Step 1: Concept of Partnership Act.

According to the Indian Partnership Act, 1932, when there is no partnership deed, certain default rules are applicable. These default provisions clearly state what partners are entitled to and what they are not.

Step 2: Entitlements under absence of deed.

- Partners are not entitled to receive any salary.

- Partners are not entitled to receive any commission.

- Partners are not entitled to receive any interest on capital invested.

Step 3: Justification.

The reason is that in the absence of a deed, the law assumes equal partnership and avoids granting extra benefits unless specifically agreed.

Step 4: Conclude.

Hence, partners are not entitled to get salaries, commission, or interest on capital — that means “All of these”.


Final Answer: \[ \boxed{All of these} \] Quick Tip: In the absence of a partnership deed, only profit sharing in equal ratio is allowed; no extra benefits like salary, commission, or interest are granted.

Step 1: Concept of Goodwill.

Goodwill is an intangible asset that represents the reputation and earning capacity of a firm. When a new partner is admitted, he must compensate existing partners for their sacrifice in profit share.

Step 2: Mode of bringing goodwill.

The new partner generally brings goodwill in the form of cash (premium for goodwill). This ensures old partners are compensated immediately.

Step 3: Capital contribution vs goodwill.

Capital contribution is different from goodwill. Capital is invested for ownership in business, whereas goodwill premium is a one-time payment for gaining entry and profit share.

Step 4: Conclude.

Therefore, a new partner brings goodwill in the form of cash.


Final Answer: \[ \boxed{Cash} \] Quick Tip: Always remember: Goodwill premium by a new partner is brought in cash (or kind) to reward sacrificing partners, separate from capital contribution.

Step 1: Concept of types of goodwill.

Goodwill has been categorized in various descriptive forms to indicate its nature and stability.

Step 2: Explanation of each.

- Rat Goodwill: Very unstable, can disappear quickly if conditions change.

- Cat Goodwill: Local goodwill, limited to a particular area; like a cat attached to a home, it does not move easily.

- Dog Goodwill: Stable and loyal, customers remain attached to the business for long, like the loyalty of a dog.

Step 3: Conclude.

Since all three (rat, cat, and dog goodwill) are recognized types, the correct answer is “All of these”.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Different names of goodwill (rat, cat, dog) help remember their stability: rat = temporary, cat = local, dog = loyal and permanent.

Step 1: Recall the concept of goodwill valuation.

Goodwill can be valued using different methods such as Average Profit Method, Superprofit Method, and Capitalization Method. The superprofit method is based on excess profit earned compared to normal expected profit.

Step 2: Formula for Superprofit.

Superprofit = Actual Average Profit \(-\) Normal Profit.

Normal profit is calculated as Capital Employed \(\times\) Normal Rate of Return (NRR).

Step 3: Formula for Goodwill under Superprofit method.
\[ Goodwill = Superprofit \times Number of years’ purchase \]

Step 4: Match with options.

Here, “Number of years’ purchase” is referred to as “Purchase year”. Hence, goodwill = Purchase year \(\times\) Superprofit.

Step 5: Conclude.

Therefore, option (B) is the correct one.


Final Answer: \[ \boxed{Purchase year \(\times\) Superprofit} \] Quick Tip: Always connect “superprofit method” with “excess profits” and multiply it by the number of years’ purchase to find goodwill.

Step 1: Concept of goodwill.

Goodwill reflects the reputation and earning power of a business. It depends on various internal and external factors that enhance customer loyalty and profitability.

Step 2: Analysis of given factors.

- Favourable location: A business at a prime location attracts more customers, increasing goodwill.

- Capital required: Businesses requiring less capital but earning high profits generally show higher goodwill.

- Efficiency of management: Skilled management improves productivity, customer satisfaction, and profit, thereby increasing goodwill.

Step 3: Conclude.

Since all the listed factors directly impact goodwill, the correct answer is “All of these”.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Goodwill is influenced by location, capital efficiency, managerial skills, and overall reputation — making it a composite factor.

Step 1: Concept of superprofit.

Superprofit represents the “extra” profit earned by a firm over and above the normal expected profit. It shows the competitive advantage of a business.

Step 2: Formula for superprofit.
\[ Superprofit = Average Profit - Normal Profit \]
Here,
- Average profit = Average of actual past profits.

- Normal profit = Capital employed \(\times\) Normal Rate of Return (NRR).

Step 3: Eliminate incorrect options.

- Option (A) Total profit \(\div\) No. of years \(\Rightarrow\) This gives average profit, not superprofit.

- Option (C) Weighted profit \(\times\) No. of years \(\Rightarrow\) This is related to goodwill valuation, not superprofit.

- Option (D) None of these \(\Rightarrow\) Incorrect because option (B) is correct.

Step 4: Conclude.

Thus, superprofit is simply the difference between average profit and normal profit.


Final Answer: \[ \boxed{Average Profit \(-\) Normal Profit} \] Quick Tip: Superprofit highlights the advantage of a firm over normal expectations; it is always “excess profit” = Average profit \(-\) Normal profit.

Step 1: Nature of General Reserve.

General Reserve is an appropriation of profit created out of surplus earnings of a business. It is part of reserves and surplus shown under “Liabilities” in the balance sheet.

Step 2: Accounting treatment.

Reserves are created by transferring a portion of net profits. Since profits belong to the owners, reserves are a liability of the firm towards its partners/shareholders. Hence, they always carry a credit balance.

Step 3: Eliminate options.

- Option (A) Debit Balance \(\Rightarrow\) Wrong, because reserves cannot be debit.

- Option (C) Both debit and credit \(\Rightarrow\) Wrong, reserves are only credit.

- Option (D) None of these \(\Rightarrow\) Wrong, because (B) is correct.

Step 4: Conclude.

Thus, General Reserve Account always shows a credit balance.


Final Answer: \[ \boxed{Credit Balance} \] Quick Tip: Remember: All reserves (general or specific) are part of liabilities; therefore, they always have a credit balance.

Step 1: Nature of accounts.

- Personal A/c relates to persons or firms.

- Real A/c relates to assets and properties.

- Nominal A/c relates to incomes, expenses, gains, and losses.

Step 2: Purpose of Revaluation Account.

Revaluation Account is prepared at the time of admission, retirement, or death of a partner to record the revaluation of assets and liabilities.

Step 3: Type of entries.

Revaluation Account records gains (credits) and losses (debits). Since it includes expenses and incomes, it is treated as a nominal account.

Step 4: Conclude.

Therefore, Revaluation Account is a Nominal Account.


Final Answer: \[ \boxed{Nominal A/c} \] Quick Tip: Revaluation Account records only gains and losses on revaluation, hence it is always a nominal account.

Step 1: Understand the balance of Revaluation A/c.

- Debit side records decreases in asset values or increase in liabilities (losses).

- Credit side records increases in asset values or decrease in liabilities (gains).

Step 2: Interpretation of excess credit.

When the credit side is greater than the debit side, it means gains are more than losses, i.e., net profit on revaluation.

Step 3: Conclude.

Thus, excess of credit side over debit side is called “Profit”.


Final Answer: \[ \boxed{Profit} \] Quick Tip: Remember: In Revaluation A/c, credit excess = profit; debit excess = loss.

Step 1: Concept of equal profit-sharing ratio.

When three partners agree to share profits equally, the ratio must distribute the profit into three equal parts.

Step 2: Division of 1 into three equal parts.

If total profit = 1, dividing equally among three partners: \[ \frac{1}{3} : \frac{1}{3} : \frac{1}{3} = 1:1:1 \]

Step 3: Eliminate wrong options.

- Option (B) \(4:1:2\) is unequal.

- Option (C) and (D) appear confusingly written, but the only correct equal ratio is \(1:1:1\).

Step 4: Conclude.

Hence, the equal profit ratio for three partners is \(1:1:1\).


Final Answer: \[ \boxed{1:1:1} \] Quick Tip: For equal distribution among \(n\) partners, the ratio is always \(1:1:1:\dots:n\) times.

Step 1: Recall Companies Act rules.

According to the Companies (Share Capital and Debenture) Rules, 2014, companies issuing debentures must create a Debenture Redemption Reserve (DRR).

Step 2: Required percentage.

The law requires companies to transfer at least 25% of the value of debentures issued into the DRR before redemption begins.

Step 3: Conclude.

Thus, the percentage is 25%.


Final Answer: \[ \boxed{25%} \] Quick Tip: Always remember: As per Companies Act 2014, DRR = 25% of debentures before redemption.

Step 1: Identify the components of loss.

The total loss on the issue of debentures includes:
- Discount on issue, and
- Premium on redemption.

Step 2: Calculate discount on issue.

Discount = 4% of Rs. 10,00,000 = Rs. 40,000.

Step 3: Calculate premium on redemption.

Premium = 6% of Rs. 10,00,000 = Rs. 60,000.

Step 4: Total loss.

Total loss = Rs. 40,000 + Rs. 60,000 = Rs. 1,00,000.

Step 5: Match with options.

The closest correct option to Rs. 1,00,000 is Rs. 10,00,000 in given MCQ (though clearly a printing mismatch in options). Correct practical answer = Rs. 1,00,000.


Final Answer: \[ \boxed{Rs.\;1,00,000} \] Quick Tip: Loss on issue of debentures = Discount on issue + Premium on redemption. Always add both parts.

Step 1: Concept of Sinking Fund.

A sinking fund is created out of profits for the redemption of debentures. The fund accumulates investments until redemption.

Step 2: Treatment after redemption.

Once debentures are fully redeemed, the sinking fund is no longer required. The balance is then transferred to General Reserve.

Step 3: Eliminate wrong options.

- (A) Profit \& Loss Statement: incorrect, as reserve is not returned to P\&L.

- (C) Sinking Fund A/c: already used up in redemption.

- (D) None: not correct.

Step 4: Conclude.

Thus, the correct answer is General Reserve A/c.


Final Answer: \[ \boxed{General Reserve A/c} \] Quick Tip: After redemption, Sinking Fund balance is transferred to General Reserve, strengthening internal reserves of the company.

Step 1: Case of issue at par with redemption at premium.

- Issue at par means company receives full face value of debenture.

- Redemption at premium means company must pay extra (premium) over face value at redemption.

Step 2: Accounting of premium.

The extra premium payable is a loss to the company, but it is not debited directly to P\&L.

Step 3: Use of “Loss on Issue of Debentures A/c”.

This account is used to accumulate losses arising from discounts or redemption premiums. Premium payable on redemption is transferred here.

Step 4: Conclude.

Thus, the loss is debited to “Loss on Issue of Debenture A/c”.


Final Answer: \[ \boxed{Loss on Issue of Debenture A/c} \] Quick Tip: Remember: Any loss from discount or redemption premium is recorded in the “Loss on Issue of Debenture A/c”.

Step 1: Different methods of redemption.

- Conversion: Debentures can be redeemed by converting them into shares or new debentures.

- Instalments: Debentures may be redeemed gradually over time in instalments.

- Lumpsum: Debentures can also be redeemed by a one-time lumpsum payment at maturity.

Step 2: Conclude.

Since all the mentioned methods are valid, the correct option is “All of these”.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Debentures can be redeemed in multiple ways — conversion, instalments, or lumpsum payment.

Step 1: Recall Cash Flow classification.

- Operating activities: related to day-to-day business operations.

- Financing activities: related to raising funds (equity, debentures, loans).

- Investing activities: related to purchase or sale of fixed assets and investments.

Step 2: Identify the activity.

Sale of marketable securities represents disposal of an investment. Hence, it is an “investing activity”.

Step 3: Conclude.

Thus, the sale of marketable securities is shown under Investing Activities.


Final Answer: \[ \boxed{Investing activities} \] Quick Tip: Always classify “sale/purchase of investments” under investing activities in cash flow statements.

Step 1: Nature of provision for tax.

Provision for tax represents the estimated amount payable to the government for the current accounting period.

Step 2: Balance sheet treatment.

It is shown under “Current liabilities” because it is payable within a short period (within one year).

Step 3: Eliminate wrong options.

- Option (B) Internal reserve: Wrong, because reserve is appropriation of profit, not liability.

- Option (C) Both: Wrong, it cannot be both.

- Option (D): Not correct since option (A) is right.

Step 4: Conclude.

Therefore, Provision for Tax is treated as a Current Liability.


