CUET Accountancy Question Paper 2025 May 15 (Available)- Download Answer Key and Solution PDF

In the cash flow statement, activities are categorized as follows:

- (A) - (III): Sale of Investment is an investing activity since it involves managing long-term assets.

- (B) - (II): Depreciation is a non-cash expense and is added back under operating activities to adjust profit to cash flow.

- (C) - (I): Repayment of Long-Term Borrowings is a financing activity related to capital structure management.

- (D) - (IV): An increase in Current Assets reduces cash flow from operating activities, so it is deducted. Quick Tip: Investment sale = Investing activity. Depreciation = Non-cash, added back to operating cash flow. Loan repayment = Financing activity. Increase in current assets = Deduction from operating cash flow.

The proper sequence on the balance sheet typically follows:

1. Shareholders' Fund (C): Represents the owners’ equity.

2. Deferred Tax Liability (Net) (B): Long-term liabilities related to taxes.

3. Current Liabilities (E): Short-term debts payable within a year.

4. Capital Work in Progress (D): Long-term assets under development.

5. Short-term Loans and Advances (A): Current assets expected to be converted to cash soon. Quick Tip: Balance Sheet presentation flows from long-term liabilities to short-term, followed by long-term assets to short-term assets, helping evaluate liquidity and solvency effectively.

Upon dissolution, assets are applied in this order:

1. Third-party liabilities (D): External creditors paid first to settle debts.

2. Partner’s loans or advances (A): Loans made by partners to the firm repaid next.

3. Partner’s capital (B): Return of capital invested by partners.

4. Profit distribution (C): Remaining profits distributed as per agreement. Quick Tip: During dissolution, prioritize settling external debts before repaying partners to avoid legal issues.

In a common size balance sheet, every item (both assets and liabilities) is expressed as a percentage of the total assets. This standardization facilitates easy comparison between companies of different sizes and across different periods by removing the scale factor. It helps analysts understand the relative weight of each component in the financial structure. Quick Tip: Common-size financial statements present items as a percentage of total assets to enable meaningful comparisons regardless of company size.

- (A) - (ii): Partner’s salary is an appropriation of profit, so it is debited to the Profit and Loss Appropriation Account, not the main P\&L account.

- (B) - (i): Manager’s salary is an operating expense and hence charged to the Profit and Loss Account.

- (C) - (iv): Interest on drawings is income for the firm and credited to the Profit and Loss Appropriation Account.

- (D) - (iii): Commission received is income and credited to the Profit and Loss Account. Quick Tip: Remember: Partner’s salary and interest on drawings go to Appropriation Account; manager’s salary and commissions go to Profit \& Loss Account.

Capital Employed = Total Assets - Outside Liabilities = Rs 28,00,000 - Rs 8,00,000 = Rs 20,00,000.

Normal Profit = Capital Employed × Normal Rate of Return = Rs 20,00,000 × 10% = Rs 2,00,000.

Super Profit = Average Profit - Normal Profit = Rs 3,00,000 - Rs 2,00,000 = Rs 1,00,000.

Goodwill = Super Profit × (100 / Normal Rate of Return) = Rs 1,00,000 × (100/10) = Rs 10,00,000. Quick Tip: Goodwill by Capitalisation of Super Profit = Super Profit × (100 / Normal Rate of Return). Super Profit = Average Profit - Normal Profit.

Cash flow from operating activities starts with net profit. Non-cash expenses (goodwill written off) and losses on sale of assets are added back because they reduce profit but do not affect cash.

Therefore, Cash flow from operating activities = Rs 35,000 + Rs 16,000 + Rs 5,000 = Rs 56,000. Quick Tip: Add back all non-cash expenses and losses on asset sales to net profit to calculate cash flow from operating activities.

The realization account is used to record the actual expenses incurred by the firm during the process of dissolution. Since Aman agreed to bear the expenses and be reimbursed Rs 2,000, this is the amount the firm recognizes as realisation expenses (debited to realization account). The excess Rs 500 paid by Aman personally is not recorded in the firm's books and is a personal expense of Aman, thus not debited to the realization account. Quick Tip: Only the amount agreed upon and reimbursed by the firm is debited to the realization account. Personal expenses of partners are excluded from firm accounts.

Nominal share capital, also known as authorized share capital, represents the maximum amount of capital that a company is legally permitted to raise through the issuance of shares to shareholders. It sets a ceiling on how much share capital the company can offer but does not mean the entire amount is issued or subscribed. Quick Tip: Remember: Nominal (Authorized) Capital = Maximum capital company can issue legally; Issued Capital \(\leq\) Nominal Capital.

The Acid Test Ratio (or Quick Ratio) measures a firm's ability to meet its short-term obligations without relying on the sale of inventory or other less liquid current assets such as prepaid expenses. It includes only the most liquid assets — cash, marketable securities, and receivables. This makes it a more stringent and reliable indicator of liquidity compared to the current ratio, which includes inventory and prepaid expenses that might not be quickly convertible into cash. Quick Tip: Acid Test Ratio = (Current Assets – Inventory – Prepaid Expenses) ÷ Current Liabilities; provides a stricter liquidity measure than Current Ratio.