Karnataka 2nd PUC Accountancy 2026 Question Paper with Solution PDF

Step 1: Understanding the Concept:

A partnership is defined as a formal arrangement by two or more parties to manage and operate a business and share its profits.


Step 2: Detailed Explanation:

According to the Indian Partnership Act, 1932, a minimum of two persons is required to form a partnership. This is a fundamental legal requirement because a single individual cannot enter into an agreement or contract with themselves. Therefore, to have a valid partnership agreement, there must be at least two competent persons.


Step 3: Final Answer:

The minimum number of persons required to form a partnership is two.
Quick Tip: Remember the limits for a partnership firm: Minimum members = 2. Maximum members = 50 (as per the current provisions of the Companies Act, 2013).

Step 1: Understanding the Concept:

When a partner retires from a firm and the problem does not provide any specific information about how the remaining partners will acquire the retiring partner's share, it is assumed that the remaining partners will continue to share the future profits in their existing (old) relative ratio.


Step 2: Key Formula or Approach:

New Ratio = Old Ratio of remaining partners (obtained by simply crossing out the retiring partner's share).


Step 2: Detailed Explanation:

The old profit-sharing ratio of partners A, B, and C is given as:
\[ A : B : C = 5 : 3 : 2 \]

Partner C is retiring. To find the new ratio between the remaining partners A and B, we remove C's share from the old ratio.

Remaining ratio for A and B = \(5 : 3\).


Step 3: Final Answer:

The new profit sharing ratio between A and B is \(5 : 3\).
Quick Tip: In retirement questions, if no new gaining ratio is mentioned, the simplest trick is to hide the retiring partner's share in the old ratio. The visible ratio becomes the new profit-sharing ratio as well as the gaining ratio for the remaining partners.

Step 1: Understanding the Concept:

At the time of dissolution of a partnership firm, a Realisation Account is prepared to close the books of accounts and determine the net profit or loss on the realization of assets and settlement of liabilities.


Step 2: Detailed Explanation:

An unrecorded liability is a liability that is not present in the balance sheet but must be paid off during dissolution.

When any liability (recorded or unrecorded) is paid, it represents an expense or an outflow of funds for the firm during the realization process. All such expenses and payments are debited to the Realisation Account to accurately calculate the final profit/loss.

The journal entry passed is:

Realisation A/c \dots Dr.

\hspace*{1cm To Cash/Bank A/c

Therefore, the payment is recorded on the debit side of the Realisation Account.


Step 3: Final Answer:

Unrecorded liabilities paid are shown on the Debit side of the Realisation A/c.
Quick Tip: Rule of thumb for Realisation Account: All realization expenses and payments of liabilities go to the \textbf{Debit} side. All receipts from the sale of assets (recorded or unrecorded) go to the \textbf{Credit} side.

Step 1: Understanding the Concept:

A company's share capital is classified into different categories based on its issuance and subscription status to represent its financial structure clearly.


Step 2: Detailed Explanation:

Let's understand the hierarchy of share capital:

- Authorised Capital: This is the maximum amount of capital a company is legally authorized to issue, as stated in its Memorandum of Association.

- Issued Capital: This is that specific portion of the Authorised Capital which the company has actually offered to the general public for subscription.

Since a company cannot issue more shares than it is authorized to, the Issued Capital is always a part of (or equal to, but never greater than) the Authorised Capital.


Step 3: Final Answer:

Issued capital is a part of Authorised capital.
Quick Tip: Memorize the hierarchy of share capital: Authorised \(>\) Issued \(>\) Subscribed \(>\) Called-up \(>\) Paid-up capital. Each subsequent category is a part of the preceding one.

Step 1: Understanding the Concept:

In financial accounting, items of income or expense are categorized to give a clear picture of operational performance. Extraordinary items are those that are highly abnormal and not related to the ordinary, day-to-day operations of the business.


Step 2: Detailed Explanation:

- Salary paid, Tax paid, and Rent paid: These are standard operating expenses incurred regularly to keep the business running. They are part of ordinary activities.

- Loss due to theft: This is a rare, unforeseen, and non-recurring event. It does not stem from the normal operating activities of the enterprise. Therefore, it is classified as an extraordinary item so that it doesn't distort the analysis of the firm's regular operating performance.


Step 3: Final Answer:

Loss due to theft is an extraordinary item.
Quick Tip: To identify an extraordinary item, ask two questions: Is it unusual in nature? Is it infrequent in occurrence? Examples include losses from natural disasters (earthquakes) or expropriation of assets.