Final Answer: \[ \boxed{Current liabilities} \] Quick Tip: All provisions for expenses (like tax, doubtful debts, etc.) are liabilities and appear under Current Liabilities.

Step 1: Purpose of annual report.

An annual report is a formal communication of financial statements, directors’ reports, and audit reports.

Step 2: Recipients.

The annual report is prepared by management and directors, but it is issued for shareholders to provide transparency of performance.

Step 3: Conclude.

Hence, the annual report is issued for shareholders.


Final Answer: \[ \boxed{Shareholders} \] Quick Tip: Annual Report = Communication tool to shareholders about financial health and future outlook of the company.

Step 1: Nature of financial statements.

Financial statements (like Balance Sheet, Profit \& Loss A/c) are based on books of accounts, which record past business transactions.

Step 2: Clarify difference.

- Anticipated fact: Refers to forecasts, not FS.

- Estimated fact: Only certain provisions involve estimates, but overall FS is historical.

- Recorded fact: FS is based on systematically recorded transactions.

Step 3: Conclude.

Hence, financial statement is a Recorded Fact.


Final Answer: \[ \boxed{Recorded fact} \] Quick Tip: Financial statements represent historical recorded facts, not predictions or estimates.

Step 1: Classification of assets.

- Current Assets: Cash, stock, debtors, etc.

- Liquid Assets: Readily realizable assets like cash and bank.

- Intangible Assets: Non-physical assets like goodwill, patents, trademarks, copyrights.

Step 2: Identify patents and copyrights.

Patents and copyrights are legal rights, non-physical in nature, and generate future economic benefits. Thus, they are intangible assets.

Step 3: Conclude.

Hence, patents and copyrights are classified as Intangible Assets.


Final Answer: \[ \boxed{Intangible Assets} \] Quick Tip: Any non-physical rights or privileges like goodwill, patents, and trademarks are classified as intangible assets.

Step 1: Nature of Joint Life Policy.

A joint life policy (JLP) is taken jointly on the lives of all partners. On death of any one partner, the insurance company pays the full policy amount to the firm.

Step 2: Why not surrender value?

Surrender value is relevant only if the policy is discontinued before maturity. On actual death, the full policy amount is received.

Step 3: Conclude.

Hence, the firm receives the full policy amount.


Final Answer: \[ \boxed{Policy amount} \] Quick Tip: Remember: On death claim, full policy amount is received; surrender value applies only on discontinuation.

Step 1: Treatment of deceased partner’s share.

When a partner dies, his share of capital, accumulated profits, goodwill, and revaluation balance is calculated.

Step 2: Transfer to Executor’s A/c.

The balance due to the deceased partner is transferred from his Capital A/c to his Executor’s A/c (since payment is made to his legal representative).

Step 3: Conclude.

Thus, the final settlement is routed through Executor’s A/c.


Final Answer: \[ \boxed{Executor’s A/c} \] Quick Tip: On death of a partner, Capital A/c is first settled, then the final balance is transferred to Executor’s A/c for payment.

Step 1: Nature of Executor’s A/c.

Executor’s A/c is used to represent the legal heirs of the deceased partner to whom final dues are payable.

Step 2: Timing of opening.

This account is specifically opened only on the death of a partner, not on retirement or admission.

Step 3: Conclude.

Therefore, Executor’s A/c is opened when a partner dies.


Final Answer: \[ \boxed{On death of partner} \] Quick Tip: Executor’s Account is always opened at the time of partner’s death to settle his share with legal representatives.

Step 1: Recall purpose of Realisation Account.

The Realisation Account is prepared at the time of dissolution of a firm. It records the realisation (sale) of assets and settlement of liabilities, as well as dissolution expenses.

Step 2: Nature of legal expenses.

Legal expenses are costs incurred during dissolution, such as lawyer’s fees, court charges, or other dissolution expenses. These are expenses.

Step 3: Debit side entries.

In Realisation A/c, the debit side records:
- Book value of assets transferred, and
- Any dissolution expenses (including legal expenses).

Step 4: Conclude.

Hence, legal expenses are recorded on the Debit side of Realisation A/c.


Final Answer: \[ \boxed{Debit} \] Quick Tip: Remember: In Realisation A/c, all expenses (legal, dissolution, realization expenses) are shown on the debit side.

Step 1: Transfer of assets to Realisation A/c.

When dissolution occurs, all assets (except cash, bank, and fictitious assets) are transferred to Realisation A/c at their book value.

Step 2: Where do assets appear?

In Realisation A/c:
- Debit side = Book value of assets transferred.
- Credit side = Sale proceeds (realisation) from assets.

Step 3: Explanation.

Book value of assets is debited to Realisation A/c because assets are being closed from the balance sheet and transferred.

Step 4: Conclude.

Thus, book value of assets is shown on the Debit side of Realisation A/c.


Final Answer: \[ \boxed{Debit} \] Quick Tip: In Realisation A/c: Book value of assets → Debit side; Proceeds from sale of assets → Credit side.

Step 1: Recall Realisation A/c structure.

Realisation A/c is prepared to ascertain profit or loss on dissolution. It records both transfer of assets and proceeds of sale.

Step 2: Sale proceeds.

When assets are sold, the amount realised (cash or bank) is recorded on the Credit side of Realisation A/c.

Step 3: Why not Liabilities or Expenses?

- Liabilities A/c records obligations, not asset sales.

- Expenses A/c records costs, not sales.

Step 4: Conclude.

Thus, sale proceeds of assets on dissolution are credited to Realisation A/c.


Final Answer: \[ \boxed{Realisation A/c} \] Quick Tip: Always remember: In Realisation A/c, \textbf{book value of assets} = debit side, while \textbf{cash from asset sales} = credit side.

Step 1: Concept.

At dissolution, outside liabilities (like creditors, bills payable, loans) are usually settled by the firm. However, sometimes a partner personally undertakes to settle a liability.

Step 2: Accounting treatment.

- Realisation A/c is debited with the liability (transfer of obligation).

- Instead of paying cash, the partner assumes the liability. Therefore, his Capital A/c is credited.

Step 3: Why not Cash A/c?

Cash A/c is not affected because no payment is made from the firm’s side. The liability is directly taken over by the partner.

Step 4: Conclude.

Thus, the account credited is the Partner’s Capital A/c.


Final Answer: \[ \boxed{Partner’s Capital A/c} \] Quick Tip: If a partner settles any outside liability, the firm saves cash; the partner’s Capital A/c is credited instead.

Step 1: Concept of unrecorded liabilities.

During dissolution, sometimes a liability may not have been recorded earlier. When the firm pays such liabilities, it is treated as an expense of dissolution.

Step 2: Treatment in Realisation A/c.

- Debit side of Realisation A/c = expenses, payments, and settlement of liabilities.

- Credit side = proceeds of sale of assets or any income.

Step 3: Why debit?

Since payment of unrecorded liabilities reduces the firm’s resources, it is shown on the debit side of Realisation A/c.

Step 4: Conclude.

Thus, unrecorded liabilities paid are recorded on the Debit side of Realisation A/c.


Final Answer: \[ \boxed{Debit side of Realisation A/c} \] Quick Tip: Always remember: Payment of any liability (recorded or unrecorded) is shown on the debit side of Realisation A/c.

Step 1: Assumption in dissolution problems.

In accounting, if nothing specific is mentioned about a liability during dissolution, the standard assumption is that it has been properly settled.

Step 2: Nature of settlement.

The settlement means liabilities are fully discharged by the firm, either in cash or otherwise.

Step 3: Eliminate incorrect options.

- Option (A) Never paid: Wrong, firm cannot ignore liabilities.

- Option (C) Partly paid: Wrong, no such assumption is made.

- Option (D) None of these: Wrong, as correct rule exists.

Step 4: Conclude.

Thus, liabilities are assumed to be fully paid if no information is given.


Final Answer: \[ \boxed{Fully paid} \] Quick Tip: Golden rule: If liabilities are not mentioned in dissolution problems, assume they are fully paid off.

Step 1: Settlement process at dissolution.

After assets are realised and liabilities are paid, the remaining balance (profit or loss) is transferred to partners’ capital accounts.

Step 2: Final closure of capital accounts.

- If partners are to be paid cash, settlement is done through Bank A/c.

- Bank A/c is credited when cash is paid to partners.

- Partners’ Capital A/c is debited when their dues are settled.

Step 3: Conclude.

Therefore, partners’ capital accounts are finally closed through Bank A/c.


Final Answer: \[ \boxed{Bank A/c} \] Quick Tip: At dissolution, partners’ capital accounts are settled by paying them through Bank A/c (final settlement).

Step 1: Define Financial Statements.

Financial statements are formal records summarizing the financial activities and position of a business.

Step 2: Major components.

- Statement of Profit and Loss: Shows the performance of the business (income, expenses, and net profit/loss).

- Balance Sheet: Shows the financial position on a given date (assets, liabilities, equity).

Step 3: Conclude.

Since both Profit \& Loss A/c and Balance Sheet are part of financial statements, the correct answer is “Both (A) and (B)”.


Final Answer: \[ \boxed{Both (A) and (B)} \] Quick Tip: Financial Statements = Statement of Profit and Loss + Balance Sheet (sometimes also includes Cash Flow Statement).

Step 1: Companies Act, 2013 provisions.

As per Schedule III of Companies Act, 2013, the prescribed format of Balance Sheet is vertical.

Step 2: Explanation of vertical format.

The vertical format lists liabilities and assets in a top-to-bottom manner, starting with equity \& liabilities and then showing assets.

Step 3: Eliminate wrong options.

- (A) Horizontal: This was the earlier format under old law, not applicable now.

- (C) Both: Wrong, only vertical is prescribed.

- (D) None: Wrong, as vertical is correct.

Step 4: Conclude.

Thus, the Balance Sheet as per Companies Act, 2013 is prepared in vertical form.


Final Answer: \[ \boxed{Vertical} \] Quick Tip: From Companies Act 2013 onward, only vertical format is allowed for Balance Sheet presentation.

Step 1: Concept of asset valuation.

Fixed assets are tangible long-term assets like machinery, building, etc. They are recorded at historical cost.

Step 2: Treatment in financial statements.

As per accounting principles and Companies Act, fixed assets are shown at cost price less accumulated depreciation.

Step 3: Eliminate wrong options.

- (A) Par value: Applies to shares, not fixed assets.

- (C) At cost price: Incorrect, depreciation must be deducted.

- (D) At realisable value: Incorrect, as only impairment may affect valuation, not general realisation.

Step 4: Conclude.

Thus, fixed assets are shown at cost price less depreciation.


Final Answer: \[ \boxed{At cost price less depreciation} \] Quick Tip: Always remember: Fixed Assets = Cost – Depreciation (as per historical cost concept).

Step 1: Different stakeholders.

- Managers: Use financial statements for decision-making and performance evaluation.

- Financial institutions: Assess repayment capacity before giving loans.

- Creditors: Check liquidity and ability of business to pay dues.

Step 2: Conclude.

Since all these parties depend on financial statements, the correct answer is “All of these”.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Financial statements are useful for both internal users (managers, owners) and external users (banks, creditors, investors).

Step 1: Define intra-firm vs inter-firm.

- Intra-firm analysis: Comparison within the same firm over time.

- Inter-firm analysis: Comparison between two or more firms in the same industry.

Step 2: Vertical analysis.

Vertical analysis refers to analysing financial statements by expressing each item as a percentage of a base figure (e.g., sales).

Step 3: Conclude.

Since the question specifies analysis of two or more organisations, the correct answer is Inter-firm analysis.


Final Answer: \[ \boxed{Inter-firm analysis} \] Quick Tip: Remember: “Intra = within one firm”; “Inter = between firms”.

Step 1: Investors.

They use financial analysis to judge profitability and risk before investing.

Step 2: Shareholders.

They assess dividend potential, growth prospects, and financial stability.

Step 3: Debenture holders.

They are interested in the capacity of the firm to repay interest and principal safely.

Step 4: Conclude.

Since all these groups benefit from financial analysis, the correct answer is “All of them”.


Final Answer: \[ \boxed{All of them} \] Quick Tip: Financial analysis is a universal tool – helps equity investors, lenders, creditors, and management alike.

Step 1: Concept of trend analysis.

Trend analysis is a method to study the direction of financial statement items over a period of years. It helps identify growth, stability, or decline.

Step 2: Selection of year.

For calculating trend percentages, a base year is selected. In this year, each item is taken as 100, and subsequent years are expressed as percentages of the base year.

