PARTNERSHIP – I

CHANGE IN PROFIT SHARING RATIO

1. The following is the Balance Sheet of X, Y and Z as at 31st December, 2017:
Liabilities Rs. Rs. Assets Rs.
Capital accounts Goodwill 4,000
X 10,000 Land & building 6,000
Y 5,000 Plant & machinery 4,000
Z 3,000 18,000 Stock 5,500
Sundry debtors 3,100
Sundry Creditors 7,500 Bills receivable 2,000
Cash at bank 900
25,500 25,500
On 1.1.2018 the assets of the firm were revalued as under:
Goodwill Rs.6,000; Land & building Rs.8,500; Plant & machinery Rs.3,500 ; Stock Rs. 5,000; Debtors
Rs. 2,600 and Bills receivable Rs. 2,000.
The partners agree that from 1.1.2018, they will share profits in the ratio of 3 : 2 : 1 instead of their former
ratio of 2 : 2 : 1. They do not, however, want to alter the book value of assets but record the change by
passing one journal entry through their capital accounts. Pass the Journal entry with necessary working
notes. Also show the Memorandum Revaluation Account.
[Ans. X's capital A/c Dr Rs 300, Y's capital A/c Cr Rs.200 and Z's Capital A/c Cr. Rs.100]

ADMISION OF PARTNERS
1. Brick, Sand and Cement were partners in a firm sharing profits and losses in the ratio of 3:2:1 respectively.
Following is their Balance Sheet as on 31st December, 2017:
Liabilities Rs. Assets Rs.
Capital Accounts:
Brick 30,000 Land & Building 50,000
Sand 20,000 Furniture 15,000
Cement 10,000 60,000 Stock 20,000
Reserve 29,800 Bills Receivable 5,000
Creditors 6,200 Debtors 7,000
Bills Payable 4,000 Cash in hand and at bank 2,500
1,00,000 1,00,000

Lime is to be admitted as a partner with effect from 1st January, 2018 on the following terms.
(a) Lime will bring in Rs.15,000 as Capital and Rs.12,000 as premium for goodwill. Half of the Goodwill
will be withdrawn by the partners.
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(b) Lime will be entitled to 𝟔 th sahre in the profits ofthe firm.
(c) The assets will be revalued as follows: Land & Building - Rs.56,000; Furniture Rs.12,000; Stock Rs.
16,000, Debtors Rs. 7,000.
(d) The claim of a Creditor for Rs. 2,300 is paid at Rs.2,000.
(e) Half of the reserve is to be withdrawn by the partners.
Record the Journal entries (including Cash transactions) in the books of the firm and share the Opening
Balance Sheet of the new firm.
[Ans: Loss on Revaluation Rs.1,200; Balance of Capital: Brick Rs. 39,850, Sand Rs.26,567, Cement Rs.
13,283; and Lime Rs.15,000; Balance Sheet total Rs. 1,02,600; Cash and Bank Balance Rs. 6,600]

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2. Baisakhi and Srabani are partners sharing profits and losses in proportion to their capitals.
Their Balance Sheet as on 31st March, 2018 is given below:
Liabilities Rs. Assets Rs.
Creditors 15,000 Freehold premises 10,000
General reserve 2,100 Machinery 3,500
Capitals: Furniture 1,750
Baisakhi 20,000 Office equipments 550
Srabani 15,000 Stock 14,100
Bills receivable 3,060
Debtors 17,500
Bank 1,590
Cash 50
52,100 52,100
On 1st April, 2018 they admit Poushali on the following conditions:
(a) Poushali should bring in Rs.10,000 as cap1'tal and to pay Rs.3,500 for goodwill as she will get
1/4th share in profits.
(b) A provision of 2% to be raised against debtors, stock to be reduced by 5%. Freehold premises
to be revalued at Rs.12,650; Machinery at Rs 2,800, Furniture at Rs.1,540 and office equipments
at Rs.495.
(c) Partners agreed that the values of assets and liabilities should remain unaltered.
Show the necessary accounts and prepare the opening Balance sheet of the new firm.
[Ans. Profit on revaluation Rs.630; Loss on Revaluation on reversal of entries Rs. 630 Balance of Capital
: Baisakhi Rs. 22,390, Srabani Rs. 16,793 and Poushali Rs. 9,317; Balance Sheet total Rs.65,600]