Step 1: Understanding the Concept:

A partnership is essentially a contractual relationship. The very foundation of this relationship is mutual consent.


Step 2: Detailed Explanation:

According to Section 4 of the Indian Partnership Act, 1932, a partnership is defined as the "relation between persons who have agreed to share the profits of a business...". This implies that a partnership does not arise from status, operation of law, or inheritance, but strictly from a voluntary agreement (which can be oral or written) between the individuals involved.


Step 3: Final Answer:

Partnership comes into existence as a result of an Agreement.
Quick Tip: A written agreement among partners is specifically called a "Partnership Deed". It helps prevent future disputes by clearly laying down the terms and conditions.

Step 1: Understanding the Concept:

When there is a reconstitution of a partnership firm (like the admission of a new partner or a change in profit-sharing ratio), the existing partners often have to give up a portion of their profit share in favor of the new or gaining partner.


Step 2: Detailed Explanation:

If the Old Ratio is greater than the New Ratio, the difference is positive, indicating that the partner has "sacrificed" a part of their share. This sacrificing ratio is crucial for distributing the premium for goodwill brought in by a new partner among the sacrificing partners.


Step 3: Final Answer:

Old Ratio \(-\) New Ratio = Sacrificing Ratio.
Quick Tip: Conversely, if Old Ratio \(-\) New Ratio yields a negative value, it means the partner has gained. The formula for Gaining Ratio is usually stated as: New Ratio \(-\) Old Ratio.

Step 1: Understanding the Concept:

During the dissolution of a partnership firm, there is a specific order in which liabilities are settled. First, all external (outside) liabilities are paid off. After that, any loans advanced by the partners to the firm are repaid before returning their capital balances.


Step 2: Detailed Explanation:

A partner's loan is not considered an external liability, hence it is not transferred to the Realisation Account. Instead, a separate Partner's Loan Account is maintained. Once outside liabilities are settled, this loan is paid off directly. The journal entry for payment is:

Partner's Loan A/c \dots Dr.

\hspace*{1cm To Cash/Bank A/c

Therefore, the balance of the Partner's Loan Account is settled through or transferred to the Cash or Bank Account.


Step 3: Final Answer:

Partner's Loan Account is transferred to Cash/Bank Account.
Quick Tip: Remember the settlement order on dissolution: 1. Realisation expenses \(\rightarrow\) 2. Outside liabilities \(\rightarrow\) 3. Partner's Loan \(\rightarrow\) 4. Partner's Capital.

Step 1: Understanding the Concept:

In accounting, liabilities are classified as current or non-current based on their expected time of settlement. This helps in assessing the short-term liquidity of the business.


Step 2: Detailed Explanation:

According to standard accounting principles (like Schedule III of the Companies Act, 2013 in India), a liability is classified as current if it is due to be settled within twelve months after the reporting date, or within the company's normal operating cycle. Borrowings that meet this criterion are specifically termed as short-term borrowings. Loans extending beyond this period are long-term borrowings.


Step 3: Final Answer:

Loans repayable within Twelve months are called short-term borrowings.
Quick Tip: Current Assets and Current Liabilities are always defined by the "12 months or operating cycle, whichever is longer" rule.

Step 1: Understanding the Concept:

Financial statement analysis involves various tools. Common size statements express each item in a financial statement as a percentage of a base amount (e.g., total assets for a balance sheet, or net sales for an income statement).


Step 2: Detailed Explanation:

Because a common size statement looks at the relationship of each item to the total within the same financial period (reading down a single column), it is referred to as Vertical Analysis.

In contrast, Comparative Statements look at financial data over multiple periods across time (reading across rows), which is known as Horizontal Analysis.


Step 3: Final Answer:

Common Size Statement is also known as Vertical analysis.
Quick Tip: Mnemonic: \textbf{Vertical analysis looks at a \textbf{V}ery specific year (one column). Horizontal looks across the Horizon (multiple years).

Step 1: Understanding the Concept:

This question tests the understanding of fundamental accounting terms and their associated concepts or methods.