Step 3: Eliminate wrong options.

- Current year: Not taken as base, used only for comparison.

- Previous year: Not fixed, comparisons are always relative to base year.

- None: Wrong, because base year is correct.

Step 4: Conclude.

Hence, trend percentage is always calculated with respect to a base year.


Final Answer: \[ \boxed{Base year} \] Quick Tip: In trend analysis, always choose a stable year as the base year and assign it a value of 100.

Step 1: Recall formula.
\[ Gross Profit = Net Sales - Cost of Goods Sold (COGS) \]

Step 2: Explanation.

- Gross profit measures the profitability from core trading activities before deducting administrative, selling, and financial expenses.

- Operating profit = Gross profit – Operating expenses.

- Net profit = Operating profit – Interest – Taxes.

Step 3: Conclude.

Thus, sales less cost of goods sold is called Gross Profit.


Final Answer: \[ \boxed{Gross profit} \] Quick Tip: Gross Profit = Net Sales – COGS. It measures trading efficiency before considering other expenses.

Step 1: Standard methods of financial analysis.

The major tools used are:
- Ratio Analysis (liquidity, profitability, solvency ratios)

- Comparative Analysis (comparison over years)

- Trend Analysis (study of changes with base year)

- Common-size statements

Step 2: Capitalisation method.

Capitalisation method is not a tool for analysing financial statements. Instead, it is used for valuation of goodwill in partnership accounts.

Step 3: Conclude.

Hence, Capitalisation Method is not a method of financial statement analysis.


Final Answer: \[ \boxed{Capitalisation Method} \] Quick Tip: Don’t confuse goodwill valuation methods (like Capitalisation, Super Profit) with tools of financial statement analysis.

Step 1: Define common-size statements.

In common-size statements, each item is expressed as a percentage of a common base:
- In Balance Sheet → percentage of total assets/liabilities.

- In Profit \& Loss A/c → percentage of net sales.

Step 2: Why percentage?

The objective is to make comparison easy by converting absolute figures into relative percentages. Ratios are used separately in ratio analysis, not in common-size statements.

Step 3: Conclude.

Thus, common-size statements are prepared in the form of percentage.


Final Answer: \[ \boxed{Percentage} \] Quick Tip: Common-size statements = Comparison tool where items are shown as % of base figure (sales or total assets).

Step 1: Meaning of legacy.

Legacy means the amount received by a non-trading organisation as a gift or bequest under a will.

Step 2: Nature of receipt.

- It is received occasionally and not regularly.

- It is not a capital receipt because it is not meant for long-term use or investment.

Step 3: Accounting treatment.

As per accounting treatment, legacies are treated as revenue receipts and recorded in the Income and Expenditure Account.

Step 4: Conclude.

Therefore, legacies are treated as revenue receipts.


Final Answer: \[ \boxed{Revenue Receipt} \] Quick Tip: Legacy = gift by will → shown as Revenue Receipt in Income and Expenditure A/c of non-trading organisations.

Step 1: Differentiate revenue and capital receipts.

- Revenue receipts are recurring in nature and are shown in Income \& Expenditure A/c (or P\&L).

- Capital receipts are non-recurring in nature and affect the financial position of the firm.

Step 2: Examples of capital receipts.

Capital receipts include loan taken, sale of fixed assets, issue of shares/debentures, etc.

Step 3: Treatment.

Since they affect assets and liabilities, they are shown in the Balance Sheet, not in income-related accounts.


Final Answer: \[ \boxed{Balance Sheet} \] Quick Tip: Capital receipts (like loans, share capital) affect financial position → always recorded in Balance Sheet.

Step 1: Meaning.

When a non-trading organisation receives subscription for the next year in advance, it has not yet been earned.

Step 2: Why liability?

The organisation is obliged to provide services in the next year for which subscription is already received. Until then, it remains an unearned income.

Step 3: Treatment.

Hence, subscription received in advance is shown as a liability in the Balance Sheet.


Final Answer: \[ \boxed{Liability} \] Quick Tip: Subscription received in advance = Unearned income → always shown as liability until earned.

Step 1: Historical context.

The Indian Partnership Act was enacted to regulate the rights, duties, and liabilities of partners.

Step 2: Year of commencement.

The Act was passed in 1932 and came into effect from 1st October 1932.

Step 3: Conclude.

Thus, the Partnership Act came into force in 1932.


Final Answer: \[ \boxed{1932} \] Quick Tip: Always remember: Partnership Act = 1932, Companies Act = 2013.

Step 1: Meaning of drawings.

Drawings mean the amount withdrawn by partners for personal use from the firm.

Step 2: Interest on drawings.

When partners withdraw money, they must pay interest to the firm. This interest is an earning for the firm.

Step 3: Accounting treatment.

Interest on drawings is recorded as income for the firm and credited to Profit and Loss Appropriation Account.

Step 4: Conclude.

Thus, interest on drawings is treated as income for the firm.


Final Answer: \[ \boxed{Income} \] Quick Tip: Interest on drawings = Income for the firm; Interest on capital = Expense for the firm.

Step 1: Meaning of partnership agreement.

A partnership agreement (also called Partnership Deed) contains terms and conditions agreed upon by partners.

Step 2: Legal requirement.

As per the Indian Partnership Act, 1932, preparation of partnership deed is not compulsory. If partners wish, they may prepare it in writing, otherwise oral agreement is valid.

Step 3: Consequence if not prepared.

If no deed is prepared, provisions of the Partnership Act apply by default (e.g., no salary, equal profit-sharing).

Step 4: Conclude.

Thus, preparation of partnership agreement is voluntary, not compulsory.


Final Answer: \[ \boxed{Voluntary} \] Quick Tip: Partnership deed is voluntary, but highly recommended to avoid disputes among partners.

Step 1: Fixed capital system.

Under the fixed capital system, capital accounts of partners remain fixed. Adjustments for drawings, interest, and profit/loss are recorded in Current Accounts.

Step 2: Normal balance of capital accounts.

Capital represents amount invested by partners in the firm. It is a liability for the firm, hence capital accounts normally show a credit balance.

Step 3: Conclude.

Therefore, when capital is fixed, partner’s capital accounts show a credit balance.


Final Answer: \[ \boxed{Credit balance} \] Quick Tip: Capital = Liability of firm to partners → normally shown on credit side.

Step 1: Legal capacity.

According to the Indian Contract Act, only a person competent to contract can become a partner.

Step 2: Condition of majority.

A person must be an adult (18 years or above) of sound mind to become a full partner. A minor cannot be a partner, but may be admitted to benefits of partnership with consent of all partners.

Step 3: Conclude.

Hence, it is essential to be an Adult to become a partner.


Final Answer: \[ \boxed{Adult} \] Quick Tip: Minor cannot be a partner, but can share benefits. Only adults with legal capacity can be partners.

Step 1: Provision of Partnership Act, 1932.

If no partnership deed is made, certain rules of the Act automatically apply.

Step 2: Rule regarding salaries.

As per the Act, no partner is entitled to salary for participating in business unless a written agreement (deed) allows it.

Step 3: Conclude.

Therefore, in the absence of a partnership deed, partners shall not be paid salaries.


Final Answer: \[ \boxed{Shall not be paid salaries} \] Quick Tip: Default rule: No salary, equal profit sharing, 6% interest on loans only if deed is absent.

Step 1: Current account meaning.

In partnership, when fixed capital method is used, all adjustments like interest on capital, drawings, profit share, and interest on drawings are recorded in the Current Account.

Step 2: Possible balances.

- Positive balance: When credits (profits, interest on capital) exceed debits.

- Negative balance: When debits (drawings, losses, interest on drawings) exceed credits.

- Zero balance: When both sides equalise.

Step 3: Conclude.

Hence, the Current Account can have positive, negative, or zero balance.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Current Account balance depends on adjustments – it may be positive, negative, or zero.

Step 1: Current ratio formula.
\[ Current Ratio = \frac{Current Assets}{Current Liabilities} \]

Step 2: Classify each item.

- Creditors = Current liability (included).

- Debtors = Current asset (included).

- Bank overdraft = Current liability (included).

- Furniture = Fixed asset (not included).

Step 3: Conclude.

Since Furniture is a fixed asset, it is not considered in current ratio calculation.


Final Answer: \[ \boxed{Furniture} \] Quick Tip: Only current assets and current liabilities are used in Current Ratio; fixed assets like furniture are excluded.

Step 1: Meaning of liquid assets.

Liquid assets are those current assets which can be easily converted into cash without significant loss of value.

Step 2: Examples.

- Bills Receivable = short-term promise to pay, easily realisable.

- Debtors = amounts receivable from customers, part of liquid assets.

- Cash = already liquid.

Step 3: Conclude.

Thus, all the given items (BR, Debtors, Cash) are liquid assets.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Liquid assets = Current assets – (Inventory + Prepaid Expenses).

Step 1: Find increase.
\[ Increase = 5,00,000 - 4,00,000 = 1,00,000 \]

Step 2: Calculate percentage change.
\[ %\;Change = \frac{Increase}{Original value} \times 100 \] \[ = \frac{1,00,000}{4,00,000} \times 100 = 25% \]

Step 3: Conclude.

Therefore, the percentage change is 25%.


Final Answer: \[ \boxed{25%} \] Quick Tip: Always calculate % change on the original value, not the new value.

Step 1: Formula.
\[ Operating Ratio = \frac{Operating Cost}{Net Sales} \times 100 \]

Step 2: Nature.

Operating ratio shows the percentage of sales consumed by operating expenses. Lower ratio = higher profitability.

Step 3: Classification.

Since it measures efficiency of operations and profitability, it belongs to the category of Profitability Ratios.

Step 4: Conclude.

Hence, Operating ratio is a profitability ratio.


Final Answer: \[ \boxed{Profitability ratio} \] Quick Tip: Operating Ratio = Operating Cost ÷ Sales → Lower ratio indicates better profitability.

Step 1: Definition of current assets.

As per accounting standards, current assets are those which are expected to be realised, sold, or consumed in the normal course of business within one year or within the operating cycle (whichever is longer).

Step 2: Examples.

Cash, debtors, bills receivable, stock, prepaid expenses, etc., are included in current assets.

Step 3: Eliminate wrong options.

- 3 months and 6 months: Too short, not general definition.

- 2 years: Too long.

Step 4: Conclude.

Hence, current assets are those which are expected to be realised within one year.


Final Answer: \[ \boxed{1\; year} \] Quick Tip: Current assets = assets realisable within 12 months (or business cycle, whichever is longer).

Step 1: Formula.
\[ Creditors Turnover Ratio = \frac{Net Credit Purchases}{Average Trade Creditors} \]

Step 2: Explanation.

The ratio measures how quickly a firm pays its creditors. Therefore, only credit purchases are considered, not cash purchases.

Step 3: Eliminate wrong options.

- Credit sales or cash sales: Related to debtors, not creditors.

- Cash purchase: Not relevant, as no credit is involved.

Step 4: Conclude.

Hence, creditors turnover ratio includes total credit purchases.


Final Answer: \[ \boxed{Total credit purchase} \] Quick Tip: Creditors turnover ratio = Net credit purchases ÷ Average creditors.

Step 1: Sources of data for Cash Flow Statement.

- From Balance Sheet: To find changes in assets and liabilities.

- From Profit \& Loss A/c: To calculate net profit and adjustments.

- From Additional Information: For non-cash transactions, dividend paid, tax paid, etc.

Step 2: Conclude.

Since all three sources are required, the answer is “All of these”.


Final Answer: \[ \boxed{All of these} \] Quick Tip: Cash Flow Statement needs data from Balance Sheet, P\&L A/c, and additional notes.

Step 1: Types of activities in Cash Flow Statement.

- Operating activities: Core business activities like cash from customers, payments to suppliers.

- Investing activities: Relating to purchase/sale of fixed assets or investments.

- Financing activities: Relating to raising/repaying capital or loans.

Step 2: Classification of purchase of building.

Building is a fixed asset. Its purchase is an outflow of cash for investment in assets.

Step 3: Conclude.

Therefore, cash purchase of building will be classified as an investing activity.


Final Answer: \[ \boxed{Investing activity} \] Quick Tip: Remember: Purchase or sale of fixed assets = Investing activity in Cash Flow Statement.

Step 1: Application vs. source of cash.

- Application of cash = Uses of cash, i.e., where cash goes out (increase in assets or decrease in liabilities).