3. Rain and Storm are partners in a firm sharing profits and losses as 3 : 2. Their Balance Sheet on 31st
December, 2017 stands as under:
Liabilities Rs. Rs. Assets Rs. Rs.
Creditors 35,000 Cash 4,000
Capital Accounts: Debtors 22,000
Rain 40,000 Less: Provision for bad debts 2,000 20,000
Storm 20,000 60,000 Stock 18,000
Machinery 20,000
Land & Building 33,000
95,000 95,000
On 1st January, 2018 they agree to take Dust as a partner on the following conditions:-
(a) The goodwill of the firm shall be valued at Rs.23,750 and Dust shall pay his share of goodwill in
cash.
(b) Dust shall contribute Rs.15,000 as his share of capital.
(c) Land and Building shall be valued at Rs.42,000. Machinery shall be depreciated by Rs.5,000.
(d) Provision for bad debts shall be' raised to Rs.3,000 and another provision shall be made for
a probable liability for damages amounting to Rs.1,300.
(e) The Profit and Loss sharing ratio shall be so adjusted that, between Rain and Storm the
former ratio is maintained. While between Storm and Dust there shall be the same ratio as
between Rain and Storm.
(f) The capital shall be adjusted (without disturbing the ultimate total capital) so as to
correspond with the new ratio, the excess or deficit being transferred to their respective
Current Accounts.
Show Journal entries to give effect to the above arrangement and prepare the opening
Balance Sheet of the new firm. [2001]
[Ans. New Profit Sharing Ratio 9 : 6 : 4; Sacrificing Ratio 3 : 2; Profit on Revaluation Rs.1,700; Balances
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 of Current A/c of Rain Rs.5,320 (Cr.) Storm Rs.3,120 (Dr.) and Dust Rs.2,200 (Dr.); Total of Balance
Sheet Rs.1,23,320 ]

RETIREMENT OF PARTNERS
1. The Balance Sheet of Xavier, Yusuff and Zaman, who were sharing profits in the ratio of 4 : 3 : 2
respectively, stood as follows on 31st December, 2017:
Liabilities Rs. Assets Rs.
Sundry creditors 4,140 Cash at bank
Capital accounts Sundry debtors 3,045
Xavier 12,000 Less : Provision 105 2,940
Yusuff 9,000 Stock 4,800
Zaman 6,000 27,000 Plant & machinery 5,100
Land & building 15,000
31,140 31,140
Yusuff, having given notice to retire from the firm, the following adjustments in the books of the firm
were agreed upon :
(a) That Land and building be appreciated by 10%;
(b) That provision for bad debts is no longer necessary;
(c) That stock to be appreciated by 20%;
(d) That adjustment be made in the accounts to rectify a mistake previously made whereby
Yusuff was credited in excess by f 810, while Xavier and Zaman where debited in excess
by Rs.420 and Rs.390 respectively.
(e) That the goodwill of the firm be fixed at Rs.5,400 and Yusuff's share of the same be adjusted to
that of Xavier and Zaman who are going to share future profits in the ratio of 2: l.
(f) That the entire capital of the firm, as newly constituted, will be re-adjusted by bringing in
or paying cash so that the furture capital of Xavier and Zaman be in the ratio of 2 : l.
Pass Journal entries and prepare that Balance Sheet of the new firm showing Yusuff's balance as loan.
[Ans. Profit on revaluation Rs.2,565 ; Yusuff’s Loan A/c Rs.10,845 ; Balance of Capital A/c : Xavier Rs.
12,480 and Zaman Rs.6,240 ; Xavier brings in Rs.120 and Zaman withdrawn Rs.120 ; Balance Sheet
Total Rs. 33,705.]

