business contacts wereable to achieved best results in
[Link] two years, Sourav demanded equalshare of profit in business to which [Link] the time of
change in ratio they decidedthat:

(i) General reserve appeared in the booksat ₹30,000, which was not to bedistributed.

(ii) Goodwill of the firm be valued ₹1,20,000

(iii) Market value of the Investment [BookValue ₹35,000] was ₹28,000

(iv) Investment fluctuation reservewas appeared in the book ₹10,000

Based on the above information you arerequired to answer the following questions.

Q1) Adjusting journal entry for Goodwillwill be: Hint:[b]

(a) Dr. Sidhu's Capital A/c andCr. Sourav's Capital A/c by₹20,000

(b) Dr. Sourav's Capital A/c andCr. Sidhu's Capital A/c by₹20,000

(c) Dr. Sidhu's Capital A/c by₹80,000 &Sourav's Capital A/cby ₹40,000; Cr. Goodwill A/cby ₹1,20,000

(d) Dr. Goodwill A/c by ₹1,20,000;Cr. Sidhu's Capital A/c by₹80,000 & Sourav'sCapital A/c by ₹40,000

Q2) Share of investment fluctuationreserve transferred to Sourav's CapitalA/c by:

(a) ₹3,333 (b) ₹5,000 (c) ₹1,500 (d) ₹1,000 Hint:[d]

Q3) Journal entry for General Reserve will be:

(a) Dr. General Reserve A/c by ₹30,000; Cr. Sidhu's Cap. A/c by ₹20,000 & Sourav's Cap. A/c by ₹10,000

(b) Dr. Sidhu's Cap. A/c by ₹20,000 & Sourav's Cap. A/c by ₹10,000; Cr. General Reserve A/c by ₹30,000

(c) Dr. Sidhu's Capital A/c andCr. Sourav's Capital A/c by ₹5,000

(d) Dr. Sourav's Capital A/c and Cr. Sidhu's Capital A/c by ₹5,000 Hint:[d]

Q4) Investment fluctuation reserve will appear in the new balance sheet at ________ .

(a) ₹10,000 (b) ₹3,000 (c) ₹7,000 (d) Nil Hint:[d]

CASE STUDY – 3

Akshat, Reena and Charvi were partners in a firm sharing profits and losses in the ratio of [Link]. On 31st March 2020,
debtors and Provision for Doubtful Debtors appeared in the balance sheet at ₹2,00,000 and ₹20,000 respectively.
On that date, General Reserve appeared at ₹1,50,000 which the partners decided not to carry forward further. On
1st April 2020, the partners decided to share future profits equally. For this, it was agreed that:(i) Goodwill of the
firm be valued at ₹4,50,000.

(ii) Bad debts amounted to ₹30,000 and provision for doubtful debts are not required.

On the basis of the following information,answer the following questions:

Q1) What journal entry will be passed foradjustment of General Reserve?

(a) Dr. General Reserve ₹1,50,000,Cr. Akshat's Capital A/c₹30,000, Cr. Reena's Capital A/c₹ 60,000, Cr. Charvi's
Capital A/c ₹60,000

(b) [Link]'s Capital A/c₹20,000, Cr. Akshat's Capital A/c₹10,000, Cr. Reena's Capital A/c₹10,000

(c) Dr. Akshat's Capital A/c ₹10,000&Reena's Capital A/c ₹₹10,000and Cr. Charvi's Capital A/c₹20,000

(d) Dr. General Reserve A/c ₹1,50,000;Cr. Akshat's Capital A/c ₹60,000, Cr. Reena's Capital A/c ₹60,000and Cr.
Charvi's Capital A/c₹30,000 Hint:[d]

Q2) What compensating adjustment entrywill be passed for Goodwill? Hint:[b]

(a) Dr. Goodwill A/c ₹4,50,000;Cr. Akshat's Capital A/c ₹1,80,000,Reena's Capital ₹1,80,000 and

Charvi's Capital A/c ₹90,000

(b) [Link]'s Capital A/c ₹60,000;Cr. Akshat's Capital A/c ₹30,000& Reena's Capital A/c₹30,000

(c) Dr. Reena's Capital ₹60,000;Cr. Akshat's Capital A/c₹30,000, Cr. Charvi's Capital A/c₹30,000
(d) Dr. Akshat's Capital A/c ₹30,000 &Reena's Capital A/c ₹30,000and Cr. Charvi's Capital A/c₹60,000

Q3) How much amount of bad debts will bedebited to Revaluation A/c?

(a) ₹10,000 (b) ₹20,000 (c) ₹30,000 (d) ₹40,000 Hint:[a]

Q4) What amount of Provision for Doubtful Debtors will be credited to Revaluation?

(a) ₹26,000 (b)₹20,000 (c) ₹13,000 (d) ₹11,500 Hint:[b]

CASE STUDY – 4

Parvez, Quadir and Rehman sharing profits in the ratio of [Link]. To bring the equality among the partners, on 1 stApril
2021, they decided to share profits equally. For this purpose, goodwill of the firm to be valued at three years
purchase of the average of last five years profits. The profits of last five years are as follows:

Year 31st March 31st March 31stMarch 31stMarch 31stMarch

2017 2018 2019 2020 2021
Profit /Loss 60,000 Profit 1,50,000 Profit 1,70,000 Profit 1,90,000 Profit (70,000) Loss
You are required to answer the following questions:

Q1) Sacrifice or Gain of Quadir:

(a) Sacrifice 5/30 (b) Sacrifice 1/30 (c) Gain 5/30 (d) Gain 1/30 Hint:[d]

Q2) Sacrifice or Gain of Parvez:

(a) Sacrifice 5/30 (b) Sacrifice 1/30 (c) Gain 5/30 (d) Gain 1/30 Hint:[a]

Q3) Sacrifice or Gain of Rehman:

(a) Sacrifice 5/30 (b) Sacrifice 4/30 (c) Gain 4/30 (d) Gain 1/30 Hint:[c]

Q4) While making adjustment for goodwill, Rehman’s Capital Account will be:

(a) Debited by ₹10,000 (b) Debited by ₹40,000

(c) Credited by ₹10,000 (d) Credited by ₹40,000 Hint:[b]

Case study 5
A,B and C were partners sharing profits in the ratio of [Link]. They decided to change their profit sharing
ratio to [Link] 1 w.e.f. 1st April ,2021. On that date , there was a balance of Rs. 3,00,000 in
General Reserve and a debit balance of Rs. 4,80,000 in the profit and Loss Account .
You are required to answer the following questions.
1. When they want to distribute the General Reserve, identify the wrong statement:
a. They can not distribute General Reserve due to loss.
b. A’s Capital Account will be credited with Rs. 1,25,000
c. C’s Capital Account will be credited with Rs.75,000
d. B’s Capital Account will be credited with Rs.1,00,000
2. When they do not want to distribute the General Reserve , identify the wrong statement
a. B’s Capital Account will be debited with Rs.20,000
b. A’s Capital Account will be credited with Rs.5,000
c. C’s Capital Account will be credited with Rs.15,000
d. B’s Capital Account will be credited with Rs.20,000
 Chapter – 5 (Admission of a Partner)

Multiple Choice Questions (MCQs):

Q1) On the admission of a new partner:

(a) Old firm is dissolved (b) Old Partnership is dissolved

(c) Both Old firm and Partnership are dissolved (d) None of these Ans.[b]

Q2) When the new partner brings cash for goodwill, the amount is debited to:

(a) Revaluation Account (b) Cash Account

(c) Premium for Goodwill Account (d) Realization Account Ans.[b]

Q3) When the new partner does not bring his share of goodwill in cash, the amount is debited to:

(a) Premium for Goodwill Account (b) Cash Account

(c) Current A/c of the new partner (d) Capital A/c of the old partners Ans.[c]

Q4) At the time of admission, if the profit sharing ratio among the old partners does not change then sacrificing ratio
will be:

(a) According to the contribution of capital (b) Equal

(c) Their old profit sharing ratio (d) Their new profit sharing ratio Ans.[c]

Q5) If the new partner brings his share of goodwill in cash, it will be shared by old partners in:

(a) Sacrificing Ratio (b) Old profit sharing ratio

(c) New profit sharing ratio (d) Capital Ratio Ans.[a]

Q6) Sacrificing ratio is used to distribute _________ in case of admission of a partner.

(a) Reserve (b) Revaluation Profit

(c) Goodwill (d) P & L Account Cr. Balance Ans.[c]

Q7) A and B are partners in a firm having a capital of ₹54,000 and ₹36,000 respectively. They admitted C for 1/3 rd
share in the profits. C brought proportionate amount of capital. The capital brought in by C would be:
{SP-2019}

(a) ₹90,000 (b) ₹45,000 (c) ₹5,400 (d) ₹36,000 Ans.[b]

Q8) Mita and Sumit are partners in a firm with capitals of ₹6,00,000 and ₹4,00,000 respectively. Keshav was
admitted as a new partner for 1/5th share in the profits of the firm. Keshav brought ₹40,000 as his share of goodwill
premium and ₹3,00,000 as his capital. The amount of goodwill premium credited to Sumit will be:
{AI-2020}

(a) ₹20,000 (b)₹24,000 (c)₹16,000 (d)₹40,000 Ans.[a]

Q9) Swati and Anan are partners in a firm with fixed capitals of ₹9,00,000 and ₹3,00,000 respectively. They shared
profits in the ratio of their capitals. Divya was admitted as a new partner for 1/4 th share in the profits of the firm.
Divya brought ₹60,000 as her share of goodwill premium and ₹6,00,000 as her capital. The amount of goodwill
premium credited to Swati’s account will be: {AI-2020}

(a) ₹60,000 (b)₹30,000 (c)₹45,000 (d)₹15,000 Ans.[c]

Q10) Aditya and Shiv were partners in a firm with capitals of ₹3,00,000 and ₹2,00,000 respectively. Naina was
admitted as a new partner for 1/4 th share in the profits of the firm. Naina brought ₹1,20,000 as her share of goodwill
premium and ₹2,40,000 as her capital. The amount of goodwill premium credited to Aditya will be:
{AI-2020}
 (a) ₹40,000 (b)₹30,000 (c)₹72,000 (d)₹60,000 Ans.[d]