Step 2: Detailed Explanation:

Let's match each item logically:

a) Valuation of goodwill: Goodwill can be valued using various methods. The Average profit method is one of the most common techniques used. (\(a \rightarrow iv\))

b) Debentures: A debenture is a financial instrument issued by a company under its common seal, which serves as an Acknowledgement of debt. (\(b \rightarrow i\))

c) Revenue from operations: For a typical manufacturing or trading business, the primary source of revenue from its core operations is Sales. (\(c \rightarrow v\))

d) Profitability Ratio: These ratios measure a company's ability to generate earnings. Earnings per share (EPS) is a key profitability metric for investors. (\(d \rightarrow ii\))

e) Cash flow statement: This is a financial statement that provides an aggregate view of all Inflows and Outflows of cash and cash equivalents during a period. (\(e \rightarrow iii\))


Step 3: Final Answer:

The correct matching sequence is a-iv, b-i, c-v, d-ii, e-iii.
Quick Tip: In 'Match the following' questions, start by matching the pairs you are 100% confident about. This often allows you to eliminate several incorrect options immediately.

Step 1: Understanding the Concept:

When a partner retires, the firm's assets and liabilities are revalued to reflect their true current market values. This is done to ensure the retiring partner gets their rightful share of any unrecorded gains or bears their share of unrecorded losses that accumulated during their time in the firm.


Step 2: Detailed Explanation:

Because the changes in the values of assets and liabilities occurred while all partners (including the retiring one) were running the business together, the resulting profit or loss on revaluation belongs to all of them. Therefore, the balance of the Revaluation Account is transferred to the Capital Accounts of all partners (continuing partners + retiring partner) in their old profit-sharing ratio.


Step 3: Final Answer:

The statement is True.
Quick Tip: Contrast this with Admission: On admission of a new partner, the revaluation profit/loss is shared ONLY among the old partners, because the new partner has no right over past accumulated profits/losses.

Step 1: Understanding the Concept:

A company's capital is divided into small, equal units known as shares. Companies generally issue specific types of shares to raise capital from the public.


Step 2: Detailed Explanation:

According to the Companies Act, a company limited by shares can issue two main types of shares:

1. Equity Shares: These are ordinary shares that carry voting rights and a fluctuating rate of dividend based on profits. They bear the maximum risk.

2. Preference Shares: These shares carry preferential rights regarding the payment of dividend (at a fixed rate) and repayment of capital in the event of winding up.

Stating either "Equity Shares" or "Preference Shares" is a correct answer. The handwritten note in the source image correctly identifies "Equity shares".


Step 3: Final Answer:

Equity Shares (or Preference Shares).
Quick Tip: Equity shareholders are considered the true owners of the company as they bear the ultimate risk and hold voting power.

Step 1: Understanding the Concept:

Debentures represent long-term debt taken by a company. Like any loan, it has a maturity date upon which the principal amount must be returned to the lenders (debenture holders).


Step 2: Detailed Explanation:

The term 'Redemption' in financial contexts simply means discharging a liability. Therefore, Redemption of Debentures means the repayment of the principal amount of the debentures to the debenture holders. This repayment is done according to the terms and conditions agreed upon at the time of their issue (e.g., at par, at premium, in lump sum, or in installments).


Step 3: Final Answer:

Redemption of debentures refers to the discharge of liability on account of debentures by repaying the due amount to the debenture holders.
Quick Tip: Think of "Redemption" as "Repayment". Just as a loan is paid back, a debenture is redeemed.

Step 1: Understanding the Concept:

Financial statements are prepared not just for record-keeping, but to communicate the financial health of a company to various interested parties so they can make informed decisions.


Step 2: Detailed Explanation:

Various parties use financial statement analysis, categorized generally as internal and external users:

- Investors (External): Need to assess the profitability and financial strength to decide whether to buy, hold, or sell shares.

- Creditors/Lenders (External): Need to know if the company can pay back its loans and interest on time.

- Management (Internal): Need it for planning, controlling, and decision-making.

- Government (External): For tax assessment and regulatory purposes.

The handwritten note correctly identifies "Investors" as a primary user.


Step 3: Final Answer:

Investors (or Management, Creditors, Government, etc.) are users of Financial Statement Analysis.
Quick Tip: When asked for users, quickly recall the two broad categories: Internal (Management, Employees) and External (Investors, Creditors, Government, Public).

Step 1: Understanding the Concept:

In accounting and finance, acronyms are frequently used for common metrics. R.O.I. is one of the most fundamental profitability ratios.


Step 2: Detailed Explanation:

R.O.I. stands for Return on Investment. It is a performance measure used to evaluate the efficiency or profitability of an investment. It calculates the return (profit or loss) generated relative to the cost of the investment, usually expressed as a percentage. The formula generally used is:
\[ ROI = \left( \frac{Net Profit}{Capital Employed} \right) \times 100 \]


Step 3: Final Answer:

R.O.I. stands for Return On Investment.
Quick Tip: ROI is a universal metric. A higher ROI means the investment's gains compare favorably to its cost. It is a key ratio for assessing overall business performance.