- Source of cash = Inflow of cash, i.e., where cash comes in (increase in liabilities or decrease in assets).

Step 2: Check each option.

- (A) Increase in Debtors → Application of cash (more credit sales = less cash).

- (B) Increase in Creditors → This is a source of cash (firm gets goods on credit, no cash outflow).

- (C) Increase in Stock → Application of cash (cash spent to buy stock).

- (D) Increase in Prepaid Expenses → Application of cash (advance payment reduces cash).

Step 3: Conclude.

Therefore, “Increase in Creditors” is not an application of cash.


Final Answer: \[ \boxed{Increase in Creditors} \] Quick Tip: Increase in assets = cash outflow (application); Increase in liabilities = cash inflow (source).

Step 1: Classification of cash flows.

- Operating activities → Day-to-day activities like sales, purchases, wages.

- Investing activities → Buying/selling fixed assets, investments.

- Financing activities → Transactions relating to capital and borrowings.

Step 2: Check each option.

- (A) Sale of goods → Operating activity.

- (B) Sale of investment → Investing activity.

- (C) Cash receipt from issue of shares → Financing activity (raising capital).

- (D) Interest received → Investing activity.

Step 3: Conclude.

Thus, “Cash receipt from issue of shares” is a cash flow from financing activities.


Final Answer: \[ \boxed{Cash receipt from issue of shares} \] Quick Tip: Remember: Financing = Capital \& Loans; Investing = Assets \& Investments; Operating = Day-to-day business.

Step 1: Types of companies by incorporation.

- Companies may be incorporated under the Companies Act, 2013 (general companies).

- Some companies are created by a Special Act of Parliament (e.g., LIC, SBI).

Step 2: Eliminate wrong option.

Agreement of investors alone does not create a legal company. Registration under law is essential.

Step 3: Conclude.

Therefore, a company can be incorporated by both (A) Special Act of Parliament and (B) Companies Act.


Final Answer: \[ \boxed{(A) and (B) both} \] Quick Tip: General companies → under Companies Act; Statutory companies → under Special Act of Parliament.

Step 1: Meaning of discount on shares.

When a company issues its shares at a price below face value, the difference is called “discount on issue of shares”.

Step 2: Nature of loss.

This is not a trading (revenue) loss, because it is not related to day-to-day operations. It is connected with capital raising. Hence, it is a capital loss.

Step 3: Conclude.

Thus, discount on issue of shares is treated as a capital loss.


Final Answer: \[ \boxed{Capital loss} \] Quick Tip: Discount on issue of shares = capital loss, shown on asset side under “Miscellaneous Expenditure” until written off.

Step 1: Section reference.

As per the Indian Companies Act, 2013, issue of shares at a premium and its treatment is governed under Section 52.

Step 2: Use of securities premium.

Securities Premium Account can be used for:
- Issuing fully paid bonus shares,
- Writing off preliminary expenses,
- Writing off premium on redemption of debentures,
- Providing for buy-back of shares, etc.

Step 3: Conclude.

Therefore, issue of shares at premium is dealt under Section 52.


Final Answer: \[ \boxed{Section 52} \] Quick Tip: Section 52 of Companies Act, 2013 governs Securities Premium Account.

Step 1: Liability concept.

One of the key features of a company form of business is “limited liability of shareholders”.

Step 2: Extent of liability.

Shareholders’ liability is limited only to the amount unpaid on their shares. They are not personally liable for company’s debts.

Step 3: Conclude.

Thus, liability of members in a company is limited.


Final Answer: \[ \boxed{Limited} \] Quick Tip: Company = separate legal entity; hence, shareholders’ liability is limited to unpaid value of shares.

Step 1: Par value vs. premium.

Par value (face value) is the nominal value of shares. If company issues shares above par, the excess amount is called “securities premium”.

Step 2: Accounting treatment.

This extra amount is not credited to Capital A/c but to a separate account called “Securities Premium A/c” under Reserves and Surplus in Balance Sheet.

Step 3: Conclude.

Hence, the amount received over and above par value is credited to Securities Premium A/c.


Final Answer: \[ \boxed{Securities Premium A/c} \] Quick Tip: Excess over par value = Securities Premium → credited to Securities Premium A/c (Reserves \& Surplus).

Step 1: Meaning of Share Forfeiture.

When a shareholder fails to pay allotment or call money, their shares may be forfeited. The amount already received from such shareholders is transferred to the “Share Forfeiture A/c”.

Step 2: Nature of balance.

The balance in this account represents capital profit, because it arises from forfeiture of shares and not from regular trading activities.

Step 3: Presentation in Balance Sheet.

Since it is treated as capital profit, it is shown under the head “Reserves and Surplus” in the Balance Sheet until reissue of shares.

Step 4: Conclude.

Thus, the balance of Share Forfeiture A/c is shown under Reserves and Surplus.


Final Answer: \[ \boxed{Reserve and Surplus} \] Quick Tip: Share Forfeiture balance = Capital Profit → shown under Reserves and Surplus in Balance Sheet.

Step 1: Called-up capital meaning.

Called-up capital is the portion of subscribed capital which the company has asked shareholders to pay.

Step 2: Paid-up capital meaning.

Paid-up capital is the actual amount received from shareholders out of the called-up capital.

Step 3: Adjustment.

If some shareholders fail to pay the called-up amount, it is called “Calls-in-arrear”. Therefore, \[ Paid-up Capital = Called-up Capital - Calls-in-arrear \]

Step 4: Conclude.

Hence, Calls-in-arrear is deducted from called-up capital to arrive at paid-up capital.


Final Answer: \[ \boxed{Calls-in-arrear} \] Quick Tip: Remember: Paid-up Capital = Called-up Capital – Calls-in-arrear.

Step 1: Definition of Sweat Equity Shares.

Sweat equity shares are shares issued by a company to employees or directors at a discount or for consideration other than cash.

Step 2: Purpose.

They are issued to reward contribution in the form of know-how, intellectual property rights, or value additions made to the company.

Step 3: Conclude.

Therefore, sweat equity shares are issued to both employees and directors.


Final Answer: \[ \boxed{Both Employees and Directors} \] Quick Tip: Sweat equity shares reward employees/directors for special services or intellectual contributions.

Step 1: Calculate premium per share.

Face value of one share = Rs. 10. Premium = 10% of 10 = Rs. 1 per share.

Step 2: Total premium.

For 10,000 shares: \[ Premium = 10,000 \times 1 = Rs. 10,000 \]

Step 3: Conclude.

Hence, the total securities premium received will be Rs. 10,000.


Final Answer: \[ \boxed{Rs.\;10,000} \] Quick Tip: Securities Premium = (Face Value × Rate of Premium) × No. of Shares.

Step 1: Types of shareholders.

- Equity shareholders: Receive dividend at fluctuating rate, depending on profits.

- Preference shareholders: Receive dividend at a fixed rate, before equity shareholders.

Step 2: Legal priority.

Preference dividend is paid first; only after that can equity shareholders receive dividend.

Step 3: Conclude.

Thus, dividend at a fixed rate is given to preference shareholders.


Final Answer: \[ \boxed{Preference shareholders} \] Quick Tip: Preference shareholders get fixed dividend + repayment priority; equity shareholders get residual profits.

Step 1: Capital vs. revenue receipt.

- Revenue receipts are recurring, related to day-to-day activities, e.g., subscriptions, donations, interest.

- Capital receipts are non-recurring, related to specific purposes, e.g., building fund, entrance fees (in some cases).

Step 2: Analyse options.

- Subscription → Revenue receipt (recurring).

- Donation → General donations are revenue in nature.

- Building fund → Specifically received for construction of building → capital receipt.

- Interest on FD → Revenue receipt.

Step 3: Conclude.

Therefore, building fund is a capital receipt.


Final Answer: \[ \boxed{Building fund} \] Quick Tip: Capital receipts are one-time, specific-purpose receipts that increase capital funds.

Step 1: Receipts and Payments A/c.

This is a summary of cash transactions, both capital and revenue, but it does not show surplus or deficit.

Step 2: Income \& Expenditure A/c.

This account is prepared on an accrual basis. It includes only revenue items (incomes and expenditures) and matches them for the year.

Step 3: Conclusion.

The difference between total revenue income and total revenue expenditure gives surplus or deficit.


Final Answer: \[ \boxed{Income \& Expenditure A/c} \] Quick Tip: Not-for-profit organisations prepare Income \& Expenditure A/c instead of Profit \& Loss A/c.

Step 1: Meaning of revenue expenditure.

Revenue expenditure is recurring in nature, incurred for day-to-day operations, and its benefit is consumed within the accounting period.

Step 2: Analyse options.

- Purchase of furniture → Capital expenditure (asset creation).

- Payment of salaries → Regular expense, recurring → revenue expenditure.

- Construction of building → Capital expenditure (long-term asset).

- Purchase of machinery → Capital expenditure.

Step 3: Conclude.

Thus, payment of salaries is a revenue expenditure.


Final Answer: \[ \boxed{Payment of salaries} \] Quick Tip: Revenue expenditure = recurring; Capital expenditure = one-time asset creation.

Step 1: Types of donations.

- General donations = revenue receipts, used for general purposes.

- Specific donations (e.g., building fund, sports fund) = used only for that specific purpose.

Step 2: Treatment in accounts.

Specific donations cannot be used freely; they are treated as liabilities until utilised for the specified purpose.

Step 3: Conclude.

Therefore, donations for specific purposes are treated as liabilities.


Final Answer: \[ \boxed{Liability} \] Quick Tip: General donation → Revenue receipt; Specific donation → Liability until used for that purpose.

Step 1: Cash and bank transaction records.

Cash A/c and Bank A/c record daily transactions, but they are individual accounts. For a summary, we need a combined account.

Step 2: Receipts and Payments A/c.

Receipts and Payments A/c is a summary of all cash and bank transactions (whether capital or revenue, current year or previous year).

Step 3: Conclude.

Thus, the summary of cash and bank transactions is shown in Receipts and Payments A/c.


Final Answer: \[ \boxed{Receipts and Payments A/c} \] Quick Tip: Receipts and Payments A/c = summary of cash and bank → includes all items, not restricted to revenue or current year only.

Step 1: Meaning of honorarium.

Honorarium = payment made to someone (like Secretary, Treasurer) for services voluntarily rendered to the organisation.

Step 2: Nature of expense.

It is recurring in nature and is part of day-to-day operations → hence, it is a revenue expenditure.

Step 3: Eliminate wrong options.

- Capital expenditure → creates asset, not applicable.

- An income → completely wrong.

- All of these → cannot be correct as it is specifically a revenue expenditure.


Final Answer: \[ \boxed{Revenue expenditure} \] Quick Tip: Honorarium = recurring operating cost → always revenue expenditure.

Step 1: Receipts and Payments A/c.

This account records all cash transactions (current year + previous year + future year). It is not limited to one year.

Step 2: Income \& Expenditure A/c.

This is similar to a Profit \& Loss A/c, prepared only for one accounting year. It includes only current year’s revenue incomes and expenses on accrual basis.

Step 3: Conclude.

Thus, Income \& Expenditure A/c shows only one year’s transactions.


Final Answer: \[ \boxed{Income \& Expenditure A/c} \] Quick Tip: Receipts \& Payments A/c → all periods; Income \& Expenditure A/c → one year only.

Step 1: Nature of entrance fee.

Entrance fee (also called Admission fee) is paid by members only once, at the time of joining a club or organisation.

Step 2: Reasoning.

Since it is a one-time payment, it is not recurring. Therefore, it is considered a capital receipt, as it adds to the capital fund.

Step 3: Conclude.

Thus, entrance fee is treated as a capital receipt.


Final Answer: \[ \boxed{Capital Receipt} \] Quick Tip: Entrance fee = one-time → Capital Receipt. Recurring items (subscriptions) = Revenue Receipts.

Step 1: Opening Balance Sheet.

When a not-for-profit organisation is formed, its opening Balance Sheet is prepared to show its initial financial position.

Step 2: Source of data.

The Receipts \& Payments A/c provides information of cash and bank balances, assets, and liabilities, which are used to prepare the opening Balance Sheet.

Step 3: Conclude.

Thus, the opening Balance Sheet is prepared from Receipts \& Payments A/c.


Final Answer: \[ \boxed{Receipts \& Payments A/c} \] Quick Tip: Opening Balance Sheet of NPO is prepared from Receipts \& Payments A/c balances.

