Accountancy : Company Accounts and Analysis of Financial Statements 2005 CBSE [ Delhi ] Set I
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Q1
Define Partnership. Marks:2View AnswerAnswer:
According to Section 4 of the Indian Partnership Act, 1932, “Partnership is the relationship between two or more persons have agreed to share the profit of the business carried on by all or any of them acting for all”. In the other words, partnership is an agreement between two or more persons who agree to share profits of a business carried on by them with common ownership and management. -
Q2
P Ltd. Purchased assets worth Rs.1,80,000 from S Ltd. The payment was made by issuing equity shares of the face value Rs.100 each at a premium of Rs.20 per share. Pass necessary journal entries. Marks:2View AnswerAnswer:
P Ltd.
Journal Date Particulars L.F Dr. Amt. Cr. Amt. 1 Assets A/c To S Ltd (Assets purchased from S.Ltd) 1,80,000 1,80,000 2. S.Ltd. Dr. To Equity Share Capital A/c To Security Premium A/c (Issue of equity shares of Rs.100 each at a premium of Rs.20 to settle the account of S.ltd) 1,80,000 1,50,000 30,000 Working Note: Face Value of equity share = 100 Add: Premium = 20 Agreed value of equity share= 120 No. of shares to be issued = 1,80,000 / 120 = 1,500 -
Q3
JCM Ltd. invited applications for issuing 20,000 equity shares of Rs.20 each at a discount of 10%. The whole amount was payable on application. The issue was fully subscribed. Pass necessary journal entries. Marks:2View AnswerAnswer:
JCM Ltd. Journal Date Particulars L.F Dr. Amt. Cr. Amt. 1 Bank A/c Dr. To Equity Share Application A/c (Application money received on 20,000 equity shares @Rs.18) 3,60,000 3,60,000 2. Equity Shares Application A/c Dr . Share Discount A/c To Equity Share Capital A/c (Transfer to application money to equity share capital account and recording of discount on issue of shares) 3,60,000 40,000 4,00,000 -
Q4
On 31.1.2005 janata Ltd. converted its Rs.88,000, 6% debentures into equity shares of Rs.20 each at a premium of Rs.2 per share. Pass necessary journal entries in the books of the company for redemption of debentures. Marks:2View AnswerAnswer:
Janta Ltd. Journal Date Particulars L.F Dr. Amt. Cr. Amt. 1 6% Debentures A/c Dr . To Debenture holders A/c (Amount payable to debenture holders on redemption) 88,00,000 88,00,000 2 Debenture holders A/c To Equity Share Capital A/c To Security Premium A/c (Claims of debenture Holders settled through the issue of equity shares at a premium of Rs.2 per share) 88,00,000 80,00,000 8,00,000 Working Note: Face value of equity share = 20 Add: Premium = 2 Agreed value of equity share= 22 No. of equity share to be issued= 88,00,000 / 22 = 4,00,000 -
Q5
What is meant by a ‘Cash flow statement’? Marks:2View AnswerAnswer:
Cash flow statement means a statement showing changes in cash and cash equivalents. Cash flow statement may be defined as the statement showing inflows and outflows of cash during the specified period. Cash flow statement indicates the sources from where the cash has been generated and uses for which cash has been used and thus, the resultant change in the cash balance over the period. -
Q6
Classify the following into cash from operating activities, investing activities and financing activities: i) Purchased machinery. ii) Paid to creditors. iii) Issued equity shares for cash iv) Interest received on investments. Marks:2View AnswerAnswer:
(a) Investing activities (b) Operating activities (c) Financing activities (d) Investing activities -
Q7
Pappu and Munna are partners in a firm sharing profits in the ratio of 3:2. The partnership deep provided that pappu was to be paid salary of Rs.2,500 per month and Munna was to get commission of Rs.10,000 per year. Interest on Pappu’s drawings was Rs.1,250 and on Munna’s drawings and on Munna’s drawings Rs.425. Capital of the partners were Rs.2,00,000 and Rs.1,50,000 respectively, and were fixed. The firm earned a profit of Rs.90,575 for the year ended 31.2.2004. Prepare Profit and loss Appropriation Account of the firm. Marks:3View AnswerAnswer:
P&L Appropriation Account For the year ended 31st March, 2004 Particulars Amt Particulars Amt To Pappu’s Current A/c Salary (2,500 x 12) To Munna’s Current A/c Commission To Partner’s Current A/c Interest on Capital Pappu 10,000 Munna 7,500 To Partner’s Current A/c Profit Pappu 20,850 Munna 13,900 30,000 10,000 17,500 34,750 By Net Profit as Per Profit and Loss A/c By Partner’s Current A/c- Interest on drawings: Pappu 1,250 Munna 425 90,575 1,675 92,250 92,250 Working Notes 1) Interest on Capital = Pappu = 2,00,000 x 5/100 = 10,000 Munna = 1,50,000 x 5/100 = 7,500 2) Profit: Pappu = 34,750 x 3/5 = 20,850 Munna = 34,750 x 2/5 = 13,900 since capitals of partners are fixed, all adjustments relating to profit would be recorded in partners current account. -
Q8
What is meant by issue of debentures as ‘Collateral Security’ ? Marks:3View AnswerAnswer:
Collateral security means an additional security or subsidiary security. Sometimes a company issues debentures as collateral security against loan taken from banks or other agencies. Collateral security is to be realised only when the principal security fails to pay the amount of loan. On the repayment of loan, collateral security reverts to the company, The liability of the company is for the amount of loan and not for the face value of debentures issued . In case, the company makes a default in the repayment of the loan, the loan creditor will become a debenture holder. No interest is payable on the debenture issued as a collateral security. -
Q9
Briefly explain the limitation of analysis of financial statements. Marks:3View AnswerAnswer:
The following are the limitation of an analysis of financial statements : i) The financial statement analysis suffers from such limitation as financial statements suffer. This ignores the qualitative elements like quality of management and labour force, public relations etc. ii) Different firms may follow different accounting policies. This may create difficulty in comparing the results of two companies. iii) In many situations the accountant has to make a choice out of various alternatives available. He may choose that alternative which may, beneficial to the company. In such case, the financial statement are not free from bias iv) The analysis of financial statements do not disclose the current worth of the business. The financial statements of the company are prepared on cost principle. -
Q10
The current liabilities of a company are Rs.3,50,000. Its current ratio is 3 and liquid ratio is 1.75. Calculate the amount of current assets, liquid assets and inventory. Marks:3View AnswerAnswer:
Current Ratio = Current Assets: Current liabilities 3 = Current Assets : Current Liabilities Current assets = 3 Current Liabilities Liquid Ratio = Liquid Assets : Current Liabilities 1.75 = Liquid Assets : Current Liabilities Liquid Assets = 1.75 Current Liabilities Since Current Liabilities = 3,50,000 Therefore, Current Assets = 3,50,000 x 3 = 10,50,000 Liquid Assets = 3,50,000 x 1.75 = 6,12,500 Inventory = Current Assets – Liquid Assets = 10,50,000 – 6,12,500 = 4,37,500