Step 1: Understanding the Concept:

In partnership accounts, partners' capitals can be maintained using two methods: Fixed Capital Method and Fluctuating Capital Method. The difference lies in how transactions related to partners (like interest, salary, drawings) are recorded.


Step 2: Detailed Explanation:

Two primary differences between the methods are:

1. Number of Accounts Maintained:

- \textit{Fixed Capital Method: Two accounts are maintained for each partner: Capital Account and Current Account.

- \textit{Fluctuating Capital Method: Only one account is maintained for each partner, which is the Capital Account.

2. Recording of Transactions:

- \textit{Fixed Capital Method: All adjustments regarding interest on capital, drawings, salary, and profit/loss share are recorded in the Current Account. The Capital Account balance remains fixed unless additional capital is introduced or permanently withdrawn.

- \textit{Fluctuating Capital Method: All adjustments are recorded directly in the Capital Account itself, causing its balance to fluctuate every year.


Step 3: Final Answer:

The key differences lie in the number of accounts maintained (two vs. one) and where the regular partnership adjustments are recorded (Current A/c vs. Capital A/c).
Quick Tip: To remember easily: "Fixed" means the capital balance stays fixed, so you need a separate "Current" account for daily fluctuations. "Fluctuating" means everything goes into one bucket, making the capital balance move up and down constantly.

Step 1: Understanding the Concept:

When a partner retires, their final capital balance (including share of goodwill, revaluation profit, reserves, etc.) becomes due for payment by the firm. The firm must settle this claim.


Step 2: Detailed Explanation:

The amount due to a retiring partner can be disposed of or settled in the following ways (any two):

1. Payment in Lump Sum: The entire amount due is paid off immediately in cash or by bank transfer at the time of retirement.

2. Transfer to Loan Account: The amount due is not paid immediately but is transferred to the retiring partner's Loan Account, to be paid later with interest at an agreed rate (or 6% p.a. as per the Partnership Act if not agreed).

3. Partly in Cash and Partly as Loan: A portion of the due amount is paid immediately in cash/bank, and the remaining balance is transferred to their Loan Account.


Step 3: Final Answer:

Two modes are: 1. Lumpsum payment in cash/bank. 2. Transferring the due amount to the retiring partner's Loan Account.
Quick Tip: If a question on retirement does not specify how the final balance is settled, standard accounting practice is to transfer the entire balance to the "Retiring Partner's Loan Account".

Step 1: Understanding the Concept:

When a company invites the public to buy its shares, the public responds by sending applications. The relationship between the number of shares offered and the number applied for determines the subscription status.


Step 2: Detailed Explanation:

Over-subscription occurs when the number of shares applied for by the public is strictly greater than the number of shares offered by the company for subscription.

For example, if a company issues 10,000 shares but receives applications for 15,000 shares from the public, the issue is said to be over-subscribed. In such cases, the company cannot allot more shares than it originally issued, leading to rejection of excess applications or pro-rata allotment.


Step 3: Final Answer:

Over-subscription refers to a situation where the number of shares applied for by the prospective investors is more than the number of shares offered by the company.
Quick Tip: Remember the three scenarios: Under-subscription (Applied \(<\) Issued), Full-subscription (Applied \(=\) Issued), and Over-subscription (Applied \(>\) Issued).

Step 1: Understanding the Concept:

Financial statements are formal records of the financial activities and position of a business, person, or other entity. They provide a structured representation of financial performance.


Step 2: Detailed Explanation:

The two primary and most essential types of financial statements prepared by an organization are:

1. Statement of Profit and Loss (Income Statement): This statement shows the financial performance of the company over a specific accounting period, detailing revenues, expenses, and the resulting net profit or loss.

2. Balance Sheet (Position Statement): This statement presents the financial position of the company at a specific point in time, detailing its assets, liabilities, and shareholders' equity.

*(Note: The Cash Flow Statement is also a major financial statement, but P\&L and Balance Sheet form the core foundational pair).*


Step 3: Final Answer:

The two main types of financial statements are the Statement of Profit and Loss and the Balance Sheet.
Quick Tip: Always associate "Profit and Loss Statement" with a period of time (e.g., "for the year ended") and "Balance Sheet" with a point in time (e.g., "as on 31st March").