Q11) At the time of admission of a partner, Employees Provident Fund is:

a) Distributed to partners in the old profit sharing ratio

b) Distributed to partners in the new profit sharing ratio
c) Adjusted through gaining ratio
d) None of the above Ans.[d]
Q12) A and B are partners in a firm sharingprofits in the ratio 3: 2. C is admitted asa partner. The new profit sharing
ratio ofA, B and C is 7: 3:2. The sacrificingratio of A and B is:

(a) 3:2 (b) 1:9 (c) 2:5 (d) 8:7 Ans.[b]

Q13) A, B and C are partners in a firm sharingprofits and losses equally. They admitted D for 1/4th share in the firm.
The new profitsharing ratio will be:

(a) [Link] (b) [Link] (c) [Link] (d) None of these Ans.[b]

Q14) The profit sharing ratio of A, B and C whoare partners in the firm is 4: 3:2. After Dis admitted, the sacrificing
ratio will be:

(a) [Link] (b) [Link] (c) [Link] (d) [Link] Ans.[c]

Q15) A and B are partners sharing profits in theratio of 2 : 1. C is admitted for 1/4 thshare of profits which he acquired
equally fromA and B. C brings 30,000 as goodwill, itwill be credited to old partners as:

(a) 15,000 each (b) 20,000, 10,000 respectively (c) 10,000,

20,000 respectively (d) None of these Ans.[a]

Q16) A and B are sharing profits and losses in theratio of 4: 1. C is admitted as a new partnerfor 1/3rd share of profits
for which he pays3,00,000 as goodwill. If A and B agrees toshare future profits equally, then the amountof goodwill
to be credited to A is:

(a) ₹3,00,000 (b)₹9,00,000 (c)₹4,80,000 (d)₹4,200,000 Ans.[d]

Q17) On admission of a new partner, the revaluationprofit/loss is transferred to:

(a) All partners in new ratio (b) Old partners in sacrificing ratio

(c) Old partners in old ratio (d) None of these Ans.[c]

Q18) Revaluation account is prepared to find outthe profit or loss on:

(a) Sale of fixed assets (b) Revaluation of assets and liabilities

(c) Sale of goods (d) Sale of services Ans.[b]

Q19) A, B, C and D are partners. A and B share2/3rd of profits equally and C and D shareremaining profits in the ratio
of 3: 2. Findthe profit sharing ratio of A, B, C and D.

(a) [Link] (b) [Link] (c) 2.5: 2.5: 8:6 (d) [Link] Ans.[a]

Q20) X and Y are partners sharing profits andlosses in the ratio of 5: 3. On admission, Z brings ₹70,000 as cash and
₹40,000 againstGoodwill. New profit ratio between X, Y andZ is [Link]. The Sacrificing ratio of X andY is:

(a) 3:1 (b) 4:5 (c) 1:3 (d) 5:9 Ans.[a]

Q21) When a new partner doesn't bring his shareof goodwill in cash, the amount is debited to:

(a) Cash A/c (b) Current A/c of new partner

(c) Capital A/c of old partners (d) Premium for Goodwill A/c Ans.[b]

Q22) Revaluation A/c is a:

 (a) Real account(b) Asset account (c) Personal account (d) Nominal account Ans.[d]

Q23) P and Q are partners in a firm having capitals of ₹15,000 each. R is admitted for 1/3 rd share for which he has to
bring ₹20,000 for his share of capital. The amounts of R’s share of goodwill will be__________.

(a) ₹20,000 (b)₹24,000 (c)₹10,000 (d)₹40,000 Ans.[c]

Q24) As per ---------, only purchased goodwill can be shown in the Balance Sheet.

(a) AS-10 (b) AS-26 (c) AS-37 (d) None of these Ans.[b]

Q25) At the time of admission of new partner, creditors overvalued are _______ to Revaluation Account.

(a) Debited (b) Credited (c) Not recorded (d) None of these Ans.[b]

Q26) Generally sacrificing ratio is used to distribute ......... in case of admission of a new partner.

a. General Reserve
b. Profit show by Profit and Loss Appropriation Account
c. Premium for goodwill d. Profit shown by Revaluation Account.
Q27) Premium brought by a new partner will be shared by the existing partners in:

a. Old ratio b. New ratio

c. Sacrificing ratio d. Gain ratio
Q28) By contributed capital a new partner will get the right in.........

a. Assets b. Liabilities
c. Reserve d. Accumulated profits
Q29)By passing premium for goodwill a new partner will get the right to.........

a. Share reserves b. Share future profits

c. Share Accumulated profits d. Share old goodwill appearing in B/s
Q30) Which is the following is not distributed among the partners?

a. General reserve b. Contingency reserve

c. Retained earnings d. Workers profit sharing fund
Q31) Revolution account is also known as:
a. Profit and Loss Adjustment Account b. Profit and Loss Appropriation Account
c. Profit and Loss Account d. Statement of Profit and Loss
Q32) X and Y were partners in firm sharing profits in the ratio of 7 : 3. Z was admitted for 1/5 th
share in the profits which he took 75% from X and remaining from y.
Sacrificing ratio of X and Y
a. 1:1 b. 3:2
c. 7:3 d. 3:1
Q33) M and N are partners sharing profits in the ratio of 5 : 3. They admit Q as a new partner for
20% share in the future profits of the firm:
Now profit Sacrificing ratio:
 a. [Link] b. [Link]
c. [Link] d. [Link]
Q34) X and Y are partners sharing profits in the ratio of 3 : 2. They admit Z as a new partner by
giving him 1/3rd share in future profits.
The New ratio will be:
a. [Link] b. [Link]
c. [Link] d. [Link]

Assertion and Reasoning questions:

Q1) Assertion (A):At the time of admission of a new partner:

 Assets will be revalued

 Liabilities will be reassessed
 Gain or loss on Revaluation will be shared by the old partners in their old profit sharing ratio.
Reason (R):At the time of admission of a partner the assets and liabilities should be brought to their current values so
that new partner is not put to an advantage because of the change in values of assets and liabilities.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[a]

Q2) Assertion (A):When a new partner is admitted, all free reserves and accumulated profits are transferred to the
old partners capital/current accounts in their old profit sharing ratio.

Reason (R):Employee provident fund is a liability of the firm: hence is should not be distributed among the partners.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[b]

Q3) Assertion (A):At the time of admission of a new partner, if any outstanding liability (given in balance sheet) is
paid by the firm, it will not be shown in the Revaluation Account.

Reason (R):Revaluation Account is prepared to revalue the assets and to reassess the liabilities.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[c]

Q4) Assertion (A):At the time of admission of a new partner, Goodwill appearing in the existing balance sheet, will be
Debited to old partners capital/current account in their old profit sharing ratio.

Reason (R):Premium for goodwill brought by new partner will be credited to only sacrificing partners’ capital/current
account.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[b]

Q5) Assertion (A):At the time of admission of a new partner, Purchase of a new asset will not be recorded in the
revaluation account but if asset was written off earlier is brought back into the books; it will be shown in the Credit
side of Revaluation Account.

Reason (R):Revaluation Account is prepared to record all types of assets whether assets are old or new, purchased or
sold.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Both Assertion and Reason are not correct.

(d) Only Assertion is correct. Hint:[c]

QI) Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and the other as
‘Reason (R)’. You are to examine these two statements carefully and select the answers using the code given below:

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true.

Q1) Assertion (A): The amount brought in by the new partner is divided between the existing partners in their
sacrificing ratio.

Reason (R): The new partner acquires his share profit from the existing partners. Hint:[a]

Q2) Assertion (A): Undistributed profits or losses appearing in the balance sheet at the time of admission should be
transferred to old partners’ capital/current account.

Reason (R): Undistributed profits or losses appearing in the balance sheet at the time of admission belong to the
old partners as they are earned by them. Hint:[a]

Q3) Assertion (A): An increase in the value of assets and a decrease in the value of liability at the time of admission of
a partner are debited to the Revaluation Account.

Reason (R): Revaluation Account is nominal in nature. Hint:[d]

Q4) Assertion (A): It is necessary to show the true position of the firm at the time of admission of a new partner.
 Reason (R): The gain or loss on revaluation which is transferred to all the partner’s capital account in new profit
sharing ratio. Hint:[c]

Q5) Assertion (A): Workmen Compensation Reserve is a reserve created out of firm’s profits to meet possible liability
to pay compensation to employees, if it arises.

Reason (R): Excess of Workmen Compensation Reserve over the Workmen Compensation Claim is credited to all
partners in their old profit sharing ratio. Hint:[b]

Q6) Assertion (A): A new partner can be admitted. If it is agreed in the partnership deed but in the absence of
partnership deed, a new partner can be admitted only if all the partners agree to admit that partner.

Reason (R):Section 31 of the Indian Partnership Act, 1932 will be applicable. Hint:[a]

Q7) Assertion (A):A new partner brings Capital to get right in the assets of the firm, he also brings premium for
goodwill to get the right to share future profits of the firm.

Reason (R):A Partner may be exempted from the premium for goodwill in such a case he will bring only his capital
amount but he will get both the rights, right to share the assets of the firm as well as right to share the future profits
of the firm. Hint:[b]

Q8) Assertion (A): At the time of admission of a new partner, Purchase of a new asset will not be
recorded in the revaluation account but if asset was written off earlier is brought back into
the books, it will be shown in the Credit side of Revaluation Account.
Reason (R): Revaluation Account is prepared to record all types of assets whether assets are
old or new, purchased or sold.
Choose the Correct Option from the following :
a. Assertion and Reason both are correct and reason is the correct explanation of assertion .
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion
c. Both Assertion and Reason are not correct
d. Only Assertion is correct.
Q9) Assertion (A): At the time of admission of a new partner, if partners have decided not to
distribute the General Reserve (given in balance sheet) instead of crediting the amount of
General Reserve to the partners directly, an adjustment entry is to be recorded.
Reason (R): Adjustment entry is recorded to determine the amount of compensation to be
paid to the sacrificing partners.
Choose the Correct Option from the following :
a. Assertion and Reason both are correct and reason is the correct explanation of assertion .
b. Assertion and Reason both are correct but Reason is not correct explanation of assertion
c. Both Assertion and Reason are not correct
d. Only Assertion is correct.