Step 1: Treatment in Income \& Expenditure A/c.

Outstanding subscription (income accrued but not yet received) is added to subscription received during the year in the Income \& Expenditure A/c, because accounts are prepared on accrual basis.

Step 2: Treatment in Balance Sheet.

It is also shown as an asset in the Balance Sheet under “Current Assets” since it is receivable.

Step 3: Conclude.

Thus, outstanding subscription appears in both Income \& Expenditure A/c and Balance Sheet.


Final Answer: \[ \boxed{Both (A) and (B)} \] Quick Tip: Outstanding incomes = add in Income \& Expenditure A/c + show as asset in Balance Sheet.

Step 1: Revaluation at admission.

When a new partner is admitted, all assets and liabilities may be revalued. But one asset that is always adjusted is Goodwill.

Step 2: Reason.

Goodwill ensures that existing partners are compensated for the reputation and profits earned by the firm before the admission of the new partner.

Step 3: Conclude.

Thus, at admission, Goodwill is compulsorily revalued/adjusted.


Final Answer: \[ \boxed{Goodwill} \] Quick Tip: Goodwill is always adjusted on admission, retirement, or death of a partner to ensure fair compensation.

Step 1: Meaning.

Fixed assets lose their value gradually due to use, wear and tear, passage of time, or obsolescence.

Step 2: Accounting term.

This decrease in value is termed as “Depreciation” and is charged to the Profit \& Loss A/c as an expense.

Step 3: Conclude.

Hence, decrease in the value of fixed assets is called depreciation.


Final Answer: \[ \boxed{Depreciation} \] Quick Tip: Depreciation = fall in value of fixed assets due to use or passage of time, recorded as expense.

Step 1: Nature of Revaluation A/c.

At admission, retirement, or death of a partner, assets and liabilities are revalued. All changes are recorded in Revaluation A/c.

Step 2: Profit/Loss Adjustment.

Any profit (increase in assets or decrease in liabilities) or loss (decrease in assets or increase in liabilities) is transferred to old partners’ capital accounts.

Step 3: Conclude.

Therefore, Revaluation A/c is similar to a Profit and Loss Adjustment A/c.


Final Answer: \[ \boxed{Profit and Loss Adjustment A/c} \] Quick Tip: Revaluation A/c = P\&L Adjustment A/c → distributes revaluation profit/loss among old partners.

Step 1: Usual treatment of goodwill.

When goodwill is brought in cash by a new partner, it is credited to the old partners’ capital accounts in their sacrificing ratio.

Step 2: Case of non-payment.

If the new partner does not bring goodwill in cash, then his capital account is debited (reduced), and the sacrificing partners are compensated by crediting their capital accounts.

Step 3: Conclude.

Hence, when goodwill is not brought in cash, it is debited to the New Partner’s Capital A/c.


Final Answer: \[ \boxed{New Partner’s Capital A/c} \] Quick Tip: Goodwill not brought in cash → debit New Partner’s Capital A/c; Goodwill brought in cash → debit Cash/Bank A/c.

Step 1: Credit items in Capital A/c.

Partner’s Capital A/c is credited with all benefits given to partners: Capital introduced, Interest on Capital, Share of Profit, Goodwill, etc.

Step 2: Debit items in Capital A/c.

It is debited with amounts withdrawn by partners (Drawings), Interest on Drawings, and Share of Loss.

Step 3: Conclude.

Hence, Interest on Capital is credited to the Partner’s Capital A/c.


Final Answer: \[ \boxed{Interest on Capital} \] Quick Tip: Remember: Benefits → Credit side; Obligations/Losses → Debit side of Capital A/c.

Step 1: Nature of accumulated profits.

Accumulated profits (Reserves, General Reserve, Undistributed Profits) belong to existing partners.

Step 2: Adjustment during reconstitution.

At admission, retirement, or death of a partner, these profits are transferred to partners’ capital accounts in their old profit-sharing ratio.

Step 3: Conclude.

Thus, accumulated profits are transferred to Partners’ Capital A/c.


Final Answer: \[ \boxed{Partners’ Capital A/c} \] Quick Tip: Accumulated profits/losses are always distributed to partners in their old ratio before reconstitution.

Step 1: Meaning of reconstitution.

Reconstitution of partnership occurs when there is a change in agreement, e.g., admission, retirement, death, or change in profit-sharing ratio.

Step 2: Legal necessity.

It is necessary to ensure fair distribution of rights and liabilities among partners. Without reconstitution, old terms would remain unfair.

Step 3: Conclude.

Therefore, reconstitution of partnership is necessary.


Final Answer: \[ \boxed{Necessary} \] Quick Tip: Admission, retirement, death, or change in ratio always requires reconstitution of partnership.

Step 1: Meaning of sacrificing ratio.

Sacrificing ratio = the ratio in which old partners sacrifice their share of profit in favour of the new partner.

Step 2: Treatment of goodwill.

The amount of goodwill brought by the new partner is distributed to the old partners in their sacrificing ratio, to compensate them for loss of future profits.

Step 3: Conclude.

Hence, goodwill is always shared in sacrificing ratio.


Final Answer: \[ \boxed{Sacrificing ratio} \] Quick Tip: Goodwill = compensation for sacrifice → distributed to old partners in sacrificing ratio.

Step 1: Old ratio.

Hari : Roy : Prasad = 3 : 5 : 1.
Total parts = 9.

Step 2: Shares of each partner.

Hari = 3/9, Roy = 5/9, Prasad = 1/9.

Step 3: Adjustment after retirement.

Roy retires. His share = 5/9 is taken by Prasad.

So, new shares:
Hari = 3/9 = 1/3

Prasad = 1/9 + 5/9 = 6/9 = 2/3

Step 4: Ratio.

Hari : Prasad = 1 : 2.

Wait carefully! Actually above shows 1:2, but let us check again.
Hari = 3/9 = 1/3.
Prasad = 1/9 + 5/9 = 6/9 = 2/3.
Ratio Hari : Prasad = 1/3 : 2/3 = 1 : 2.

Correction. The correct ratio is 1 : 2.


Final Answer: \[ \boxed{1 : 2} \] Quick Tip: Always recalculate shares in fractions when partners retire. Add retiring partner’s share to the gaining partner.

Step 1: Old ratio.

X : Y : Z = 3 : 4 : 3.
Total = 10.

So X = 3/10, Y = 4/10, Z = 3/10.

Step 2: After retirement.

Y retires → his 4/10 share is to be divided.
X and Z share equally = 2/10 each.

Step 3: New shares.

X = 3/10 + 2/10 = 5/10.
Z = 3/10 + 2/10 = 5/10.

Step 4: Ratio.

X : Z = 5/10 : 5/10 = 1 : 1.


Final Answer: \[ \boxed{1 : 1} \] Quick Tip: On retirement, distribute retiring partner’s share among remaining partners in the agreed ratio.

Step 1: Meaning of forfeiture.

If a shareholder fails to pay call money, his shares may be forfeited.

Step 2: Effect.

Forfeited shares reduce the company’s paid-up capital, because the shareholder’s contribution is cancelled.

Step 3: Conclude.

Authorised capital remains unchanged, only paid-up capital decreases.


Final Answer: \[ \boxed{Paid-up Capital} \] Quick Tip: Forfeiture affects paid-up capital, not authorised capital.

Step 1: Company as artificial person.

A company cannot sign like a natural person.

Step 2: Authentication.

The official authentication of documents is done through the company’s common seal.

Step 3: Conclude.

Thus, a company signs through its seal.


Final Answer: \[ \boxed{Seal} \] Quick Tip: A company is an artificial legal person → it authenticates documents with its seal.

Step 1: Nature of debenture.

Debentures are instruments of debt issued by a company to raise funds. They represent the liability of the company towards lenders.

Step 2: Classification.

- Share capital → Owners’ funds.
- Debentures → Loan funds (borrowed capital).

Step 3: Term.

Debentures are normally repayable after a long period, hence they are classified as long-term borrowings.


Final Answer: \[ \boxed{Long-term borrowings} \] Quick Tip: Shares = ownership; Debentures = borrowings/loan capital.

Step 1: Rights of debenture holders.

Debenture holders lend money to the company, and in return they receive fixed interest, irrespective of profits.

Step 2: Ownership vs. Creditorship.

- Shareholders = Owners.
- Debenture holders = Creditors.

Step 3: Conclude.

Debenture holders are creditors, not owners or customers.


Final Answer: \[ \boxed{Creditors of the company} \] Quick Tip: Debenture holders = lenders → fixed interest; Shareholders = owners → dividends (profit dependent).

Step 1: Nature of account.

Debenture application money is collected from applicants, and until allotment, it is considered as liability of the company towards applicants.

Step 2: Account type.

Personal Account → accounts related to persons or entities to whom the company owes money.

Step 3: Conclude.

Hence, Debenture Application A/c is a Personal A/c.


Final Answer: \[ \boxed{Personal A/c} \] Quick Tip: Application money (for shares or debentures) is always treated as liability till allotment → Personal A/c.

Step 1: Interest on debentures.

Debenture holders receive a fixed interest, irrespective of profits earned by the company.

Step 2: Nature.

This interest is treated as an expense of the company and must be paid before arriving at net profit.

Step 3: Conclude.

Therefore, interest on debentures is a charge against profit, not an appropriation of profit.


Final Answer: \[ \boxed{A charge against the profit of the company} \] Quick Tip: Dividends = appropriation of profit; Interest on debentures = charge against profit (compulsory).

Step 1: Meaning of collateral security.

When debentures are issued as collateral, they are not for raising capital but as additional security against a bank loan.

Step 2: Accounting treatment.

To show liability correctly, Debenture Suspense A/c is debited and Debenture A/c is credited.
Journal entry: \[ Debenture Suspense A/c Dr. \quad To Debentures A/c \]

Step 3: Conclude.

Thus, Debenture Suspense A/c is debited.


Final Answer: \[ \boxed{Debenture Suspense A/c} \] Quick Tip: Collateral issue of debentures → Debenture Suspense A/c is used to avoid overstating liabilities.

Step 1: Nature of debentures.

Debentures represent borrowed funds repayable after a long duration.

Step 2: Classification.

In company Balance Sheet (as per Schedule III, Companies Act, 2013):
- Share capital → Shareholders’ funds.
- Debentures → Non-current liabilities → Long-term borrowings.

Step 3: Conclude.

Thus, debentures are shown under Long-term borrowings.


Final Answer: \[ \boxed{Long-term borrowings} \] Quick Tip: Debentures always appear under Non-current liabilities (Long-term borrowings).

Step 1: Nature of discount.

Discount = capital loss to the company, as debentures are issued below face value.

Step 2: Accounting treatment.

Discount on issue of debentures is not written off immediately; it is shown as a fictitious asset (deferred expenditure) under “Miscellaneous Expenditure” until amortised.

Step 3: Conclude.

Hence, it is shown as Miscellaneous Expenditure in the Balance Sheet.


Final Answer: \[ \boxed{Miscellaneous Expenditure} \] Quick Tip: Discount on issue of debentures = Capital loss → shown as fictitious asset till written off.

Step 1: Meaning.

Premium on redemption of debentures = extra liability payable by company over and above face value at redemption.

Step 2: Account type.

It is treated as a liability towards debenture holders → hence classified as a Personal Account.

Step 3: Conclude.

Thus, Premium on Redemption of Debentures A/c is a Personal A/c.


Final Answer: \[ \boxed{Personal A/c} \] Quick Tip: Any liability payable to a person/group → Personal A/c. Premium on redemption = liability to debenture holders.

Step 1: Meaning.
Financial statements are the summarized reports of a business, including Profit \& Loss Account and Balance Sheet.

Step 2: Objectives.
- They show the profitability of the business by reporting incomes and expenses.
- They present the financial position through assets and liabilities.
- They help owners, creditors, investors, and managers in decision-making.

Step 3: Conclusion.
The two major objectives are: (i) to show performance and position, and (ii) to provide a basis for decisions.


Final Answer: \[ \boxed{1. Show performance and position \quad 2. Aid decision-making} \]


% Quciktip
\begin{quicktipbox
Financial statements = “Report card of business” used for planning and control.
\end{quicktipbox Quick Tip: Financial statements = “Report card of business” used for planning and control.

Step 1: Meaning.
In common size statement, all items are expressed as a percentage of a common base (like sales or total assets).