Step 1: Understanding the Concept:

In a Cash Flow Statement, cash flows are classified into three activities: Operating, Investing, and Financing. Financing activities relate to transactions that change the size and composition of the owner's capital and borrowings of the enterprise.


Step 2: Detailed Explanation:

Financing activities basically deal with how a business raises its capital and pays it back.

Examples of cash flows from financing activities include:

Cash Inflows:

1. Proceeds from the issue of equity or preference shares.

2. Proceeds from the issue of debentures, bonds, or taking long-term loans.

Cash Outflows:

1. Repayment of loans or redemption of debentures/preference shares.

2. Payment of dividend to shareholders.

3. Payment of interest on debentures or loans.


Step 3: Final Answer:

Two examples of financing activities are: 1. Issue of equity shares for cash. 2. Payment of dividend to shareholders.
Quick Tip: To easily identify financing activities, look for items that appear in the "Shareholders' Funds" and "Non-Current/Long-term Liabilities" sections of the Balance Sheet.

Step 1: Understanding the Concept:

The Profit and Loss Appropriation Account is prepared after the P\&L Account to distribute the net profit among the partners according to the provisions of the partnership deed (like interest on capital, drawings, salary, and commission).


Step 2: Detailed Explanation:

Let us calculate the various components before placing them into the account.

1. Net Profit: Given as ₹ 50,000. This will be credited to the P\&L Appropriation A/c.

2. Interest on Capital (10% p.a.):

- Ravi: \(1,50,000 \times \frac{10}{100} = ₹ 15,000\)

- Kiran: \(1,00,000 \times \frac{10}{100} = ₹ 10,000\)

- Total = ₹ 25,000 (Debited)

3. Interest on Drawings: Given directly. Ravi ₹ 4,000; Kiran ₹ 2,000. Total = ₹ 6,000. This is an income for the firm and will be credited.

4. Commission \& Salary:

- Ravi's Commission: ₹ 3,000 (Debited)

- Kiran's Salary: ₹ 8,000 (Debited)

5. Divisible Profit:

- Total Credit = Profit (50,000) + Int. on Drawings (6,000) = ₹ 56,000.

- Total Debit = Int. on Cap (25,000) + Comm (3,000) + Salary (8,000) = ₹ 36,000.

- Divisible Profit = ₹ 56,000 - ₹ 36,000 = ₹ 20,000.

- Share of Profit (Ratio 3:2):

Ravi = \(20,000 \times \frac{3}{5} = ₹ 12,000\)

Kiran = \(20,000 \times \frac{2}{5} = ₹ 8,000\)


Step 3: Final Answer:


Quick Tip: Always double-check if the salary or commission is given "per month" or "per annum". Here, it is given as "per annum," so no multiplication by 12 is needed.

Step 1: Understanding the Concept:

When a partner retires, the remaining partners acquire the retiring partner's share. This increases their original profit-sharing ratio. The proportion in which the remaining partners acquire this share is called the Gaining Ratio.


Step 2: Key Formula or Approach:
\[ Gaining Ratio = New Ratio - Old Ratio \]


Step 2: Detailed Explanation:

Given Data:

Old Ratio of Geetha, Latha, and Sangeetha = \(5 : 3 : 2\).

Therefore, Old Share of Geetha = \(\frac{5}{10}\)

Old Share of Sangeetha = \(\frac{2}{10}\)

Latha retires.

New Ratio of Geetha and Sangeetha = \(3 : 2\).

Therefore, New Share of Geetha = \(\frac{3}{5}\)

New Share of Sangeetha = \(\frac{2}{5}\)


Now, applying the formula:

Gain of Geetha = New Share \(-\) Old Share
\( = \frac{3}{5} - \frac{5}{10} \)
\( = \frac{6 - 5}{10} = \frac{1}{10} \)


Gain of Sangeetha = New Share \(-\) Old Share
\( = \frac{2}{5} - \frac{2}{10} \)
\( = \frac{4 - 2}{10} = \frac{2}{10} \)


The gaining ratio is the ratio of their individual gains.

Gaining Ratio of Geetha and Sangeetha = \(\frac{1}{10} : \frac{2}{10} = 1 : 2\).


Step 3: Final Answer:

The Gaining Ratio of Geetha and Sangeetha is \(1 : 2\).
Quick Tip: To verify your calculation, add the individual gains: \(\frac{1}{10} + \frac{2}{10} = \frac{3}{10}\). This should exactly equal the retiring partner's (Latha's) old share, which was \(\frac{3}{10}\).