Competency Based Questions:

CASE STUDY – 1

Ram and Mohan were partners in a firmsharing profits in the ratio of 4 : 1. On01.04.2021, they admitted Sohan as a
newpartner for 1/3rd share in the profits of thefirm. They fixed the new profit sharing ratioas [Link]. On the date of
Sohan's admission,the firm had a Contingency Reserve balanceof ₹20,000 and Profit and Loss accountbalance of
₹32,000 (Dr.). The firm also hada reserve of ₹1,00,000. Sohan is to bring₹60,000 as premium for his share
ofgoodwill.

On the basis of the above information answerthe following questions:

Q1) The gaining partners and their gain is/are:

(a) Sohan 15/45 (b) Ram and Sohan 1/45 and 1/3respectively

(c) Mohan and Sohan 1/45 and 15/45 respectively (d) None of these Hint:[c]

Q2) The contingency reserve will becredited to:

(a) Revaluation A/c (b) Cash A/c

(c) Old Partners' Capital A/c (d) None of these Hint:[c]

Q3) The compensation for sacrifice made isgiven to:

(a) Ram and Mohan ₹30,000 each (b) Ram and Mohan ₹48,000 and₹12,000 respectively

(c) Ram ₹64,000 (d) Mohan ₹60,000 Hint:[c]

Q4) The Profit and Loss A/c appearing inbooks will be written off by:

(a) Crediting to all partners' capitalaccount in new ratio

(b) Crediting to old partners' capitalaccount in old ratio

(c) Debiting to old partners' capitalaccount in old ratio

(d) Debiting to all partners' capitalaccount in new ratio Hint:[c]

CASE STUDY – 2

Sterling Enterprises is a partnership business with Ryan, Williams and Sania as partners engaged in production and
sales of electrical items and equipment.

Their capital contributions were ₹50,00,000, ₹50,00,000 and ₹80,00,000 respectively with the profit the sharing
ratio of [Link]. As they are now looking forward to expanding their business, it was decided that they would bring in
sufficient cash to double their respective capitals.

This was duly followed by Ryan and Williams but due to unavoidable reasons Sania could not do so and ultimately it
was agreed that to bridge the shortfall in the required capital a new partner should be admitted who would bring in
the amount that Sania could not bring and that the new partner would get share of profits equal to half of Sania’s
share which would be sacrificed by Sania only.

Consequent to this agreement Ejaz was admitted and he brought in the required capital and ₹30,00,000 as premium
for goodwill.

Based on the above information you are required to answer the following questions. {SP-2021}

Q1) What will be the new profit-sharing ratio of Ryan, Williams, Sania and Ejaz?

(a) [Link] (b) [Link] (c) [Link] (d) None of the above Hint:[c]

Q2) What is the amount of capital brought in by the new partner Ejaz?

(a)₹50,00,000 (b)₹80,00,000 (c)₹40,00,000 (d)₹30,00,000 Hint:[b]

Q3) What is the value of the goodwill of the firm?

(a)₹1,35,00,000(b)₹30,00,000 (c)₹1,50,00,000(d) None of the above Hint:[a]

Q4) What will be correct journal entry for distribution of Premium for Goodwill brought in by Ejaz?

(a) Ejaz Capital A/c Dr. 30,00,000

To Sania’s Capital A/c 30,00,000

(b) Premium for Goodwill A/c……Dr. 30,00,000

To Sania’s Capital A/c 30,00,000

(c) Premium for Goodwill A/c……Dr 30,00,000

To Ryan’s Capital A/c 8,33,333

To William’s Capital A/c 8,33,333

To Ejaz’s Capital A/c 13,33,333

(d) Premium for Goodwill A/c……Dr 30,00,000

To Ryan’s Capital A/c 10,00,000

To William’s Capital A/c 10,00,000

To Ejaz’s Capital A/c 10,00,000 Hint:[b]

CASE STUDY – 3

Amit and Mahesh were partners in a fast-food corner sharing profits and losses in ratio 3:2. They sold fast food items
across the counter and did home delivery too. Their initial fixed capital contribution was ₹1,20,000 and ₹80,000
respectively.

At the end of first year their profit was ₹1,20,000 before allowing the remuneration of ₹3,000 per quarter to Amit
and ₹2,000 per half year to Mahesh. Such a promising performance for first year was encouraging, therefore, they
decided to expand the area of operations.

For this purpose, they needed a delivery van, a few Scotties and an additional person to support. Six months into the
accounting year they decided to admit Sundaram as a new partner and offered him 20% as a share of profits along
with monthly remuneration of ₹2,500. Sundaram was asked to introduce ₹1,30,000 for capital and ₹70,000 for
premium for goodwill. Besides this Sundaram was required to provide ₹1,00,000 as loan for two [Link]
readily accepted the offer. The terms of the offer were duly executed and he was admitted as a partner.
{SP-2021}

Q1) Remuneration will be transferred to_______ of Amit and Mahesh at the end of the accounting period.

(a) Capital account (b) Loan account (c) Current account (d) None of the above Ans.[c]

Q2) Upon the admission of Sundaram the sacrifice for providing his share of profits would be done:

(a) By Amit only (b) By Mahesh only

(c) By Amit and Mahesh equally (d) By Amit and Mahesh in the ratio of 3:2 Ans.[d]

Q3) Sundaram will be entitled to a remuneration of ________ at the end of the year.

(a) ₹20,000 (b)₹2,500 (c)₹15,000 (d)₹25,000 Ans.[c]

Q4) While taking up the accounting procedure for this reconstitution the accountant of the firm Mr. Suraj faced a
difficulty. Solve it be answering the following:

For the amount of loan that Sundaram has agreed to provide, he is entitled to interest thereon at the rate
of___________. .

(a) 5% p.a. (b) 6% p.a. (c) 10% p.a. (d) None of the above Ans.[b]
Q4) Divji and Kanavarr partners since last 5 years. They are involved in publishing educational
books for the school and college students. They share profits in the ratio of 3:2. Due to the urgent
need of capital. They decided to admit a new partner.
Puneet was admitted for 1/3rd share and
a. He brings capital Rs. 5,00,000 to acquire the right to share firm’s assets.
b. He also brings some amount to acquire the right to share profits of the business. Cash
brought by him Rs. 60,000 (Out of 80,000) which was credited to sacrifice partners Divji
Rs. 40,000 and Kanav Rs. 20,000.
You are required to find out:
a. Sacrificing Ratio of Divji and Karnav.
i. 2/9 and 1/9 ii. 1:1
iii. 3/5 and 2/9 iv. 3/5 and 2/5
b. New Profit Sharing Ratio:
i. 17 : 13 : 15 ii. 17 : 15 : 13
iii. 3 : 2 : 1 iv. 1: 1: 1
Q5) On 1.1.2015 Uday and Kaushal entered into partnership with fixed capitals of Rs. 7,00,000 and
Rs. 3,00,000 respectively. They were doing good business and were interested in its expansion but
could not do the same because of lack of capital. Therefore, to have more capital, they admitted
Govind as a new partner on 1.1.2017. Govind brought Rs. 10,00,000 as capital and the new profit
sharing ratio decided was [Link]. On 1.1.2019. another new partner Hari was admitted with a
capital of Rs. 8,00,000 for 1/10th share in the profits which he acquired equally from Uday, Kaushal
and Govind. On 1.4.2021 Govind died and his share was taken over by Uday and Hari equally.
a. The sacrifice ratio of Uday and Kaushal on Govind’s admission.
i. 3:2 ii. 2:3
iii. 3:1 iv. 2:1
b. New profit sharing ratio of Uday, Kaushal, Govind and Hari on Hari’s admission.
i. [Link] ii. [Link]
iii. [Link] iv. [Link]
b. New profit sharing ratio of Uday, Kaushal and Hari on Govind’s death.
i. [Link] ii. [Link]
iii. [Link] iv. [Link]

Chapter – 9 (Company Accounts - Accounting for Share Capital)

Multiple Choice Questions (MCQs):

Q1) Identify the purpose of utilizing the ‘Security Premium’ by the Company as per Section 78 of Company Act.
 (a) Transfer to General Reserve (b) Transfer to Capital Reserve

(c) Issuing Bonus Shares (d) Distribution of Dividend Ans.[c]

Q2) At what rate can the company charge interest on call-in-arrear, if it has not prepared its own Articles of
Association?

(a) @5% p.a. (b) @10% p.a. (c) @12% p.a. (d) None of these Ans.[b]

Q3) X Ltd had allotted 10,000 shares to the applicants of 14,000 shares on pro-rata basis. The amount payable on
application was ₹2 per share. S applied for 420 shares. The number of shares allotted and amount carried forward
for adjustment against allotment money due from S will be:

(a) 300 shares; ₹240 (b) 340 shares; ₹160 (c) 60 shares; ₹120 (d) 320 shares; ₹200 Ans.[a]

Q4) A Ltd forfeited 300 shares of ₹100 each, ₹70 called up, for non-payment of first call of ₹20 per share. Out of
these, 200 shares were reissued for ₹60 per share as ₹70 paid up. What is the amount to be transferred to Capital
Reserve Account?

(a) ₹13,000 (b) ₹8,000 (c) ₹2,000 (d) ₹7,000 Ans.[b]

Q5) G Ltd forfeited 4,000 shares of ₹10 each (₹6 called up) issued to Rajesh on which he has paid ₹3 per share. Out
of these 800 shares were reissued as ₹8 paid up for ₹6 per share. What is the amount to be transferred to Capital
Reserve Account?