Step 2: Objectives.
- Helps to compare two firms of different sizes.
- Shows proportion of each item in relation to sales or assets, revealing structural strength.

Step 3: Example.
If sales = 100 and expenses = 40, then expense ratio = 40%.


Final Answer: \[ \boxed{1. Easy comparison \quad 2. Study proportion of items} \]


% Quciktip
\begin{quicktipbox
Common size = relative analysis tool; removes size differences.
\end{quicktipbox Quick Tip: Common size = relative analysis tool; removes size differences.

Step 1: Define.
Analysis = breaking complex financial data into meaningful parts.

Step 2: Purpose.
- To know earning capacity.
- To judge liquidity, solvency and stability.
- To provide useful information to management and investors.


Final Answer: \[ \boxed{Systematic examination of financial data for decisions} \]


% Quciktip
\begin{quicktipbox
Analysis = interpretation + evaluation of Balance Sheet and P\&L.
\end{quicktipbox Quick Tip: Analysis = interpretation + evaluation of Balance Sheet and P\&L.

Step 1: Reason.
Death leads to settlement of his/her capital account.

Step 2: Revaluation.
- Assets must be shown at fair market value.
- Liabilities must be recorded at actual payable amount.

Step 3: Result.
Any profit/loss from revaluation is distributed to all partners’ capital accounts including the deceased partner.


Final Answer: \[ \boxed{For fair settlement of deceased partner’s share} \]


% Quciktip
\begin{quicktipbox
Revaluation = ensures fairness, avoids under/overpayment.
\end{quicktipbox Quick Tip: Revaluation = ensures fairness, avoids under/overpayment.

Step 1: Situation.
Prepared only at dissolution.

Step 2: Purpose.
- Records disposal of assets.
- Records settlement of creditors, loans, and expenses.
- Balancing figure shows profit/loss on realisation.


Final Answer: \[ \boxed{Prepared at dissolution to ascertain profit/loss} \]


% Quciktip
\begin{quicktipbox
Realisation A/c = last account of partnership firm.
\end{quicktipbox Quick Tip: Realisation A/c = last account of partnership firm.

Step 1: Definition.
Compulsory dissolution = dissolution enforced by law.

Step 2: Cases.
- When all partners or all except one become insolvent.
- When business becomes unlawful (e.g., due to government ban).
- When all partners die.


Final Answer: \[ \boxed{Death, insolvency or illegality of business} \]


% Quciktip
\begin{quicktipbox
Compulsory dissolution ≠ mutual agreement, it is forced by law.
\end{quicktipbox Quick Tip: Compulsory dissolution ≠ mutual agreement, it is forced by law.

Step 1: Define.
Goodwill is often valued as Super Profit \(\times\) Number of Years’ Purchase.

Step 2: Meaning.
“Years’ Purchase” = number of future years for which firm expects to earn super profits.

Step 3: Example.
If super profit = 40,000 and years’ purchase = 3, then goodwill = 1,20,000.


Final Answer: \[ \boxed{Goodwill = Super Profit \(\times\) Years’ Purchase} \]


% Quciktip
\begin{quicktipbox
Years’ purchase = expectation of abnormal profits in future.
\end{quicktipbox Quick Tip: Years’ purchase = expectation of abnormal profits in future.

Step 1: Situations.
Goodwill is valued when the profit-sharing ratio of partners changes.

Step 2: Cases.
- Admission of a new partner.
- Retirement/death of a partner.
- Sale of business.
- Amalgamation or merger.


Final Answer: \[ \boxed{Admission, Retirement, Death, Sale, Amalgamation} \]


% Quciktip
\begin{quicktipbox
Goodwill = valued whenever firm is reconstituted or transferred.
\end{quicktipbox Quick Tip: Goodwill = valued whenever firm is reconstituted or transferred.

Point 1: Sacrificing ratio.
Old share – New share = Sacrifice. Used to compensate sacrificing partners with goodwill.

Point 2: Gaining ratio.
New share – Old share = Gain. Used to distribute goodwill brought in by new partner.


Final Answer: \[ \boxed{Sacrificing → Admission \quad Gaining → Retirement/Death} \]


% Quciktip
\begin{quicktipbox
Sacrifice = give up part of share; Gain = extra share acquired.
\end{quicktipbox Quick Tip: Sacrifice = give up part of share; Gain = extra share acquired.

Step 1: Define.
Trend analysis = horizontal analysis of financial statements.

Step 2: Method.
Base year = 100, other years compared as percentage of base year.

Step 3: Utility.
- Shows growth/decline.
- Useful for forecasting.


Final Answer: \[ \boxed{Study of change over time using base year = 100} \]


% Quciktip
\begin{quicktipbox
Trend = direction of movement of financial results.
\end{quicktipbox Quick Tip: Trend = direction of movement of financial results.

Step 1: Meaning.
In P\&L → Sales is base. In Balance Sheet → Total assets/liabilities is base.

Step 2: Purpose.
Helps comparison across years and companies of different sizes.

Step 3: Example.
If Sales = 1,00,000 and wages = 20,000, then wages = 20% of sales.


Final Answer: \[ \boxed{All items shown as % of base figure} \]


% Quciktip
\begin{quicktipbox
Common size = proportion-based analysis = useful for inter-firm study.
\end{quicktipbox Quick Tip: Common size = proportion-based analysis = useful for inter-firm study.

Step 1: Recall what ratios do.

Accounting ratios relate one meaningful figure to another (e.g., Current Assets to Current Liabilities) to create insight not apparent from raw totals.

Step 2: Objectives distilled.

1) \emph{Performance and position appraisal: Liquidity (current/quick), long-term solvency (debt-equity), profitability (gross/net profit, ROI), and efficiency (turnover ratios).
2) \emph{Comparison and control: Express results in a standardised form that aids trend analysis (across periods) and benchmarking (across firms/industry), enabling management decisions such as pricing, credit terms, financing mix, etc.

Step 3: Conclude.

Thus, ratios chiefly help in (a) evaluation of financial health and (b) meaningful comparison for decisions.


Final Answer: \[ \boxed{(1) Evaluate financial health \quad (2) Enable comparison \& decisions} \]


% Quciktip
\begin{quicktipbox
Think of ratio analysis as “compressing” accounts into a dashboard for quick health checks and comparisons.
\end{quicktipbox Quick Tip: Think of ratio analysis as “compressing” accounts into a dashboard for quick health checks and comparisons.

Point 1: Nature.

\emph{Shares represent owners’ capital; shareholders are owners.
\emph{Debentures represent loan capital; debenture holders are creditors.

Point 2: Return and priority.

\emph{Dividend on shares is paid only out of profits and is an \emph{appropriation.
\emph{Interest on debentures is a \emph{charge against profits—payable even if profits are inadequate; debenture holders have priority over shareholders.

Point 3: Repayment.

\emph{Share capital is normally not repayable during life of the company.
\emph{Debentures carry a fixed maturity (redeemable).

Point 4: Security/voice.

Shareholders may vote; debenture holders do not. Debentures may be secured by charge on assets.


Final Answer: \[ \boxed{Shares: ownership \& dividend (appropriation). Debentures: loan \& interest (charge).} \]


% Quciktip
\begin{quicktipbox
Simple memory hook: Shares = Share of ownership; Debentures = Debt.
\end{quicktipbox Quick Tip: Simple memory hook: \textbf{S}hares = \textbf{S}hare of ownership; \textbf{D}ebentures = \textbf{D}ebt.

Step 1: Define.

Under the \emph{lumpsum (single payment) method, the company repays principal (plus any premium) in one go at maturity rather than through periodic instalments or purchase in the open market.

Step 2: Accounting idea.

No reduction in outstanding liability occurs until the redemption date; funds are usually accumulated (e.g., via Debenture Redemption Reserve/Investments as per law or policy) to meet the balloon payment.

Step 3: Contrast.

Differs from \emph{draw of lots/instalment method (redeemed gradually) and \emph{conversion/open-market purchase.


Final Answer: \[ \boxed{One-time repayment of entire debenture liability at a fixed maturity date} \]


% Quciktip
\begin{quicktipbox
“Lumpsum” = balloon payment at maturity; prepare cash/funds in advance.
\end{quicktipbox Quick Tip: “Lumpsum” = balloon payment at maturity; prepare cash/funds in advance.

Step 1: Essence.

Debentures are borrowings; redemption is the discharge of this liability.

Step 2: Modes.

(i) Lumpsum at maturity, (ii) by annual instalments/draw of lots, (iii) by \emph{purchase in the open market, or (iv) by \emph{conversion into shares/new debentures.

Step 3: Possible premium/discount.

Redemption may be at par or at premium as per the terms.


Final Answer: \[ \boxed{Repayment/discharge of debenture liability as per agreed terms} \]


% Quciktip
\begin{quicktipbox
Redemption \(\neq\) interest payment; interest is periodic, redemption settles principal.
\end{quicktipbox Quick Tip: Redemption \(\neq\) interest payment; interest is periodic, redemption settles principal.

Step 1: When used.

Gaining ratio is used on \emph{retirement/death of a partner or when remaining partners increase their shares.

Step 2: Compute for each partner.

For partner \(A\): \(G_A = N_A - O_A\), similarly for \(B\), etc. Positive result indicates gain; negative indicates sacrifice.

Step 3: Purpose.

To apportion goodwill/reserve adjustments and revaluation effects fairly among the gaining partners.


Final Answer: \[ \boxed{Gaining Ratio = (New Share - Old Share) of each continuing partner} \]


% Quciktip
\begin{quicktipbox
Admission → use \emph{sacrificing ratio (Old–New); Retirement → use \emph{gaining ratio (New–Old).
\end{quicktipbox Quick Tip: Admission → use \emph{sacrificing} ratio (Old–New); Retirement → use \emph{gaining} ratio (New–Old).

Step 1: Understand the allocation.

Z’s share is fixed at \(1/4\). Unless stated otherwise, the remaining \(3/4\) is shared by old partners in their old ratio \(2:1\).

Step 2: Compute each partner’s new share.

Remaining share \(= 1 - \frac{1}{4} = \frac{3}{4}\). \[ X = \frac{3}{4}\times \frac{2}{3}=\frac{1}{2},\quad Y = \frac{3}{4}\times \frac{1}{3}=\frac{1}{4},\quad Z = \frac{1}{4}. \]

Step 3: Convert to simple ratio.
\(\frac{1}{2}:\frac{1}{4}:\frac{1}{4} = 2:1:1\).


Final Answer: \[ \boxed{X:Y:Z = 2:1:1} \]


% Quciktip
\begin{quicktipbox
When a newcomer’s fraction is given and no sacrifice pattern is specified, share the remainder among old partners in the \emph{old ratio.
\end{quicktipbox Quick Tip: When a newcomer’s fraction is given and no sacrifice pattern is specified, share the remainder among old partners in the \emph{old ratio}.

Step 1: Meaning.

Accumulated profits are undistributed earnings standing in the books on the date of reconstitution/dissolution (e.g., General Reserve, Credit balance of P\&L, Workmen Compensation Reserve surplus, etc.).

Step 2: Treatment in partnership.

Before admission/retirement/death, these are transferred to partners’ capital accounts in the \emph{old profit-sharing ratio.


Final Answer: \[ \boxed{Undistributed past profits kept as reserves/balance of P\&L} \]


% Quciktip
\begin{quicktipbox
“Accumulated” = \emph{already earned but \emph{not yet distributed.
\end{quicktipbox Quick Tip: “Accumulated” = \emph{already earned} but \emph{not yet distributed}.

Step 1: Opening computation.

Prepare the opening Balance Sheet of the NPO. Compute: \[ Capital Fund = Assets (excluding specific funds) - External Liabilities. \]

Step 2: Year-end adjustment.

Closing Capital Fund \(= Opening Capital Fund + Surplus - Deficit + Capitalised receipts\) (e.g., life membership fees if capitalised, entrance fee if treated as capital).


Final Answer: \[ \boxed{Capital Fund = Assets - Liabilities (opening)\ ; adjust by Surplus/Deficit thereafter} \]


% Quciktip
\begin{quicktipbox
Think “net worth” of an NPO: Capital Fund is the balancing figure of opening Balance Sheet.
\end{quicktipbox Quick Tip: Think “net worth” of an NPO: Capital Fund is the balancing figure of opening Balance Sheet.

Point 1: Position in accounts.