Step 1: Understanding the Concept:

When a partner dies, their legal representatives (executors) are entitled to the deceased partner's capital balance along with their share of profits, interest, salary, and goodwill calculated up to the exact date of death.


Step 2: Detailed Explanation:

Let us calculate the amounts payable to Vishal up to his date of death (31.12.2025).

The accounting year starts on 01.04.2025. Vishal survived for 9 months (April to December).

Vishal's profit-sharing ratio = \(\frac{3}{10}\).


Calculations:

1. Opening Capital: ₹ 80,000.

2. Interest on Capital:

Interest = Capital \(\times\) Rate \(\times\) Time
\( = 80,000 \times \frac{12}{100} \times \frac{9}{12} = ₹ 7,200 \).

3. Salary:

Salary per month = ₹ 2,000.

Salary for 9 months = \(2,000 \times 9 = ₹ 18,000 \).

4. Share of Goodwill:

Already calculated and given as ₹ 14,000.

5. Share of Accrued Profit:

Based on the previous year's profit (₹ 36,000).

Estimated Profit for 9 months = \(36,000 \times \frac{9}{12} = ₹ 27,000\).

Vishal's Share = \(27,000 \times \frac{3}{10} = ₹ 8,100\).

*(Alternatively: \(36,000 \times \frac{3}{10} \times \frac{9}{12} = ₹ 8,100\)).*


All these amounts are due to Vishal and will be credited to his Capital Account, which is then transferred to his Executor's Account.


Step 3: Final Answer:



Quick Tip: Time calculation is the most critical step in death-of-a-partner questions. Count the months carefully from the Balance Sheet date to the date of death (April 1 to Dec 31 = exactly 9 months).

Step 1: Understanding the Concept:

The Statement of Profit and Loss must be prepared in the vertical format prescribed under Part II of Schedule III of the Companies Act, 2013. Expenses must be grouped under specific statutory headings.


Step 2: Detailed Explanation:

Let's classify the given items into Schedule III headings:

- Revenue from operations: ₹ 8,00,000 (Goes under heading I).

- Purchases of Stock-in-Trade: ₹ 4,00,000.

- Employee Benefit Expenses: Salaries ₹ 1,00,000.

- Finance Costs: ₹ 30,000.

- Depreciation and Amortization Expense: ₹ 20,000.

- Other Expenses: Rent (₹ 15,000) + Administrative expenses (₹ 35,000) = ₹ 50,000.

- Tax Expense: ₹ 60,000.


Now, we construct the formal statement.


Step 3: Final Answer:



Quick Tip: Always group miscellaneous expenses like Rent, Administrative expenses, Insurance, etc., under the single heading "Other Expenses" as per Schedule III requirements.

Step 1: Understanding the Concept:

The indirect method of calculating Cash Flow from Operating Activities starts with the Net Profit. Adjustments are then made for non-cash items (like depreciation), non-operating items (like profit/loss on sale of assets), and changes in working capital (current assets and current liabilities).


Step 2: Detailed Explanation:

1. Start with Net Profit: ₹ 7,00,000.

2. Adjust Non-Cash \& Non-Operating Items:

- \textit{Depreciation (₹ 1,50,000): This is a non-cash expense deducted from profit. We must add it back.

- \textit{Profit on sale of assets (₹ 60,000): This is an investing income included in net profit. We must deduct it to find purely operating profit.

Operating Profit before Working Capital changes = 7,00,000 + 1,50,000 - 60,000 = ₹ 7,90,000.

3. Adjust Changes in Working Capital:

- \textit{Decrease in Trade Receivables (₹ 55,000): A decrease in current assets means cash was collected. It is an inflow (Add).

- \textit{Decrease in Trade Payables (₹ 45,000): A decrease in current liabilities means cash was paid off. It is an outflow (Less).

Cash Flow from Operations = 7,90,000 + 55,000 - 45,000 = ₹ 8,00,000.


Step 3: Final Answer:


Quick Tip: Rules for Working Capital adjustments:
Decrease in Current Assets \(\rightarrow\) ADD
Increase in Current Assets \(\rightarrow\) LESS
Increase in Current Liabilities \(\rightarrow\) ADD
Decrease in Current Liabilities \(\rightarrow\) LESS

Step 1: Understanding the Concept:

When a new partner is admitted, the assets and liabilities of the firm are revalued to reflect their true current market value. Accumulated reserves and goodwill brought in by the new partner are distributed among the old partners.