(a) ₹2,400 (b) ₹2,000 (c) ₹1,600 (d) ₹800 Ans.[d]

Q6) P Ltd forfeited 150 shares of ₹10 each, issued at a premium of ₹2 per share, for non-payment of the final call of
₹3. Out of these, 100 shares were reissued at ₹11 per share. How much amount would be transferred to Capital
Reserve Account? {CS-2013}

(a) ₹700 (b) ₹500 (c) ₹1,200 (d) ₹300 Ans.[a]

Q7) XY Ltd issued 2,50,000 equity shares of ₹10 each at a premium of ₹1 per share, payable as ₹2 on application,
₹4 on allotment and balance on the first & final call. Applications were received for 4,00,000 equity shares but the
company allotted to them only2,50,000 shares. First & Final on 500 shares was not received and shares were
forfeited after due notice. This is a case of: {CS-2013}

(a) Over Subscription (b) Pro-rata Allotment (c) Forfeiture of Shares (d) All of the above Ans.[d]

Q8) Forfeiture of shares results in the reduction of:

(a) Subscribed Capital (b) Authorised Capital (c) Reserve Capital (d) Issued Capital Ans.[a]

Q9) The Directors of Unim Ltd forfeited 30,000 shares of ₹10 each, for non-payment of final call of ₹3 per share. Half
of the forfeited shares were reissued as fully paid up for ₹12 per share. The amount to be transferred to the Capital
Reserve Account will be: {AI-2020}

(a) ₹2,70,000 (b)₹2,10,000 (c)₹1,05,000 (d)₹1,80,000 Ans.[c]

Q10) The Directors of Neelkamal Ltd forfeited 70,000 shares of ₹10 each, ₹10 called up, for non-payment of final call
of ₹1 per share. Half of the forfeited shares were reissued as fully paid up for ₹20 per share. The amount to be
transferred to the Capital Reserve Account will be: {AI-2020}

(a) ₹70,000 (b)₹1,40,000 (c)₹4,20,000 (d)₹3,15,000 Ans.[d]

Q11) The Directors of Axim Ltd forfeited 20,000 shares of ₹10 each, ₹8 per share called up for non-payment of first
call of ₹2 per share. Final call of ₹2 per share has not been yet called. Half of the forfeited shares were reissued as
fully paid up for ₹15 per share. The amount to be transferred to the Capital Reserve Account will be: {AI-
2020}

(a) ₹2,00,000 (b)₹1,20,000 (c)₹60,000 (d)₹40,000 Ans.[c]

Q12) Divya Ltd forfeited 7,000 equity shares of ₹100 each issued at a premium of 10%, for non-payment of first and
final call of ₹40 per share. The maximum amount of discount at which shares can be reissued will be:
{AI-2020}

(a) ₹2,80,000 (b) ₹4,20,000 (c) ₹4,90,000 (d) ₹3,50,000 Ans.[b]

Q13) V. F. Ltd forfeited 8,000 equity shares of ₹100 each issued at a premium of 10%, for non-payment of first and
final call of ₹30 per share. The maximum amount of discount at which shares can be reissued will be:
{AI-2020}

(a) ₹5,60,000 (b) ₹8,00,000 (c) ₹3,20,000 (d) ₹2,40,000 Ans.[a]

Q14) Pragya Ltd forfeited 8,000 equity shares of ₹100 each issued at a premium of 10%, for non-payment of first and
final call of ₹30 per share. The maximum amount of discount at which shares can be reissued will be:
{AI-2020}

(a) ₹80,000 (b) ₹3,20,000 (c) ₹5,60,000 (d) ₹2,40,000 Ans.[c]

Q15) Nominal Share Capital is : {AI-2020}

(a) The part of authorised capital which is issued by the company.

(b) The amount of capital which is actually applied by prospective shareholders.

(c) The amount of capital which is paid by the shareholders.

(d) The maximum amount of share capital that a company is authorised to issue. Ans.[d]

Q16) Reserve Capital is not a part of: {SP-2020]

(a) Authorized Capital (b) Subscribed Capital

(c) Unsubscribed Capital (d) Issued Share Capital Ans.[c]

Q17) A company forfeited 4,000 shares of ₹10 each on which application money of ₹3 has been paid. Out of these
2,000 shares were reissued as fully paid up and ₹4,000 has been transferred to capital reserve. Calculate the rate at
which these shares were issued. {SP-2020}

(a) ₹10 per share (b) ₹9 per share (c) ₹11 per share (d) ₹8 per share Ans.
[b]

Q18) A portion of share capital that is reserved by the company and will be utilized only on the happening of winding
up of the company is called ________. {SP-2019}

(a) Subscribed Capital (b) Authorised Capital (c) Reserve Capital (d) Issued Capital Ans.[c]

Q19) Shares of ₹10 each on which the company decides to call ₹2 per share at the time of its winding up, then ₹2
per share is known as ________.

(a) Subscribed Capital (b) Authorised Capital (c) Reserve Capital (d) Issued Capital Ans.[c]

Q20) The prefix % associated with preference shares is the rate of ______.

(a) Interest (b) Bonus (c) Capital Reserve (d) Dividend Ans.[d]

Q21) The forfeited shares can be reissued at:

(a) At Par (b) At Premium (c) At Discount (d) All of them
Q22) The maximum amount with which the company is registered is called:
(a) Authorized Share Capital (b) Issued Share Capital
(c) Paid up capital (d) Called up capital
Q23) Maximum number of members in public limited company is ...................
(a) 10 (b) 20 (c) 50 (d) unlimited
Q24) Premium on issue of shares can be used for ................
(a) Distribution of dividend (b) Writing of capital losses
 (c) Transferring to general reserve (d) Paying fees to directors
Q25) Rate of dividend on equity share holder is :
a. 10% b. 5%
c. 20% d. Rate not fixed
Q26) Rishi Ltd. invited applications for issuing 1,000 equity shares of Rs. 100 each at a premium of
20%. The whole amount was payable on application. The issue was fully subscribed. Amount
received on application will be.
a. 1,00,000 b. 1,20,000
c. 80,000 d. 1,10,000
Q27) X Ltd. issued 75,000 equity shares of Rs. 10 each at a premium of 40%. The whole amount
was payable on application. Applications for 1,20,000 shares were received. Amount refunded by
the company will be:
a. 16,80,000 b. 10,50,000
c. 4,50,000 d. 6,30,000
Q28) X Ltd. purchased the business of B Ltd. for Rs. 6,00,000 payable in fully paid shares of Rs. 10
each at a premium of 25% Number of shares to be issued by A Ltd. will be:
a. 6,00,000 b. 60,000
c. Nil d. None of these
Q29) X Ltd. purchased a running business from Y Ltd. for a sum of Rs. 30,00,000 payable 40% by a
cheque and the balance by the issue of fully paid equity shares of Rs. 100 each at of 20%. Number
of shares to be issued by X Ltd...........
a.30,000 b. 25,000
c. 15000.N0d. d. 18,000
Q30) Rishi Ltd. decided to issue 75,000 equity shares of Rs. 10 each at a premium of 20%. The
whole amount was payable on application. Application for 1,00,000 shares were received.
Applications for 5,000 shares were rejected and shares were allotted to the remaining
applicants on pro-rata basis.
a. 50,000 b. 3,00,000
c. 2,40,000 d. 60,000

Assertion and Reasoning questions:

Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and the other as
‘Reason (R)’. You are to examine these two statements carefully and select the answers using the code given below:

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true.

Q1) Assertion (A): A company is created through the process of incorporation under the Companies Act, 2013 or any
other previous Companies Act.

Reason (R): It is artificial person which is separate legal entity from its members (shareholders).
Hint:[b]

Q2) Assertion (A): The liability of a shareholder is limited up to the nominal price of shares subscribed by one.

Reason (R): Paid up Capital is the amount of nominal value of shares that has been called up by the company for
payment by the subscriber towards the share. Hint:[c]

Q3) Assertion (A): Proportionate allotment or pro-rata allotment is made in case of oversubscription of shares.

Reason (R): In the case of over subscription, it is not possible for the company to allot shares to every applicant in
the number that he desires. Hint:[a]

Q4) Assertion (A): Forfeiture of share refers to the cancellation or termination of membership of a share holder by
taking away the shares and rights of membership.

Reason (R): Forfeited shares can be reissued at a discount. Hint:[b]

Q5) Assertion (A): A Company can issue its shares either at par, at a premium or even at a discount.

Reason (R): Amount in excess of the nominal value of the share is termed as premium and such amount of
premium is credited to securities premium reserve account. Hint:[b]

Q6) Assertion (A): When a company purchase a running business of other company, and payment
is settled by issue of shares, in such a case, if purchase consideration is more than the net assets,
then difference is debited to the Goodwill Account.
Reason (R): Goodwill is recorded in the books when some money or money’s worth is paid
for it.
Choose the correct Option from the following:
1. Assertion and Reason both are correct and Reason is the correct explanation of
assertion.
2. Assertion and Reason both are correct but Reason is not correct explanation of
assertion.
3. Both Assertion and Reason are not correct.
4. Only Assertion is correct.
Q7) Assertion (A): When a running business of other company is purchased, and payment is settled
by issue of shares, in such a case, if purchase consideration is less than the net assets, then
difference is credited to the capital Reserve.
Reason (R): Capital Reserve is a capital loss for the company.
Choose the correct Option from the following:
1- Assertion and Reason both are correct and Reason is the correct explanation of
assertion.
2- Assertion and Reason both are correct but Reason is not correct explanation of
3- assertion.
4- Both Assertion and Reason are not correct.
 5- Only Assertion is correct.
Q8) Assertion (A):A company may forfeit the shares for non-payment of calls amount depend upon
the Articles of Association of the company.
Reason (R): Shares can be forfeited only if it is allowed by the Articles of Association of the
company.
Choose the correct Option from the following:
1- Assertion and Reason both are correct and Reason is the correct explanation of
assertion.
2- Assertion and Reason both are correct but Reason is not correct explanation of
assertion.
3- Both Assertion and Reason are not correct.
4- Only Assertion is correct.

Competency Based Questions:

CASE STUDY – 1

Yuvraj Ltd., a pharmaceutical company is in need of finance to meet its increased demand. Therefore it decided to
issue 60,000 equity shares of ₹100 each at ₹120 per share, payable at ₹50 on application (including premium), ₹40
on allotment and the balance on the first and final call.

Applications for 80,000 shares had been received. Out of the cash received ₹2,00,000 was returned and ₹8,00,000
was applied to the amount due on allotment. All shareholders paid the call due, with the exception of one
shareholder of 15,000 shares. These shares were forfeited and reissued as fully paid at ₹70 per share. Answer the
following questions on the basis of the above information:

Q1) Excess Application on ________ shares is adjusted to Share Allotment Account.

