CUET 2026 Accountancy May 21 Shift 1 Question Paper- Download Answer Key and Solution PDF

Concept:
When shares are forfeited, the amount already paid by shareholders is locked inside the Share Forfeiture Account. When these shares are reissued at a discount, the loss is covered by this forfeiture balance. Any remaining surplus from the reissued portion represents a capital gain transferred to the Capital Reserve.


Step 1: Determine the per-share forfeiture credit value.

The per-share amount received and forfeited is: \[ \text{Forfeited Amount Per Share} = $6 \]

Step 2: Calculate the reissue discount loss and net profit per share.

The shares were reissued for $8 as fully paid up ($10 face value), which creates a discount loss: \[ \text{Reissue Discount Per Share} = \$10 - \$8 = \$2 \] Subtract the discount loss from the initial forfeiture gain to find the net profit per share: \[ \text{Net Capital Gain Per Share} = \$6 - \$2 = \$4 \]

Step 3: Calculate total transfer to Capital Reserve based on reissued shares.

Multiply the net gain per share by the number of shares actually reissued (150 shares): \[ \text{Transfer to Capital Reserve} = 150 \times \$4 = \$600 \]
Quick Tip: Capital reserve balances are calculated based only on the number of shares reissued, not the total number of shares forfeited. Leftover balances for unreissued shares stay in the Share Forfeiture Account.

Concept:
Cash Flow Statements break down corporate transactions into three categories: Operating Activities (core revenue operations), Investing Activities (acquisition/disposal of long-term assets), and Financing Activities (activities changing the scale/composition of contributed equity and borrowings).


Step 1: Analyze the structural nature of dividend distributions.

Paying a dividend represents a direct cost of servicing capital contributed by equity owners. Transactions involving the payment of returns on equity or debt financing change the equity framework of the firm.

Step 2: Assign the item to its cash flow category.

Because dividends relate directly to the maintenance and sourcing of corporate capital, the cash outflow must be reported under Financing Activities.

Note: For non-financial companies, dividend payment is always a financing outflow, whereas dividend received is classified as an investing inflow.

Quick Tip: Any cash flow item involving the payment of returns to providers of capital—such as paying interest on debentures or dividends on shares—is classified as a Financing Activity outflow.

Concept:
The Current Ratio measures a firm's total short-term liquidity, while the Quick Ratio excludes less liquid items like inventory and prepaid expenses.

Therefore: \[ \text{Current Assets} - \text{Quick Assets} = \text{Inventory} \]


Step 1: Calculate the total value of Current Assets.

Given: \[ \frac{\text{Current Assets}}{\text{Current Liabilities}} = 2.5 \] Current Liabilities = \$40,000 \[ \text{Current Assets} = 2.5 \times \$40,000 = \$100,000 \]

Step 2: Calculate the total value of Quick Assets.

Given: \[ \frac{\text{Quick Assets}}{\text{Current Liabilities}} = 1.5 \] \[ \text{Quick Assets} = 1.5 \times \$40,000 = \$60,000 \]

Step 3: Find the value of Inventory.

\[ \text{Inventory} = \text{Current Assets} - \text{Quick Assets} \] \[ \text{Inventory} = \$100,000 - \$60,000 = \$40,000 \]
Quick Tip: You can solve this even faster using the ratio difference directly. Since \( 2.5 - 1.5 = 1.0 \), \[ 1.0 \times \$40,000 = \$40,000 \] which immediately gives the value of Inventory.

Concept:
Collateral security refers to a secondary asset pledged to back a primary loan. If the company fails to pay off its main bank loan, the lender can activate these secondary debentures to recover the outstanding debt.



Step 1: Analyze the presentation methods for collateral issues.

When debentures are issued as collateral security, a firm can choose between two accounting methods:

Method 1: No active journal entry is made, and the collateral pledge is disclosed simply as a explanatory note under the main loan item.
Method 2: An active entry is logged by debiting a *Debenture Suspense Account* and crediting *Debentures Account*.



Step 2: Identify the reporting title in the statements.

Under both disclosure methods, these backup securities are presented inside the financial notes under the heading Collateral Security, linked to the primary long-term borrowing loan entry. Quick Tip: Debentures issued as collateral security do not create an immediate, active cash flow injection or increase current interest liabilities. They serve as a secondary backup guarantee for lenders.

Concept:
During dissolution, a Realisation Account is opened to close out asset accounts and settle liabilities. Any payment made to settle liabilities represents a business expense and is therefore recorded on the debit side of the Realisation Account.


Step 1: Identify the treatment for unrecorded liabilities.

Since the liability was unrecorded, no prior entry exists in the books. However, once payment is made, the actual cash outflow must be recorded.

Step 2: Record the settlement entry.

The journal entry is: \[ \text{Realisation A/c} \quad \text{Dr.} \quad $4,500 \] \[ \quad \text{To Bank A/c} \quad \$4,500 \]
The Realisation Account is debited with the actual amount paid, not the estimated liability amount.

Therefore, the correct treatment is: \[ \boxed{\text{Debit Realisation Account with } $4,500} \]
Quick Tip: For liability settlements during dissolution, always debit the Realisation Account with the actual cash paid, whether the liability was recorded or unrecorded.

Concept:
Interest on debentures is a fixed financial charge calculated strictly based on the nominal face value of the securities, completely ignoring any issue premiums or market discounts.

Step 1: Calculate the total nominal face value of the issue.

Multiply the total number of issued debentures by their nominal face value:

Step 2: Calculate annual interest using the nominal rate.

The stated interest rate for this issue is \( 9\% \). Apply this percentage to the total face value, ignoring the \( 10\% \) premium:

Quick Tip: Debenture interest rates are always applied directly to the face value of the security. Issue premiums or discounts affect cash proceeds at launch, but do not alter the company's fixed annual interest obligations.

Concept:
Pro-rata allotment distributes shares proportionally when an issue is oversubscribed. To find an individual's applied or allotted shares, we use the ratio of total applications received to total shares allotted: \[ Applied Shares = Allotted Shares \times \left( \frac{Total Applications Received}{Total Shares Allotted} \right) \]



Step 1: Determine the general pro-rata allotment ratio.

Using the company's total issue figures: \[ Allotment Ratio = \frac{Total Applied}{Total Allotted} = \frac{20,000}{10,000} = \frac{2}{1} \]
This means applicants were allotted exactly 1 share for every 2 shares they applied for.


Step 2: Calculate the individual shareholder's applied shares.

Multiply the individual's allotted shares (400) by the allotment ratio: \[ Individual Applied Shares = 400 \times \frac{2}{1} = 800 shares \] Quick Tip: When an issue is oversubscribed, an individual's applied shares will always be greater than their allotted shares. If your calculation results in a smaller number, you accidentally reversed your adjustment fraction.

Concept:
A redemption premium represents a contractually agreed future expenditure that a company must pay when it redeems its debentures. Because it represents a long-term obligation, it is classified as a non-current liability.



Step 1: Analyze the lifetime of the redemption obligation.

The premium on redemption is a known future liability that stays active throughout the entire lifetime of the debentures. It represents part of the total long-term cost of borrowing.


Step 2: Identify its location on the balance sheet.

In accordance with Schedule III disclosure requirements, this future payment obligation is presented under the primary heading of Non-Current Liabilities, grouped alongside the main debenture liability within Long-term Borrowings. Quick Tip: Be careful not to confuse Securities Premium with Premium on Redemption. Securities Premium is a capital gain held under *Reserves and Surplus*, while Premium on Redemption represents a future payment obligation classified under *Non-Current Liabilities*.