Step 2: Detailed Explanation:

Working Notes:

1. Sacrificing Ratio: Since no new profit-sharing ratio is given, the old ratio (\(3:1\)) is assumed to be the sacrificing ratio.

2. \textit{Distribution of Goodwill: Tarun brings ₹ 10,000 for goodwill.

- Govind's share = \(10,000 \times \frac{3{4} = ₹ 7,500\).

- Sudeep's share = \(10,000 \times \frac{1}{4} = ₹ 2,500\).

(This amount is first credited to their Capital Accounts and then debited because it is withdrawn).

3. \textit{Distribution of General Reserve: ₹ 20,000 is distributed in the old ratio (\(3:1\)).

- Govind gets ₹ 15,000; Sudeep gets ₹ 5,000.


Step 3: Final Answer:


Quick Tip: When goodwill is brought in cash and immediately withdrawn by the old partners, the net effect on the Cash balance for goodwill is zero. The Cash account increases only by the new partner's capital amount.

Step 1: Understanding the Concept:

On the dissolution of a firm, all assets (except cash/bank) are transferred to the Realisation Account to be sold, and all external liabilities are transferred to be paid off. The resulting profit or loss is shared by partners in their profit-sharing ratio.


Step 2: Detailed Explanation:

Working Notes:

1. Treatment of Vanitha's Loan: The partners are Anitha and Sunitha. Vanitha is a third party. Thus, Vanitha's Loan is an external liability and must be transferred to the Realisation Account and paid off.

2. \textit{Profit Sharing Ratio: Equal (1:1).

3. \textit{Total Assets Realised: 30,000 + 12,000 + 25,000 + 45,000 + 85,000 + 3,000 = ₹ 2,00,000.

4. \textit{Total Liabilities Paid: Creditors (40,000) + Bills Payable (20,000) + Vanitha's Loan (25,000) = ₹ 85,000.


Step 3: Final Answer:






ii) Partners' Capital Accounts



Quick Tip: Be very careful with names on the liability side. "Vanitha" is not a partner (Anitha and Sunitha are). Therefore, her loan is treated exactly like creditors and transferred to the Realisation Account. Only a \textit{partner's loan is kept separate.

Step 1: Understanding the Concept:

When shares are issued at a premium and a shareholder fails to pay call money, the shares can be forfeited. Upon reissue of these forfeited shares, any profit left in the Share Forfeiture account is transferred to the Capital Reserve.


Step 2: Detailed Explanation:

Let's break down the issue structure:

- Total Shares = 10,000.

- Face Value = ₹ 100. Premium = ₹ 10. Issue Price = ₹ 110.

- Application: ₹ 20

- Allotment: ₹ 50 (₹ 40 Capital + ₹ 10 Premium)

- First \& Final Call: ₹ 40

- Calls-in-Arrears = 500 shares \(\times\) ₹ 40 = ₹ 20,000.

Since the allotment money (which includes the premium) was paid on these 500 shares, the Securities Premium account will not be cancelled during forfeiture.


Step 3: Final Answer:

Journal Entries in the books of Supreme Company Limited



Quick Tip: In forfeiture entries, if the Securities Premium has already been received (as in this case with the allotment money), it is strictly ignored. Do NOT debit the Securities Premium account during forfeiture.

Step 1: Understanding the Concept:

When debentures are issued at a discount and redeemable at a premium, both the discount on issue and the premium on redemption are considered losses for the company and are clubbed under "Loss on Issue of Debentures A/c". Interest is always calculated on the face value.


Step 2: Detailed Explanation:

Calculations:

- Face Value of Debentures = \(10,000 \times 100 = ₹ 10,00,000\).

- Discount on Issue = 10% of 10,00,000 = ₹ 1,00,000. Amount received = ₹ 9,00,000.

- Premium on Redemption = 10% of 10,00,000 = ₹ 1,00,000.

- Total Loss on Issue = Discount (1,00,000) + Premium on Redemption (1,00,000) = ₹ 2,00,000.

- Half-yearly Interest (Gross) = \(10,00,000 \times 10% \times \frac{6}{12} = ₹ 50,000\).

- TDS @ 10% on Interest = ₹ 5,000.

- Net Interest payable to holders = 50,000 - 5,000 = ₹ 45,000.


Step 3: Final Answer:

Journal Entries in the books of Atridatta Company Limited


Quick Tip: Interest on debentures is always calculated on the \textbf{Face Value} of the debentures, regardless of whether they were issued at a discount or a premium.