(a) 16,000 (b) 12,000 (c) 14,000 (d) 10,000 Hint:[a]

Q2) The amount of calls-in-arrear will be _________ .

(a) ₹1,50,000 (b) ₹3,00,000 (c) ₹4,50,000 (d)₹1,00,000 Hint:[c]

Q3) At the time of forfeiture of shares, share capital account will be debited with ________ .

(a) ₹18,00,000 (b) ₹15,00,000 (c) ₹10,00,000 (d) ₹12,00,000 Hint:[b]

Q4) What amount will be credited to shares forfeited account at the time of forfeiture of 15,000 shares?

(a) ₹1,50,000 (b) ₹13,50,000 (c) ₹10,50,000 (d) ₹15,00,000 Hint:[c]

Q5) On how many shares the application money was refunded?

(a) 16,000 (b) 80,000 (c) 6,000 (d) 4,000 Hint:[d]

Q6) At the time of reissue of forfeited shares, how much amount will be debited to 'Shares forfeited A/c'?

(a) 12,00,000 (b) 10,50,000 (c) 4,50,000 (d) 15,00,000 Hint:[c]

Q7) _________ will be debited to Bank Account at the time of reissue of forfeited shares.

(a) ₹10,50,000 (b) ₹4,50,000 (c) ₹12,00,000 (d) ₹15,00,000 Hint:[a]

Q8) What amount will be transferred to Capital Reserve?

 (a) ₹4,50,000 (b) ₹10,50,000 (c) ₹6,00,000 (d) ₹16,00,000 Hint:[c]

CASE STUDY – 2

Ranvijay Ltd. invited applications for issuing 1,00,000 shares of ₹10 each at a premium of ₹2 per share. Amount per
share was payable as follows:

On Application-4 (including premium₹1);

On Allotment-4 (including premium ₹1);

On First and Final Call - Balance

Applications were received for 1,50,000 shares and allotment was made to the applicants as follows:

(i) Applicants of 80,000 shares were allotted 60,000 shares.

(ii) Applicants of 50,000 shares were allotted40,000 shares.

(iii) No shares were allotted to the remaining applicants and their application money was returned.

Yuvraj, who belonged to category (ii) andwho had applied for 5,000 shares failed to pay the allotment and call
money. His shareswere forfeited. Later, half of Yuvraj's forfeitedshares were reissued @₹18 per share asfully paid
up.

On the basis of above information, answerthe following questions:

Q1) State the amount of excess applicationmoney refunded to the applicants.

(a) ₹2,00,000 (b) ₹80,000 (c) ₹40,000 (d) ₹1,00,000 Hint:[b]

Q2) State the excess application money beingadjusted to share allotment account to whom pro-rata allotment has
beenmade.

(a) ₹2,00,000 (b) ₹80,000 (c) ₹40,000 (d) ₹1,20,000 Hint:[d]

Q3) State the amount of calls-in-arrears at thetime of receipt of allotment money?

(a) ₹12,000 (b) ₹16,000 (c) ₹18,000 (d) ₹24,000 Hint:[a]

Q4) The amount of calls-in-arrear at the timeof receipt of first call is:

(a) ₹12,000 (b) ₹16,000 (c) ₹18,000 (d) ₹24,000 Hint:[b]

Q5) The amount forfeited on 4,000 sharesis:

(a) ₹12,000 (b) ₹14,000 (c) ₹16,000 (d) ₹18,000 Hint:[c]

Q6) At the time of forfeiture of shares,Securities Premium Reserve Accountwill be debited with:

(a) ₹4,000 (b) ₹6,000 (c) ₹8,000 (d) ₹10,000 Hint:[a]

Q7) State the amount received at the timeof reissue of forfeited shares.

(a) ₹20,000 (b) ₹16,000 (c) ₹36,000 (d) ₹30,000 Hint:[c]

Q8) State the amount to be transferred toCapital Reserve Account.

(a) ₹6,000 (b) ₹8,000 (c) ₹3,000 (d) ₹4,000 Hint:[b]

CASE STUDY – 3

Nidiya limited was incorporated on 1stApril 2017 with registered office in Mumbai. The capital clause of
memorandum of Association reflected a registered capital of 8,00,000 equity shares of ₹10 each and 1,00,000
preference shares of ₹50 each.
Since some large investments were required for building and machinery the company in consultation with
vendors,[Link] Enterprises, issued 1,00,000 equity shares and 20,000 preference shares at par to them in full
consideration of assets acquired. Besides this the company issued 2,00,000 equity shares for cash at par payable as ₹
3 on application, ₹2 on allotment, ₹3 on first call and ₹2 on second call.

Till date second call has not yet been made and all the shareholders have paid except Mr. Ajay who did not pay
allotment and calls on his 300 shares and Mr. Vipul who did not pay first call on his 200 shares. Shares of Mr. Ajay
were then forfeited and out of them 100 shares were reissued at ₹12 per share. {SP-2021}

Based on above information you are required to answer the following questions.

Q1) Shares issue to vendors of building and machinery, Ms. VPS Enterprises, would be classified as:

(a) Preferential Allotment (b) Employee Stock Option Plan

(c) Issue for Consideration other than cash (d) Right Issue of Shares Hint:[c]

Q2) How many equity shares of the company have been subscribed?

(a) ₹3,00,000 (b) ₹2,99,500 (c) ₹2,99,800 (d) None of these Hint:[c]

Q3) What is the amount of security premium reflected in the balance sheet at the end of the year?

a) ₹200 (b) ₹600 (c) ₹400 (d) ₹1,000 Hint:[c]

Q4) What amount of share forfeiture would be reflected in the balance sheet?

a) ₹600 (b) ₹900 (c) ₹200 (d) ₹300 Hint:[a]

CASE STUDY – 4

On 1st April, 2017, Vishwas Ltd. was formed with an authorised capital of ₹10,00,000 divided into 1,00,000 equity
shares of ₹10 each. The company issued prospectus inviting applications for 90,000 equity shares. The company
received applications for 85,000 equity shares. During the first year, ₹8 per share were called. Ram holding 1,000
shares and Shyam holding 2,000 shares didnot pay the first call of ₹2 per share. Shyam's shares were forfeited after
the first call and later on 1,500 of the forfeited shares were re-issued at ₹6 per share, ₹8 called up. Based on the
above information you are required to answer the following questions:

Q1) Find out the amount of share forfeiture account that will appears in the Balance Sheet.

(a) ₹12,000 (b) ₹9,000 (c) ₹6,000 (d) ₹3,000 Hint:[d]

Q2) Total numbers of subscribed shares were:

(a) 90,000 equity shares (b) 85,000 equity shares (c)

84,500 equity shares (d) 85,500 equity shares Hint:[c]

Q3) Total amount that will be shown under the head of 'Share Capital' is:

(a) ₹6,76,000 (b) ₹6,77,000 (c) ₹6,78,000 (d)₹6,79,000 Hint:[b]

Chapter – 1 (Financial Statements of a Company)

Multiple Choice Questions (MCQs).

Q1) Out of the following which is shown under ‘Short term Provisions’ sub-head.
 (a) Provision for Taxes (b) Accrued Income

(c) Employees Provident Fund (d) Unclaimed Dividend Hint:[a]

Q2) Call in Advance and interest thereon is shown under which sub-head.

(a) Share Capital (b) Other Non Current Liability

(c) Other Current Liability (d) Trade Payable Hint:[c]

Q3) Surplus i.e. Balance of Statement of Profit and Loss is the item of which head.

(a) Share Capital (b) Reserve and Surplus

(c) Non Current Liability (d) Current Liability Hint:[b]

Q4) Patents and Trade Marks are the examples of which assets.

(a) Intangible Fixed Assets (b) Tangible Fixed Assets

(c) Current Assets (d) Inventories Hint:[a]

Q5) Which of the following is not a Short term Borrowing?

(a) Deposits (b) Bank Overdraft

(c) Loan Payable on demand (d) Trade Receivables Hint:[d]

Q6) Call in Arrear appear in a Company Balance Sheet under which head:

(a) Reserve & Surplus (b) Shareholder’s Funds

(c) Short Term Borrowings (d) None of these Hint:[b]

Q7) Loose Tools and Stores & Spares are shown as _________ in the Company Balance Sheet.

(a) Current Assets (b) Tangible Fixed Assets

(c) Other Current Assets (d) Inventories Hint:[d]

Q8) Which of the following is not an item under ‘Current Assets’? {AI-2020}

(a) Cash & Cash Equivalents (b) Capital Advances

(c) Short term Loans and Advances (d) Inventories Hint:[b]

Q9) Which of the following is not a subhead under the ‘Current Assets’? {AI-2020}

(a) Cash & Cash Equivalents (b) Trade Marks

(c) Short term Loans and Advances (d) Inventories Hint:[b]

Q10) Contingent Liabilities and Commitments are shown in the Company Balance Sheet under which heading.

(a) Shareholder Funds (b) Notes to Accounts

(c) Non Current Liability (d) Current Liability Hint:[b]

Q11) ‘Security Deposits’ are presented in the Balance Sheet of the Company under the subhead: {AI-2020}
(a) Other Non-Current Assets (b) Long term Loans and Advances

(c) Fixed Assets (d) Other Current Liabilities Hint:[b]

Q12) Under which of the following head/subhead is ‘Forfeited Shares’ presented in the Balance Sheet of a Company?
{AI-2020}

(a) Reserve & Surplus (b) Share Capital

(c) Other Long term Liabilities (d) Other Current Liabilities Hint:[b]
Q13) Which of the following is not presented under ‘Current Liabilities’ in the Balance Sheet of a Company?
{AI-2020}

(a) Short term Borrowings (b) Deferred Tax Liabilities

(c) Short term Provisions (d) Trade Payables Hint:[b]

Q14) Which of the following is not a part of Finance Cost (In Statement of profit or loss)? {SP-2020}

(a) Bank Charges (b) Interest paid on Debentures

(c) Interest paid on Public Deposits (d) Loss on Issue of Debentures Hint:[a]

Q15) Proposed dividend is a type of liability. {SP-2020}

(a) Share Capital (b) Other Non Current Liability

(c) Other Current Liability (d) Contingent Liability Hint:[c]

Q16) Security Premium Reserve is shown in the Equity and Liabilities part of the Company Balance Sheet under the
______ major head.