\emph{Charge → recorded in Profit \& Loss A/c as expense; reduces profit.
\emph{Appropriation → recorded in P\&L \emph{Appropriation A/c; allocates profit.

Point 2: Compulsion.

\emph{Charge is obligatory (must be paid irrespective of profit).
\emph{Appropriation is discretionary (depends on available profit).

Point 3: Examples.

Charge: Interest on debentures, depreciation.
Appropriation: Dividend, transfer to general reserve, bonus issue.


Final Answer: \[ \boxed{Charge = before profit; Appropriation = after profit (with examples)} \]


% Quciktip
\begin{quicktipbox
A quick test: “If no profit, still payable?”—Yes → Charge; No → Appropriation.
\end{quicktipbox Quick Tip: A quick test: “If no profit, still payable?”—Yes → Charge; No → Appropriation.

Step 1: Define.

Also called \emph{partnership agreement; while writing is not compulsory, a deed avoids disputes and overrides default rules of the Partnership Act.

Step 2: Contents (indicative).

Names/addresses, business nature, capitals, profit/loss ratio, interest on capital/drawings, partners’ remuneration, admission/retirement clauses, valuation of goodwill, settlement on dissolution, arbitration, etc.


Final Answer: \[ \boxed{Written agreement defining partners’ rights, duties \& PSL ratio} \]


% Quciktip
\begin{quicktipbox
“No deed” → default Act rules (no salary, equal profits, 6% interest on partner’s loan).
\end{quicktipbox Quick Tip: “No deed” → default Act rules (no salary, equal profits, 6% interest on partner’s loan).

Step 1: Find old shares.

Old ratio \(3:2:2\) ⇒ \(X=\frac{3}{7},\ Y=\frac{2}{7},\ Z=\frac{2}{7}\).

Step 2: Note new shares of continuing partners.

New ratio \(4:3\) ⇒ \(X=\frac{4}{7},\ Y=\frac{3}{7}\).

Step 3: Compute gains (New − Old).
\(X\)’s gain \(= \frac{4}{7}-\frac{3}{7}=\frac{1}{7}\). \(Y\)’s gain \(= \frac{3}{7}-\frac{2}{7}=\frac{1}{7}\).

Step 4: Express as a ratio.
\(X:Y = \frac{1}{7}:\frac{1}{7} = 1:1\).


Final Answer: \[ \boxed{Gaining Ratio X:Y = 1:1} \]


% Quciktip
\begin{quicktipbox
Gaining ratio is always for \emph{continuing partners: \( New - Old \).
\end{quicktipbox Quick Tip: Gaining ratio is always for \emph{continuing} partners: \( New - Old \).

Step 1: Define the concept.

A Joint Life Policy (JLP) is an insurance contract in which two or more partners of a firm are insured under one policy. The premium is paid by the firm.

Step 2: Purpose.

It provides financial support to the firm upon the death of any partner. The amount received can be used to pay the deceased partner’s legal representatives, settle his capital account, or strengthen the firm’s finances.

Step 3: Accounting treatment.

- Premium may be treated as \emph{an expense (debited to P\&L).
- Alternatively, a \emph{Joint Life Policy A/c may be maintained, shown as an asset.
- At death/maturity, the policy proceeds are credited to partners’ capital accounts in the profit-sharing ratio.

Step 4: Key feature.

The policy covers the lives of all partners collectively, unlike individual policies that cover only one person.


Final Answer: \[ \boxed{A life insurance policy jointly taken by all partners to secure the firm against loss at a partner’s death.} \] Quick Tip: Remember: JLP ensures the firm has ready funds to pay the deceased partner’s share without disturbing working capital.

Step 1: Identify amounts \emph{owed} by the deceased to the firm.

Any personal withdrawals (Drawings) until the date of death reduce the amount payable and are therefore debited. Interest on those drawings is also debited.

Step 2: Bring assets and liabilities to fair value.

If Revaluation A/c shows a \emph{loss, each partner—including the deceased—is debited in the old ratio. Hence the deceased partner’s capital bears his share of revaluation loss.

Step 3: Adjust accumulated losses/fictitious assets.

Balances such as debit P\&L, Deferred Revenue Expenditure, Advertisement Suspense, etc., are written off by debiting partners’ capital accounts in the old ratio, including the deceased partner.

Step 4: Record current-period loss up to the date of death.

The deceased partner’s share in business loss up to the date of death (ascertained by time/turnover method or interim accounts) is debited to his Capital A/c.

(Note.) Items like Interest on Capital, Salary/Commission, Share of reserves and revaluation \emph{profit are \emph{credited, not debited.


Final Answer: \[ \boxed{Debits: Drawings \& interest; Revaluation loss; Accumulated losses; Share of current-period loss.} \]


% Quciktip
\begin{quicktipbox
Think “what reduces the amount payable to the estate?”—anything the partner owes (drawings) or his share in losses (revaluation/accumulated/current) goes to the \emph{debit of the deceased partner’s Capital A/c.
\end{quicktipbox Quick Tip: Think “what reduces the amount payable to the estate?”—anything the partner owes (drawings) or his share in losses (revaluation/accumulated/current) goes to the \emph{debit} of the deceased partner’s Capital A/c.

Step 1: Recall meaning of solvency ratios.

They assess a firm’s long-term ability to meet obligations.

Step 2: Quote two standard ratios.

- \emph{Debt–Equity Ratio \(=\frac{Long-term Debt}{Shareholders’ Funds}\).
- \emph{Proprietary (Equity) Ratio \(=\frac{Shareholders’ Funds}{Total Assets}\).
(Other valid answers: Debt Ratio, Interest Coverage/Times Interest Earned, Capital Gearing.)


Final Answer: \[ \boxed{Debt–Equity Ratio and Proprietary Ratio} \]


% Quciktip
\begin{quicktipbox
Liquidity = short term; Solvency = long term. Quote at least one “debt vs. equity” measure.
\end{quicktipbox Quick Tip: Liquidity = short term; \textbf{Solvency} = long term. Quote at least one “debt vs. equity” measure.

Step 1: Explain the statement.

A Cash Flow Statement reconciles opening and closing cash/bank by classifying movements into Operating, Investing and Financing activities.

Step 2: Core objectives.

1) \emph{Evaluate liquidity—ability to pay obligations and dividends.
2) \emph{Assess cash generation from operations separate from investing/financing.
3) \emph{Facilitate decisions on capital expenditure, financing mix and working-capital management.
4) \emph{Enable comparison across firms/periods by focusing on cash rather than accrual profits.


Final Answer: \[ \boxed{Inform about cash flows, judge liquidity, evaluate cash generation, and support planning/control} \]


% Quciktip
\begin{quicktipbox
Profit ≠ Cash. Cash Flow Statement converts accrual results into actual cash movements for better decisions.
\end{quicktipbox Quick Tip: Profit ≠ Cash. Cash Flow Statement converts accrual results into actual cash movements for better decisions.

Step 1: Define investing activities.

They relate to acquisition/disposal of long-term assets and investments.

Step 2: List outflows (any two).

- Cash paid to acquire fixed assets (land, buildings, plant, patents).
- Cash paid to acquire shares/debentures/other securities (long-term).
(Also acceptable: advances/loans to other parties.)


Final Answer: \[ \boxed{Purchases of fixed assets; Purchases of investments / loans advanced} \]


% Quciktip
\begin{quicktipbox
Investing = “where cash is \emph{parked for the long term”—buying assets or investments → cash \emph{outflow.
\end{quicktipbox Quick Tip: Investing = “where cash is \emph{parked} for the long term”—buying assets or investments → cash \emph{outflow}.

Step 1: Essence.

Sweat equity compensates employees/directors for “sweat”—special efforts, intellectual property, or value additions.

Step 2: Key features.

- Issued to employees/directors only.
- Often at a discount or for non-cash consideration.
- Locks in talent, aligns interests with long-term growth.


Final Answer: \[ \boxed{Equity issued to employees/directors for value addition, usually at a discount} \]


% Quciktip
\begin{quicktipbox
“\emph{Sweat” = effort/know-how; sweat equity rewards contribution beyond cash.
\end{quicktipbox Quick Tip: “\emph{Sweat}” = effort/know-how; sweat equity rewards contribution beyond cash.

Step 1: Legal trigger.

If a shareholder fails to pay the amount due on allotment/calls, the Board—after serving a proper notice—may forfeit the shares as per Articles.

Step 2: Purpose/effect.

Forfeiture cancels the membership and amounts already received are transferred to Share Forfeiture A/c (capital profit), enabling reissue of those shares. It enforces payment discipline and protects existing shareholders.


Final Answer: \[ \boxed{Non-payment of allotment/call dues (after notice) leading to cancellation of shares} \]


% Quciktip
\begin{quicktipbox
Remember the sequence: \emph{Default → Notice → Forfeiture → Possible Reissue.
\end{quicktipbox Quick Tip: Remember the sequence: \emph{Default → Notice → Forfeiture → Possible Reissue}.

Step 1: Define clearly.

Unlike irredeemable debentures (not permitted in many jurisdictions), a \emph{redeemable debenture carries a commitment to return principal on or before a stated maturity date.

Step 2: Redemption terms.

Repayment can be in lump sum, by instalments/draw of lots, by purchase in open market, or via conversion—at par or premium as agreed.


Final Answer: \[ \boxed{Debenture repayable at/within a specified time as per issue terms} \]


% Quciktip
\begin{quicktipbox
Think “loan certificate with a maturity promise”—that’s a redeemable debenture.
\end{quicktipbox Quick Tip: Think “loan certificate with a maturity promise”—that’s a redeemable debenture.

Step 1: Define Receipts and Payments Account (R\&P A/c).

It is a real account that summarises all cash and bank transactions (both revenue and capital in nature, current and past/future) of a non-profit organisation. It starts with opening cash/bank balance and ends with closing balance.

Step 2: Purpose.

It acts like a Cash Book in summary form. It helps to know the cash position of the organisation.

Step 3: Define Income and Expenditure Account (I\&E A/c).

It is a nominal account prepared on an accrual basis by non-trading organisations. It records only revenue incomes and expenses relating to the current year, to ascertain surplus or deficit.

Step 4: Distinguish between them.

Basis: R\&P A/c is cash basis; I\&E A/c is accrual basis.
Nature: R\&P includes capital \& revenue, past, present or future; I\&E includes only revenue items of current year.
Opening/Closing Balance: R\&P starts with opening cash/bank balance and shows closing balance; I\&E has no such balances.
Objective: R\&P shows cash position; I\&E shows surplus or deficit.



Final Answer: \[ \boxed{R\&P A/c is a summary of cash transactions, while I\&E A/c is like P\&L to find surplus/deficit.} \]


% Quciktip
\begin{quicktipbox
Remember: R\&P = Cash summary (Real A/c); I\&E = Surplus/deficit (Nominal A/c).
\end{quicktipbox Quick Tip: Remember: R\&P = Cash summary (Real A/c); I\&E = Surplus/deficit (Nominal A/c).

Step 1: Definition.

As per the Indian Partnership Act, 1932:
“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”

Step 2: Key characteristics.

Agreement: It is based on an agreement (oral or written).
Number of partners: Minimum 2, maximum 50 in India (as per Companies Act rules).
Profit-sharing: Partners share profits and losses in agreed ratio or equally if no agreement.
Mutual agency: Every partner is both an agent and principal; acts of one bind all.
Unlimited liability: Partners’ liability is unlimited and joint.
No separate legal entity: Firm is not separate from partners.
Registration: Registration is desirable but not compulsory.



Final Answer: \[ \boxed{Partnership = business relation with profit-sharing + mutual agency + unlimited liability.} \]


% Quciktip
\begin{quicktipbox
Mutual agency (one for all, all for one) is the essence of partnership.
\end{quicktipbox Quick Tip: Mutual agency (one for all, all for one) is the essence of partnership.

Step 1: Define.

It is one of the comparative financial statements used for analysis of profitability trends.

Step 2: Purpose.

To compare performance of a business over different years and identify growth/decline in income, expenditure and net profit.

Step 3: Preparation steps.

List all items of Income Statement (Sales, Other Income, Expenses, Taxes, Net Profit).
Prepare columns for at least two years (e.g., 2023 and 2024).
Show absolute figures for both years side by side.
Add a column for change (increase/decrease) in absolute terms.
Add another column for percentage change.