Step 1: Understanding the Concept:

A Comparative Balance Sheet shows the balances of two consecutive years side-by-side. It calculates the absolute increase or decrease and the percentage increase or decrease of each item to facilitate horizontal analysis.


Step 2: Key Formula or Approach:
\[ Absolute Change (c) = Current Year (b) - Previous Year (a) \]
\[ Percentage Change (d) = \left( \frac{Absolute Change (c)}{Previous Year (a)} \right) \times 100 \]


Step 2: Detailed Explanation:

Apply the formula to each line item. For example, for Share Capital:

Absolute Change = 7,50,000 - 5,00,000 = + 2,50,000.

% Change = (2,50,000 / 5,00,000) * 100 = + 50.00%.

If an item decreases, it is shown in brackets, indicating a negative change.


Step 3: Final Answer:

Comparative Balance Sheet of Sunstar Company Limited as on 31.03.2024 and 31.03.2025


Quick Tip: When an item decreases (like Investments and Cash here), indicate the absolute change with a minus sign or in brackets. The resulting percentage change must also be shown as negative.

Step 1: Understanding the Concept:

Ratio analysis involves grouping various financial metrics to test the liquidity, solvency, activity (turnover), and profitability of a business.


Step 2: Detailed Explanation:

Let us calculate each ratio step-by-step based on the provided data.


a) Current Ratio
\[ Current Ratio = \frac{Current Assets}{Current Liabilities} \]

- Current Assets = Inventory + Trade Receivables = 75,000 + 75,000 = ₹ 1,50,000.

- Current Liabilities = Trade Payables = ₹ 1,25,000.
\[ Current Ratio = \frac{1,50,000}{1,25,000} = \textbf{1.2 : 1} \]


b) Debt to Capital Employed Ratio
\[ Ratio = \frac{Long-Term Debt}{Capital Employed} \]

- Long-Term Debt = Debentures = ₹ 1,00,000.

- Capital Employed = Shareholders' Funds + Long-Term Debt = Share Capital + Debentures = 2,00,000 + 1,00,000 = ₹ 3,00,000.
\[ Ratio = \frac{1,00,000}{3,00,000} = \textbf{0.33 : 1} (or 33.33%) \]


c) Trade Receivables Turnover Ratio
\[ TRTR = \frac{Net Credit Revenue from Operations}{Average Trade Receivables} \]

- Net Credit Revenue = ₹ 3,00,000.

- Since opening/closing balances are not given, take the given Trade Receivables as the average = ₹ 75,000.
\[ TRTR = \frac{3,00,000}{75,000} = \textbf{4 times} \]


d) Trade Payables Turnover Ratio
\[ TPTR = \frac{Net Credit Purchases}{Average Trade Payables} \]

- Net Credit Purchases = ₹ 2,50,000.

- Average Trade Payables = ₹ 1,25,000.
\[ TPTR = \frac{2,50,000}{1,25,000} = \textbf{2 times} \]


e) Operating Ratio
\[ Operating Ratio = \frac{(Cost of Goods Sold + Operating Expenses)}{Revenue from Operations} \times 100 \]

- Cost of Goods Sold (COGS) = Revenue - Gross Profit = 5,00,000 - 1,00,000 = ₹ 4,00,000.

- Operating Expenses = ₹ 50,000.

- Total Operating Cost = 4,00,000 + 50,000 = ₹ 4,50,000.
\[ Operating Ratio = \left(\frac{4,50,000}{5,00,000}\right) \times 100 = \textbf{90%} \]


f) Net Profit Ratio
\[ Net Profit Ratio = \left(\frac{Net Profit}{Revenue from Operations}\right) \times 100 \]
\[ Net Profit Ratio = \left(\frac{50,000}{5,00,000}\right) \times 100 = \textbf{10%} \]


Step 3: Final Answer:

a) Current Ratio = 1.2 : 1

b) Debt to Capital Employed Ratio = 0.33 : 1

c) Trade Receivables Turnover Ratio = 4 times

d) Trade Payables Turnover Ratio = 2 times

e) Operating Ratio = 90%

f) Net Profit Ratio = 10%
Quick Tip: For Turnover ratios, the answer is always expressed in "Times". For Profitability ratios (like Operating and Net Profit ratios), the answer is always expressed as a "Percentage (%)". Pure liquidity ratios are usually expressed as proportions (e.g., 2:1).