(a) Reserve & Surplus (b) Shareholder’s Funds

(c) Share Capital (d) None of these Hint:[b]

Q17) If expected period of payment of Trade Payables is 15 months and Operating Cycle is of 18 month, it is
considered as ________.

(a) Current Liability (b) Non Current Liability

(c) Other Current Liability (d) Trade Payables Hint:[a]

Q18) Commercial Paper is the item shown under the _______ sub head.

(a) Cash & Cash Equivalents (b) Current Assets

(c) Short term Loans and Advances (d) Inventories Hint:[a]

Q19) Under which major head and sub head Gratuity Paid is shown in the Financial Statement of a Company.

(a) Current Liabilities, Short term Provisions (b) Non Current Liabilities, Long term Provisions

(c) Expenses, Employees Benefit Expenses (d) None of these Hint:[c]

Q20) Under which major head and sub head Goodwill written off is shown in the Financial Statement of a Company.

(a) Expenses, Depreciation and Amortization (b) Non Current Liabilities, Long term Provisions

(c) Expenses, Employees Benefit Expenses (d) None of these Hint:[a]

Q21) List any two items other than ‘Provision for Taxation’ that are presented under the Sub-head ‘Short term
Provisions’ as per schedule III of the Companies Act, 2013.

Q22) List any four items other than ‘Raw Material’ that are presented under the Sub-head ‘Inventories’ as per
schedule III of the Companies Act, 2013.

Q23) List any two items that are presented under the head ‘Other Current Liabilities’ and any two items that are
presented under the head ‘Other Current Assets’ as per schedule III of the Companies Act, 2013. {AI-2019}
Q24) Match the following items with the head under which the will be shown as per Statement of Profit & Loss:

Column - I Column - II
A) Interest paid on loan i) Other Expenses
B) Carriage Inwards ii) Finance Cost
C) Rent Received iii) Other Income
(a) ii), iii), i) (b) ii), i), iii)

(c) i), iii), ii) (d) None of these Hint:[b]

Q25) Match the following items with the head under which the will be shown as per Statement of Profit & Loss:

Column - I Column - II
A) Leave Encashment i) Other Expenses
B) Audit Expenses ii) Employees Benefit Expenses
C) Interest Received iii) Other Income
(a) ii), iii), i) (b) ii), i), iii)

(c) i), iii), ii) (d) None of these Hint:[b]

Q26) Balance sheet of a company is required to be prepared in the format given in __________.

(a) Schedule III Part II (b) Schedule III Part I

(c) Schedule III Part III (d) Table A Hint:[b]

Q27) Fixed deposits appear in a Company’s Balance Sheet under:

(a) Current Assets (b) Current Liabilities

(c) Long-term provisions (d) Long-term Borrowings Hint:[d]

Q28) ‘Accumulated Dividend Arrears’ on preference shares is shown in the Company’s balance sheet as: .

(a) Current Liabilities (b) Contingent Liability

(c) Other Current Liability (d) Commitments Hint:[d]

Q29) Which of the following items is shown under the head ‘Current Assets’ while preparing the Balance Sheet of a
company?

(a) Trade investment (b) Underwriting Commission

(c) Inventories (d) Livestock Hint:[c]

Q30) Share forfeiture Account is the part of:

(a) Reserves and Surplus (b) Share Capital

(c) Other long-term liabilities (d) Other current liabilities Hint:[b]

Q31) Claim against the company not yet acknowledged as debt is a:

(a) Current liability (b) Provisions

(c) Reserve and Surplus (d) Contingent liability Hint:[d]

Assertion & Reason Based Questions:

Q1) Assertion (A): While preparing notes to accounts on share capital, calls in arrears is shown by way of deduction
from the subscribed Capital (subscribed but not fully paid-up).

Reason (R): As per the Companies Act, 2013, Part I of the schedule III, Calls in Arrears is the other current asset of the
company.
Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Only Assertion is correct.

(d) Reason is correct but Assertion is not correct. Hint:[c]

Q2) Assertion (A): Amount received in advance by a company, on calls not yet made should be shown in the Balance
sheet under other current liabilities. It is called ‘Calls-in-Advance).

Reason (R): Company may receive amount against calls not yet made only if its Articles of Association permits.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Only Assertion is correct.

(d) Reason is correct but Assertion is not correct. Hint:[c]

Q3) Assertion (A): Mastheads and publishing Titles are shown in the Balance sheet under the sub-head ‘Fixed
Intangible Assets’.

Reason (R): Mastheads and publishing Titles are fixed asset which do not have physical existence and cannot be seen
and touched.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Only Assertion is correct.

(d) Reason is correct but Assertion is not correct. Hint:[a]

Competency Based Questions:

CASE STUDY – 1

G Ltd. Is registered with authorised capital of ₹5,00,000, Equity Share Capital being 3,00,000 shares of ₹10 each and
2,000, 8% Preference Share Capital of ₹1,000 each.

The promoters of the company had undertaken to subscribe 10,000 equity shares at the time of company
incorporation and paid the due amount.

The promoters of the company were compensated by issuing 20,000 equity shares for their efforts in the project and
expenses incurred by them.

The company on 1st October, 2020 offered to public 2,50,000 equity shares and 1,000, 8% Preference Shares at par
for subscription, amount being payable along with application.

Applications were received for 2,50,000 equity shares and 700, 8% Preference Shares.

The company also issued 5,000, 7% Debentures of ₹1,000 each on 1st January, 2021 redeemable at a premium of 5%
after 5 years. The debentures were subscribed and amount was received.
The company is to prepare Balance Sheet as at 31st March, 2021. Based on above information you are required to
answer the following questions.

Q1) What is the Issued Equity Share Capital of the company?

(a)₹25,00,000 (b)₹28,00,000 (c)₹30,00,000 (d)₹38,00,000 Hint:[b]

Q2) What is the Issued 8% Preference Share Capital of the company?

(a)₹7,00,000 (b)₹20,00,000 (c)₹10,00,000 (d)₹20,00,000 Hint:[c]

Q3) What is the Total Issued Capital of the company?

(a)₹25,00,000 (b)₹37,00,000 (c)₹30,00,000 (d)₹38,00,000 Hint:[d]

Q4) What is the Subscribed 8% Preference Share Capital of the company?

(a)₹7,00,000 (b)₹10,00,000 (c)₹20,00,000 (d)None of these Hint:[d]

Note: As Minimum Subscription i.e. 90% of Issued Preference Share Capital is not received.

Q5) Under which major head and sub-head the 7% Debentures will be shown in the Company Balance Sheet.

(a) Non Current Liability, Long term Provisions (b) Non Current Liability, Long term Borrowings

(c) Non Current Liability, Debentures (d) None of these Hint:[b]

Q6) Under which major head and sub-head the 8% Preference Share will be shown in the Company Balance Sheet.

(a) Shareholder Funds, Reserve & Surplus (b) Shareholder Funds, Share Capital

(c) Shareholder Funds, Preference Share Capital (d) None of these Hint:[b]

CASE STUDY – 2

The Balance Sheet of Casio Ltd prepared by the junior accountant showed the following items against the Major
Heads and Sub-heads mentioned which were not as per Schedule III of the Companies Act, 2013.
Items Major Head/ Sub-Head

Loose Tools Trade Receivables

Cheques in hand Current Investments

Term Loan from Bank Other Long term Liabilities

Computer Software Tangible Fixed Assets

Bills Receivable Current Investment

You are required to present the above items under the correct major heads and sub-heads as per Schedule III of the
Companies Act, 2013.

Hint: Loose Tools – Current Assets, Inventories;

Cheque in hand – Current Assets, Cash and Cash Equivalents;

Term Loan from Bank – Non Current Liabilities, Long term Borrowings;

Computer Software – Non Current Assets, Fixed Assets (Intangible)

Bills Receivable – Current Assets, Trade Receivable

Chapter – 2 (Financial Statement Analysis)

Multiple Choice Questions (MCQs).

Q1) Which analysis is considered as dynamic analysis?

(a) Horizontal Analysis (b) Vertical Analysis

(c) Internal Analysis (d) External Analysis Hint:[a]

Q2) Which analysis is considered as static analysis?

(a) Horizontal Analysis (b) Vertical Analysis

(c) Internal Analysis (d) External Analysis Hint:[b]

Q3) Which of the following is not a limitation of ‘Financial Statements Analysis’? {AI-2020}
(a) It is affected by personal bias (b) Inter firm comparative study possible

(c) Lack of qualitative analysis (d) Ignores price level changes Hint:[b]

Q4) Suppliers are interested to know what, from Financial Statement Analysis?

(a) Liquidity (b) Efficiency (c) Profitability (d) Share Capital Hint:[a]

Q5) Which of the following is not a Tools of Financial Statement Analysis?

(a) Ratio Analysis (b) Break-even Analysis

(c) Cash Flow Statement (d) Internal Analysis Hint:[d]

Q6) Feature of financial analysis is to present the data contained from financial statements of a company in:

(a) Easy form (b) Convenient and rational groups

(c) Comparable form (d) All of the above Hint:[d]

Q7) Which Analysis is based on one year’s data?

(a) Horizontal Analysis (b) Vertical Analysis

(c) Cash Flow Statement (d) None of these Hint:[b]

Q8) Main Objective of Analysis of Financial Statement is:

(a) To know the financial strength (b) To make a comparative study with other firms

(c) To know the efficiency of management (d) All the above Hint:[d]

Q9) Analysis of Financial Statement is significant:

(a) For creditors (b) For Managers

(c) For employees (d) All the above Hint:[d]

Q10) Financial Analysis becomes significant because it ________ .

(a) Ignores price level changes (b) Measures the efficiency of business

(c) Lacks qualitative analysis (d) Is effected by personal bias Hint:[b]

Q11) When bad position of the business is tried to be depicted as good it is known as ______ .

(a) Personal bias (b) Pricelevel changes

(c) Window dressing (d) All the above Hint:[c]

Q12) Financial Analysis becomes useless due to ________.

(a) Measures the profitability (b) Measures the solvency

(c) Lacks qualitative analysis (d) Makes a comparative study Hint:[c]

Q13) Time Series Analysis is an example of __________.