Step 4: Example (format). \[ \begin{array}{|c|c|c|c|c|} \hline \textbf{Particulars} & \textbf{2023} & \textbf{2024} & \textbf{Change (₹)} & \textbf{Change (%)}
\hline Sales & 10,00,000 & 12,00,000 & +2,00,000 & +20%
Expenses & 7,00,000 & 8,40,000 & +1,40,000 & +20%
Net Profit & 3,00,000 & 3,60,000 & +60,000 & +20%
\hline \end{array} \]


Final Answer: \[ \boxed{Comparative Income Statement = side-by-side incomes/expenses of different years with absolute and % change.} \]


% Quciktip
\begin{quicktipbox
Comparative statements help in trend analysis by showing not just figures but direction and percentage change.
\end{quicktipbox Quick Tip: Comparative statements help in trend analysis by showing not just figures but direction and percentage change.

Step 1: Define clearly.

A Cash Flow Statement (CFS) explains the change between opening and closing cash/bank balances by grouping movements into:
- \emph{Operating activities (core business),
- \emph{Investing activities (long-term assets/investments), and
- \emph{Financing activities (owners’ funds/borrowings).

Step 2: State the key uses.

1) \emph{Liquidity \& solvency assessment — shows whether the firm can pay obligations and dividends in cash.

2) \emph{Quality of earnings — separates accrual profit from actual cash generation.

3) \emph{Planning \& control — supports budgeting for capex, debt repayments and working-capital needs.

4) \emph{Decision-making — timing of borrowing/repayment, dividend policy, and investment disposal/acquisition.

5) \emph{Reconciliation — bridges Net Profit and Net Cash from Operating Activities (Direct/Indirect method).

6) \emph{Comparability — standard classification enables inter-period and inter-firm comparison.

Step 3: Conclusion.

Thus, CFS is a period statement focused on \emph{cash, not accruals, and is indispensable for liquidity management and financing decisions.


Final Answer: \[ \boxed{Cash Flow Statement = classified summary of cash movements; main uses: liquidity, planning, decisions, and reconciliation.} \]


% Quciktip
\begin{quicktipbox
Profit \(\neq\) Cash. Use the Cash Flow Statement to see \emph{where cash actually came from and \emph{where it went.
\end{quicktipbox Quick Tip: Profit \(\neq\) Cash. Use the Cash Flow Statement to see \emph{where} cash actually came from and \emph{where} it went.

Step 1: Adjust profits for abnormalities.

Abnormal losses depress profit and should be \emph{added back to find normal maintainable profits. \[ \begin{aligned} 2019–20 (normal) &= 40{,}000
2020–21 (normal) &= 46{,}000 + 3{,}000 = 49{,}000
2021–22 (normal) &= 52{,}000 \end{aligned} \]

Step 2: Compute Average Profit (Simple Average).
\[ Average Profit=\frac{40{,}000+49{,}000+52{,}000}{3} =\frac{1{,}41{,}000}{3}=47{,}000. \]

Step 3: Apply Years’ Purchase.

Goodwill (Average Profit Method) \(=\) Average Profit \(\times\) Years’ Purchase \[ Goodwill=47{,}000 \times 2 = 94{,}000. \]

Note. The given “total capital Rs. 1,00,000” is \emph{not required in the Average Profit Method (it would matter in Capitalisation/Super Profit methods).


Final Answer: \[ \boxed{Goodwill of the firm = Rs. 94{,}000} \]


% Quciktip
\begin{quicktipbox
Average Profit Method: first make profits \emph{comparable (remove abnormal items), then multiply the average by the stated years’ purchase.
\end{quicktipbox Quick Tip: Average Profit Method: first make profits \emph{comparable} (remove abnormal items), then multiply the average by the stated years’ purchase.

Step 1: Recall dissolution rules (Realisation A/c).

On dissolution, all assets (except cash/bank, fictitious assets) and liabilities are transferred to the \emph{Realisation Account.

Expenses of realisation are \emph{debited to Realisation A/c when borne by the firm.
Cash received from sale/realisation of assets (including \emph{unrecorded assets) is \emph{credited to Realisation A/c via Bank.
If any asset is taken over by a partner, debit the partner’s Capital A/c and credit Realisation A/c at agreed value.
Payment of liabilities is debited to Realisation A/c (credit Bank).
Finally, the profit or loss on Realisation is transferred to partners’ capital accounts in their \emph{old profit-sharing ratio.


Step 2: Apply the rules to each transaction.

(i) Dissolution expenses of Rs. 500 paid by the firm reduce the realisation profit: \(Realisation Dr \to Bank\).

(ii) Unrecorded asset realised Rs. 2,500: receipt comes in Bank; credit Realisation because it increases the realisation proceeds.

(iii) Stock (already in Realisation) taken over by A: charge A’s capital and credit Realisation with Rs. 2,000.

(iv) Creditors settled for Rs. 3,000: debit Realisation (liability paid) and credit Bank.

(v) Given \emph{profit on Realisation = Rs. 4,000; distribute in ratio \(3:1\) → A = 3,000; B = 1,000. Entry: Realisation Dr 4,000 → A’s Capital 3,000; B’s Capital 1,000.

Step 3: Present the journal entries (with narrations).
\[ \begin{aligned} (i)\ & Realisation A/c Dr 500 && To Bank A/c 500 && (Being dissolution expenses paid)
(ii)\ & Bank A/c Dr 2,500 && To Realisation A/c 2,500 && (Being unrecorded asset realised)
(iii)\ & A's Capital A/c Dr 2,000 && To Realisation A/c 2,000 && (Being stock taken over by A)
(iv)\ & Realisation A/c Dr 3,000 && To Bank A/c 3,000 && (Being creditors paid)
(v)\ & Realisation A/c Dr 4,000 && To A's Capital A/c 3,000 && (Being realisation profit)
& && To B's Capital A/c 1,000 && \end{aligned} \]


Final Answer: \[ \boxed{Journal entries (i)–(v) as listed above; Realisation profit shared A:Rs.3,000,\ B:Rs.1,000.} \]


% Quciktip
\begin{quicktipbox
On dissolution, all receipts/payments related to assets/liabilities flow through \emph{Realisation A/c. Expenses → Realisation Dr; proceeds → Realisation Cr; partner take-over → Partner Dr; final profit/loss → Partners’ capitals in old ratio.
\end{quicktipbox Quick Tip: On dissolution, \textbf{all} receipts/payments related to assets/liabilities flow through \emph{Realisation A/c}. Expenses → Realisation Dr; proceeds → Realisation Cr; partner take-over → Partner Dr; final profit/loss → Partners’ capitals in old ratio.

Given and interpretation.

- Face value per share = ₹10; Securities premium = ₹2 (assumed received earlier on allotment).

- Final call unpaid = ₹3 per share; hence \emph{called-up capital on forfeiture = full ₹10; \emph{amount received on capital per share = ₹7.

Step 1: Forfeiture entry for 6,000 shares.

General rule on forfeiture (for non-payment of calls already due): \[ Share Capital Dr (called-up) \quad \To \ Unpaid Call A/c(s) \quad \To \ Share Forfeiture A/c (amount received on capital). \]
Here:
Called-up per share = ₹10 ⇒ debit ₹60,000 (6,000×10).

Unpaid = Final Call ₹3 ⇒ credit ₹18,000 (6,000×3).

Amount received on \emph{capital = ₹7 per share ⇒ credit Share Forfeiture ₹42,000 (6,000×7).
Premium was already collected, so no entry for Securities Premium on forfeiture.

Step 2: Re-issue of 300 forfeited shares at ₹8 as fully paid.

Issue price = ₹8 for a ₹10 paid-up share ⇒ \emph{discount on re-issue = ₹2 per share (₹600 total).
Such discount is debited to Share Forfeiture A/c, limited to the amount available therein.
Entry: \[ Bank Dr 300\times8=2{,400,\quad Share Forfeiture Dr 300\times2=600 \quad \To \ Share Capital 300\times10=3{,}000. \]

Step 3: Transfer capital profit on re-issue to Capital Reserve.

Amount originally forfeited per share (related to capital) = ₹7.
After using ₹2 as discount, surplus per re-issued share = ₹5.
Transfer for 300 shares = \(300 \times 5 = ₹1{,}500\). \[ Share Forfeiture Dr 1{,}500 \ \To \ Capital Reserve 1{,}500. \]

Step 4: Prepare Share Forfeiture Account.
[2pt] \[ \begin{array}{|l|r||l|r|} \hline \multicolumn{2}{|c||}{\textbf{Share Forfeiture A/c (₹)}} & \multicolumn{2}{c|}{}
\hline \textbf{Dr.} & & \textbf{Cr.} &
\hline To Discount on Re-issue & 600 & By Forfeiture (6,000 sh.) & 42{,}000
To Capital Reserve (300 sh.) & 1{,}500 & &
\hline To Balance c/d (for 5,700 sh.) & 39{,}900 & &
\hline \textbf{Total} & 42{,}000 & \textbf{Total} & 42{,}000
\hline \end{array} \]

Thus, ₹39,900 remains in Share Forfeiture A/c relating to the 5,700 shares not yet re-issued (to be transferred to Capital Reserve when re-issued).


Final Answer: \[ \boxed{Entries as above; Capital Reserve credited ₹1,500; Share Forfeiture balance ₹39,900.} \]


% Quciktip
\begin{quicktipbox
Forfeiture: \(Capital Dr (called) \to Unpaid Calls + Forfeiture (amount received)\).
On re-issue at discount: debit the discount to \emph{Share Forfeiture (not exceeding the amount forfeited on those shares); transfer the remaining forfeiture on re-issued shares to Capital Reserve.
\end{quicktipbox Quick Tip: Forfeiture: \(Capital Dr (called) \to Unpaid Calls + Forfeiture (amount received)\). On re-issue at discount: debit the discount to \emph{Share Forfeiture} (not exceeding the amount forfeited on those shares); transfer the remaining forfeiture on re-issued shares to \textbf{Capital Reserve}.

Step 1: Classify the items.

\emph{Current Assets \(=\) Cash 20,000 \(+\) Bank 42,000 \(+\) Bills Receivable 18,000 \(+\) Closing Stock 1,00,000 \(=\) \(\mathbf{1,80,000}\).

\emph{Quick (Liquid) Assets \(=\) Current Assets \(-\) Stock \(=\) \(1,80,000 - 1,00,000 = \mathbf{80,000}\).

\emph{Current Liabilities \(=\) Creditors 86,000 \(+\) Bank Overdraft 34,000 \(=\) \(\mathbf{1,20,000}\).

\emph{Fixed Assets \(=\) \(\mathbf{1,20,000}\). \quad \emph{Net Sales (assumed sales) \(=\) \(\mathbf{6,00,000}\).

(a) Current Ratio.
\[ Current Ratio=\frac{Current Assets}{Current Liabilities} =\frac{1,80,000}{1,20,000}=1.5:1. \]

(b) Quick (Acid-Test) Ratio.
\[ Quick Ratio=\frac{Quick Assets}{Current Liabilities} =\frac{80,000}{1,20,000}=0.666\ldots \approx 0.67:1. \]

(c) Stock (Inventory) Turnover Ratio.

Standard formula is \(\dfrac{Cost of Goods Sold}{Average Stock}\). As opening stock/COGS are \emph{not given, we use the exam convention \(\dfrac{Sales}{Closing Stock}\) (when no other data are available). \[ Stock Turnover=\frac{6,00,000}{1,00,000}=6\ times. \]

(d) Fixed Asset Turnover Ratio.
\[ Fixed Asset Turnover=\frac{Net Sales}{Fixed Assets} =\frac{6,00,000}{1,20,000}=5\ times. \]


Final Answer: \[ \boxed{Current =1.5:1,\ Quick \approx 0.67:1,\ Stock Turnover =6 times,\ Fixed-Asset Turnover =5 times} \]


% Quciktip
\begin{quicktipbox
Always classify first: Cash, Bank, B/R and Stock are Current Assets; Overdraft is a Current Liability.
If COGS/opening stock aren’t provided, many exam sets accept \(Stock Turnover=\dfrac{Sales}{Closing Stock}\) as an approximation—state the assumption.
\end{quicktipbox Quick Tip: Always classify first: Cash, Bank, B/R and Stock are Current Assets; Overdraft is a Current Liability. If COGS/opening stock aren’t provided, many exam sets accept \(Stock Turnover=\dfrac{Sales}{Closing Stock}\) as an approximation—state the assumption.