 (a) Static Analysis (b) Dynamic Analysis

(c) Internal Analysis (d) External Analysis Hint:[b]

Q14) Cross Section Analysis is an example of __________.

(a) Static Analysis (b) Dynamic Analysis

(c) Internal Analysis (d) External Analysis Hint:[a]

Q15) _______ analysis deals with same items of different period.

(a) Horizontal (b) Vertical (c) Internal (d) External Hint:[a]

Q16) _______ analysis deals with different items of same period.

(a) Horizontal (b) Vertical (c) Internal (d) External Hint:[b]

Q17) For whom the analysis of financial statements is not significant?

(a) Investor (b) Government

(c) Ambassador of India (d) Company’s Employee Hint:[c]Q18)
Analysis conducted by the Investors and Creditors is known as:

(a) Horizontal Analysis (b) Cross Sectional Analysis

(c) Time series Analysis (d) External Analysis Hint:[d]

Q19) Income Statement represents:

(a) Trading Account (b) Statement of Profit and Loss

(c) Cash flow statement (d) None of these Hint:[b]

Q20) While preparing statement of profit & loss, net sales is recovered as:

(a) Other Income (b) Revenue from operations

(c) Finance Cost (d) Other Expenses Hint:[b]

Q21) Which of the following is not a limitation of Analysis of Financial Statements?

(a) Window Dressing (b) Price level change ignored

(c) Subjectively (d) Intra-firm comparison possible Hint:[d]

Q22) Comparison of values of one period with those of another period for the same firm is:

(a) Inter-firm comparison (b) Intra-firm comparison

(c) Pattern comparison (d) Trend comparison Hint:[b]

Q23) Manipulation is the books of account just to present a better financial position of the firm than the actual
position, it is called.

(a) Variation in Accounting Particles (b) Qualitative Aspect Ignored

(c) Window Dressing (d) Historical Analysis Hint:[c]

Assertion & Reason Based Questions:

Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and the other as
‘Reason (R)’. You are to examine these two statements carefully and select the answers using the code given below:

(a) Both A and R are individually true and R is the correct explanation of A.
 (b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true.

Q1) Assertion (A): When financial statements of several years are compared against a chosen base year, it is called
Dynamic analysis.

Reason (R): Horizontal analysis is made to review and analysis the financial statements for a number of years and it is
also known as Time Series Analysis. Hint:[b]

Q2) Assertion (A): Vertical or static Analysis is made to review and analyze the financial statements of one year only,
to compare the performance of other firms of the same type or divisions or department of one firm.

Reason (R): It is Time Series Analysis. Hint:[c]

Q3) Assertion (A): A company has postponed paying supplies, so that the period-end cash balance appears higher in
the books of the company. This is an example of window dressing.

Reason (R): Through Window Dressing a company can present a better financial position of the firm than the actual
position.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Only Assertion is correct.

(d) Reason is correct but Assertion is not correct. Hint:[d]

Chapter – 2 (Financial Statement Analysis)

Multiple Choice Questions (MCQs).

Q1) Which analysis is considered as dynamic analysis?

(a) Horizontal Analysis (b) Vertical Analysis

(c) Internal Analysis (d) External Analysis Hint:[a]

Q2) Which analysis is considered as static analysis?

(a) Horizontal Analysis (b) Vertical Analysis

(c) Internal Analysis (d) External Analysis Hint:[b]

Q3) Which of the following is not a limitation of ‘Financial Statements Analysis’? {AI-2020}
(a) It is affected by personal bias (b) Inter firm comparative study possible

(c) Lack of qualitative analysis (d) Ignores price level changes Hint:[b]

Q4) Suppliers are interested to know what, from Financial Statement Analysis?

(a) Liquidity (b) Efficiency (c) Profitability (d) Share Capital Hint:[a]

Q5) Which of the following is not a Tools of Financial Statement Analysis?

 (a) Ratio Analysis (b) Break-even Analysis
(c) Cash Flow Statement (d) Internal Analysis Hint:[d]

Q6) Feature of financial analysis is to present the data contained from financial statements of a company in:

(a) Easy form (b) Convenient and rational groups

(c) Comparable form (d) All of the above Hint:[d]

Q7) Which Analysis is based on one year’s data?

(a) Horizontal Analysis (b) Vertical Analysis

(c) Cash Flow Statement (d) None of these Hint:[b]

Q8) Main Objective of Analysis of Financial Statement is:

(a) To know the financial strength (b) To make a comparative study with other firms

(c) To know the efficiency of management (d) All the above Hint:[d]

Q9) Analysis of Financial Statement is significant:

(a) For creditors (b) For Managers

(c) For employees (d) All the above Hint:[d]

Q10) Financial Analysis becomes significant because it ________ .

(a) Ignores price level changes (b) Measures the efficiency of business

(c) Lacks qualitative analysis (d) Is effected by personal bias Hint:[b]

Q11) When bad position of the business is tried to be depicted as good it is known as ______ .

(a) Personal bias (b) Pricelevel changes

(c) Window dressing (d) All the above Hint:[c]

Q12) Financial Analysis becomes useless due to ________.

(a) Measures the profitability (b) Measures the solvency

(c) Lacks qualitative analysis (d) Makes a comparative study Hint:[c]

Q13) Time Series Analysis is an example of __________.

(a) Static Analysis (b) Dynamic Analysis

(c) Internal Analysis (d) External Analysis Hint:[b]

Q14) Cross Section Analysis is an example of __________.

(a) Static Analysis (b) Dynamic Analysis

(c) Internal Analysis (d) External Analysis Hint:[a]

Q15) _______ analysis deals with same items of different period.

(a) Horizontal (b) Vertical (c) Internal (d) External Hint:[a]

Q16) _______ analysis deals with different items of same period.

(a) Horizontal (b) Vertical (c) Internal (d) External Hint:[b]

Q17) For whom the analysis of financial statements is not significant?

 (a) Investor (b) Government
(c) Ambassador of India (d) Company’s Employee Hint:[c]Q18)
Analysis conducted by the Investors and Creditors is known as:

(a) Horizontal Analysis (b) Cross Sectional Analysis

(c) Time series Analysis (d) External Analysis Hint:[d]

Q19) Income Statement represents:

(a) Trading Account (b) Statement of Profit and Loss

(c) Cash flow statement (d) None of these Hint:[b]

Q20) While preparing statement of profit & loss, net sales is recovered as:

(a) Other Income (b) Revenue from operations

(c) Finance Cost (d) Other Expenses Hint:[b]

Q21) Which of the following is not a limitation of Analysis of Financial Statements?

(a) Window Dressing (b) Price level change ignored

(c) Subjectively (d) Intra-firm comparison possible Hint:[d]

Q22) Comparison of values of one period with those of another period for the same firm is:

(a) Inter-firm comparison (b) Intra-firm comparison

(c) Pattern comparison (d) Trend comparison Hint:[b]

Q23) Manipulation is the books of account just to present a better financial position of the firm than the actual
position, it is called.

(a) Variation in Accounting Particles (b) Qualitative Aspect Ignored

(c) Window Dressing (d) Historical Analysis Hint:[c]

Assertion & Reason Based Questions:

Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and the other as
‘Reason (R)’. You are to examine these two statements carefully and select the answers using the code given below:

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true.

Q1) Assertion (A): When financial statements of several years are compared against a chosen base year, it is called
Dynamic analysis.

Reason (R): Horizontal analysis is made to review and analysis the financial statements for a number of years and it is
also known as Time Series Analysis. Hint:[b]

Q2) Assertion (A): Vertical or static Analysis is made to review and analyze the financial statements of one year only,
to compare the performance of other firms of the same type or divisions or department of one firm.

Reason (R): It is Time Series Analysis. Hint:[c]

Q3) Assertion (A): A company has postponed paying supplies, so that the period-end cash balance appears higher in
the books of the company. This is an example of window dressing.
Reason (R): Through Window Dressing a company can present a better financial position of the firm than the actual
position.

Choose the correct Option from the following:

(a) Assertion and Reason both are correct and Reason is the correct explanation of assertion.

(b) Assertion and Reason both are correct but Reason is not correct explanation of assertion.

(c) Only Assertion is correct.

(d) Reason is correct but Assertion is not correct. Hint:[d]

Chapter – 4 (Accounting Ratios/ Ratios Analysis)

Multiple Choice Questions (MCQs):

Q1) According to accounting principles, a Liquid Ratio of _____ is supposed to be an ideal ratio.

a) 1:2 b) 2:1 c) 1:1 d) 1:3 Hint:[c]

Q2) According to accounting principles, a Current Ratio of _____ is supposed to be an ideal ratio.

a) 1:2 b) 2:1 c) 1:1 d) 1:3 Hint:[b]

Q3) What will be the operating profit ratio, if operating ratio is 82.50%?

a) 11.50% b) 12.50% c) 8.25% d) 17.50% Hint:[d]

Q4) Which of the following are not the components of Quick Assets?

a) Trade Receivable b) Inventories c) Cash at Bank d) Marketable Security Hint:[b]

Q5) Debentures ₹80,000; Trade Payables ₹1,20,000; Trade Receivables ₹90,000; Prepaid Expenses ₹10,000;
Inventory ₹2,00,000 and Goodwill is ₹60,000. What will be the Current Ratio?

a) 1.5 : 1 b) 2.5 : 1 c) 3 : 1 d) 1.8 : 1 Hint:[b]

Q6 From the following, which ratio is not a part of Profitability Ratio?

a) Proprietary Ratio b) Gross Profit Ratio c) Operating Ratio d) Net Profit Ratio Hint:[a]

Q7) Name the aggregate of Shareholders Funds and Total Debts.

a) Total Debts b) Capital Employed c) Total Assets d) Non Current Assets Hint:[c]

Q8) Name the difference between Capital Employed and Non Current Liabilities.

a) Shareholders Funds b) Capital Employed c) Total Debts d) Total Assets Hint:[a]

Q9) If Current Ratio of a firm is 2.5:1 and its current liabilities are ₹2,00,000. What will be the working capital?

a) ₹3,00,000 b) ₹3,75,000 c) ₹4,00,000 d) ₹7,00,000 Hint:[a]

Q10) If Revenue from Operations is ₹1,60,000 and Gross Profit is ₹40,000. What will be the Gross Profit Ratio?

a) 30% b) 25% c) 40% d) 50% Hint:[b]

Q11) What will be the Operating Profit Ratio, if Revenue from operations is ₹5,00,000 and Operating profit is
₹75,000.

a) 25% b) 12% c) 30% d) 15% Hint:[d]

Q12) Two basic measures of Liquidity Ratios are:

 (a) Inventory turnover and Current ratio (b) Current ratio and average Collection period

(c) Gross Profit ratio and Operating ratio (d) Current ratio and Quick ratio Hint:[d]

Q13) Current ratio is a part of _______.

(a) Solvency Ratio (b) Liquidity ratio (c) Activity Ratio (d) Profitability Ratio Hint:[b]

Q14) Current Ratio is _______ .

(a) Liquid Assets/Current Assets (b) Fixed Assets/Current Assets

(c) Current Assets/Current Liabilities (d) Liquid assets/Current Liabilities Hint:[c]

Q15) Liquid Assets do not include:

(a) Bills Receivable (b) Debtors (c) Inventory (d) Bank Balance Hint:[c]

Q16) If Debt equity ratio exceeds ……………., it indicates risky financial position.

a) 1:2 b) 2:1 c) 1:1 d) 1:3 Hint:[b]

Q17) A Company’s liquid assets are ₹5,00,000 and its current liabilities are ₹3,00,[Link], it paid ₹1,00,000 to
its trade payables. Quick ratio will be:

(a) 1.33:1 (b) 2.5:1 (c) 1.67:1 (d) 2:1 Hint:[d]

Q18) A Company’s Quick Ratio is 1.5:1; Current Liabilities are ₹2,00,000 and Inventory is ₹1,80,[Link] Ratio will
be:

(a) 0.9:1 (b) 1.9:1 (c) 1.4:1 (d) 2.4:1 Hint:[d]

Q19) Fixed Assets ₹5,00,000; Current Assets ₹3,00,000; Equity Share Capital ₹4,00,000; Reserve ₹2,00,000;Long –
term debts ₹40,[Link] Ratio will be:

(a) 75% (b) 80% (c) 125% (d) 133% Hint:[a]

Q20) Match the following:

1. Earning Capacity A. Solvency Ratios

2. Short term Solvency B. Profitability Ratios

3. Total Assets to Debt Ratio C. Liquidity Ratios

Hint:[1 – C; 2 – B; 3 – A]

Q21) 365/ Inventory Turnover Ratio Shows:

(A) Revenue from operations (B) Average collection period
(C) Average age of Inventory (D) Revenue from operations turnover
Q22) 100- operating profit ratio =____ Ratio
A Gross profit B. Net Profit C. Operating D. Operating net Profit
Q23) Limitation of Ratio analysis is:
A Changes of price level not considered B. Window dressing
C. Personal Bias D. All of these

Competency Based Questions:

CASE STUDY – 1: {SP – 2021}

Read the following hypothetical extract of Rehan Limited and answer the given questions on the basis of the same:
YEAR 2020 2019 2018
AMOUNT (IN ₹) (IN ₹) (IN ₹)
 Outstanding Expenses 50,000 40,000 25,000
Prepaid Expenses 3,00,000 2,50,000 3,50,000
Trade Payables 18,00,000 16,00,000 14,00,000
Inventory 12,00,000 10,00,000 11,00,000
Trade Receivables 11,00,000 8,00,000 10,00,000
Cash in hand 17,00,000 12,00,000 15,00,000
Revenue from operations 24,00,000 18,00,000 20,00,000
Gross Profit Ratio 12% 15% 18%
Q1) Current Ratio for the year 2020 will be _________. (Choose the correct alternative)

(a) 2:1 (b) 1.8:1 (c) 2.32:1 (d) 2.4:1 Hint:[c]

Q2) Quick Ratio for the year 2018 will be _________ . (Choose the correct alternative)

(a) 1.75:1 (b) 1.8:1 (c) 0.94:1 (d) 1.25:1 Hint:[a]

Q3) Inventory turnover ratio for the year 2020 will be _________ . (Choose the correct alternative)

(a) 1.62times (b) 1.82 times (c) 1.55times (d) 1.92 times Hint:[d]

Q4) Cost of Revenue from Operations for the year 2020 would be _________ . (Choose the correct alternative)

(a) ₹21,12,000 (b) ₹21,13,000 (c) ₹21,15,000 (d) ₹21,17,000 Hint:[a]

Q5) Cost of Revenue from Operations for the year 2019 would be _________ . (Choose the correct alternative)

(a) ₹20,70,000 (b) ₹15,30,000 (c) ₹20,15,000 (d) ₹21,70,000 Hint:[b]

CASE STUDY – 2:

A pharmaceutical company wanted to analyze their profitability position along with a check on their inventory level
of past two years. The following data is available for your reference for theyear ended:

31st March 2020 31st March 2021

Revenue from Operations 42,00,000 60,00,000
Inventory 7,20,000 15,00,000
During the year 2019-20, the inventory increased by 20%. Gross profit is 25% on cost of revenue of [Link]
are required to answer the following questions on the basis of the above information:

Q1) State the amount of inventory increased during the year 2019-20.

(a) 1,44,000 (b) 80,000 (c) 1,20,000 (d) 72,000 Hint:[c]

Q2) The average inventory of the year 2019-20 is __________.

(a) 6,60,000 (b) 9,36,000 (c) 9,12,000 (d) 6,80,000 Hint:[a]

Q3) The inventory turnover ratio of year 2019-20 is ________.

(a) 4.05 times (c) 5.7 times (c) 5.09 times (c) 4.87 times Hint:[c]

Q4) Inventory turnover Ratio of 2020-21 is _________.

(a) 4.87 times (b) 5.7 times (c) 4.05 times (d) 4.32 times Hint:[d]

Q5) State within how many days stock is being sold during the year 2020-21.

(a) 85.2 days (b) 84.4 days (c) 85 days (d) 84 days Hint:[b]

CASE STUDY – 3:

Accounts Guru Ltd. wants to analyze its liquidity position along with assessment of Inventory position from the given
information:

Inventory Turnover Ratio: 4 times,

Inventory in the beginning was ₹20,000 less than Inventory at the end;

Revenue from Operations ₹6,00,000; Current Liabilities ₹60,000; Gross Profit Ratio 25%; Quick Ratio 0.75: 1.

From the information given above, answer the following questions:

Q1) State the amount of Cost of Revenue from Operations.

(a) ₹4,50,000 (b) ₹4,90,000 (c) ₹4,80,000 (d) ₹3,50,000 Hint:[a]

Q2) State the amount of average inventory.

(a) ₹1,25,000 (b) ₹1,12,500 (c) ₹2,50,000 (d) ₹1,52,000 Hint:[b]

Q3) State the amount of closing inventory.

(a) ₹1,12,000 (b) ₹1,12,500 (c) ₹1,67,500 (d) ₹1,22,500 Hint:[d]

Q4) State the current ratio of Accounts Guru Ltd.

(a) 2.4:1 (b) 2.5:1 (c) 2.79:1 (d) 2.6:1 Hint:[c]

Q5) State the amount of Quick Assets.

(a) ₹45,000 (b) ₹40,000 (c) ₹48,000 (d) ₹35 ,000 Hint:[a]

CASE STUDY – 4:

Teaching Point Ltd. is interested to know the return on their total investment made in their company. The company
is also interested to know what portion of the total assets have been financed through Long-term Debts.

Net profit after interest and tax ₹1,00,000; Current assets ₹4,00,000; Current liabilities ₹2,00,000; Tax rate 20%;
Fixed assets ₹6,00,000; 10% Long term debt ₹4,00,000. On the basis of the above information, answer the following
questions:

Q1) State the amount of Capital Employed.

(a) ₹10,00,000 (b) ₹6,00,000 (c) ₹8,00,000 (d) ₹12,00,000 Hint:[c]

Q2) State the amount of Net Profit before Interest and Tax.

(a) ₹1,25,000 (b) ₹1,45,000 (c) ₹1,65,000 (d) ₹1,90,000 Hint:[c]

Q3) The Return on Investment is ___________.

(a) 20.62% (b) 21% (c) 21.62% (d) 19.62% Hint:[a]

Q4) Find Total Asset to Debt Ratio.

(a) 2.4 times (b) 2.5 times (c) 3 times (d) 4 times Hint:[b]

Q5) What will be the amount of Income Tax?

(a) ₹25,000 (b) ₹45,000 (c) ₹50,000 (d) ₹30,000 Hint:[a]

Assertion and Reasoning questions:

Direction: The following questions consist of two statements, one labeled as the ‘Assertion (A)’ and the other as
‘Reason (R)’. You are to examine these two statements carefully and select the answers using the code given below:

(a) Both A and R are individually true and R is the correct explanation of A.

(b) Both A and R are individually true but R is not the correct explanation of A.

(c) A is true but R is false.

(d) A is false but R is true.

Q1) Assertion (A): Activity Ratios are the ratios that are calculated for measuring the efficiency of operations of
business based on effective utilization of resources.

Reason (R): Current Ratio and Quick Ratio are liquidity ratios. Hint:[b]

Q2) Assertion (A): The limitations of financial statements also form the limitations of the ratio analysis.

Reason (R): Since the ratios are derived from the financial statements, any weakness in the original financial
statements will also creep in the derived analysis in the form of Accounting Ratios. Hint:[a]

Q3) Assertion (A): If debt equity ratio is 1:2, it is considered to be safe.

Reason (R): From security point of view, capital structure with less debt and more equity is considered favorable
as it reduces the chances of bankruptcy . Hint:[d]

Q4) Assertion (A): Interest Coverage Ratio expresses the relationship between profits available for payment of
interest and the amount of interest payable.

Reason (R): A higher ratio ensures lesser safety of interest on debts. Hint:[c]

Q5) Assertion (A): Ratio Analysis is indispensable part of interpretation of results revealed by the financial
statements.

Reason (R): Ratio Analysis is a technique which involves regrouping of data by application of arithmetical
relationships, though its interpretation is a complex matter. Hint:[b]