2. Atin, Bratin and Jatin are partners in a firm sharing profits and losses in the ratio of 2: 2 : 1. Their Balance
Sheet as at 31.12.12 is as follows:
Balance Sheet as at 31.12.2012
Liabilities Rs. Rs. Assets Rs. Rs.
Capital: Land & building 72,000
Atin 65,600 Machinery 35,500
Bratin 43,700 Furniture 10,400
Jatin 32,200 1,41,500 Motor car 18,000
General Reserve 22,000 Stock 19,800
Creditors 18,000 Sundry debtors 23,700
Less: Provision for Bad debts 1,500 22,200
Cash at bank 3,600
1,81,500 1,81,500
Bratin retires on 31.12.2012 but Atin and Jatin continue in partnership sharing profits in the ratio of 3 : 2.
The terms of retirement provide the following:
(a) Goodwill is to be valued at 2 years' purchase of the average annual profits of the last three
years but it should not be shown in the books. The profits of the last three years are:
2009: Rs.12,100; 2010: Rs.8,480; 2011: Rs.10,920.
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 (b) The value of Land & building is to be appreciated by 20%, Machinery is to be valued at
Rs.32,000 and Provision for doubtful debts to be maintained at Rs.1,800.
(c) A furniture costing Rs.3,000 purchased on 1.7.2011 but was debited to Purchases Account. This
asset is to be taken into account charging depreciation @10% p.a. under straight line
method.
(d) Annual insurance premium of Rs.2,400 paid on 1.4.12 has been entirely charged to Profit & Loss
Account.
(e) Bratin will take over the Motor car at Rs.16,000 and a bank loan of Rs.50,000 is to be arranged
for the balance amount payable to him on his retirement.
(f) The capital of the new firm will be readjusted by bringing in or paying of cash so that the capital
of Atin and Jatin be in the new profits sharing ratio.
Prepare Revaluation Account, Capital Account of partners and the Balance Sheet of the new firm. [2002]
[Ans. Profit on Revaluation Rs.11,750; Paid cash to Bratin Rs.50,360; Value of Goodwill Rs.22,900; Cash
brought In by Jatin Rs.9,186 and cash withdrawn by Atin Rs.9,186; Balances of Capital A/c of Atin
Rs.65,334 and Jatin Rs.43,556; Total of Balance Sheet Rs.1,76,890.]

3. Compass, Cone and Circle are in partnership sharing profits and losses in the ratio of 3 : 2 : 1.
The Balance Sheet of the firm as on 31st December, 2012 was as follows:
Liabilities Rs. Assets Rs.
Capital accounts Machinery (at cost) 50,000
Compass 40,000 Less : Provision for
Cone 60,000 depreciation 800 42,000
Circle 20,000 1,20,000 Furniture 1,000
Reserve 30,000 Stock 50,000
Sundry creditors 60,000 Sundry debtors 80,000
Less: Provision for
Doubtful debts 3,000 77,000
Cash at Bank 40,000
2,10,000 2,10,000
On 31st March, 2013 Cone retired and Compass and Circle continued in partnership sharing profits and
losses in the ratio of 3 : 2. It was agreed that adjustments were to be made in the Balance Sheet as on 31st
March, 2013, in respect of the following:
(a) The machinery was to be revalued at Rs.45,000;
(b) The stock was to be reduced by 2%;
(c) The furniture was to be reduced to Rs.600;
(d) The provision for doubtful debts would be Rs.4,000;
(e) A provision of Rs.300 was to be made for outstanding expenses.
The partnership agreement provided that on the retirement of a partner, goodwill was to be valued at
Rs.24,000 and Cone's share of the same was to be adjusted into the accounts of Compass and Circle. The
profit upto the date of retirement was estimated at Rs.18,000.
Cone was to be paid off in full. Compass and Circle were to bring such an amount in cash so as to make
their capitals in proportion to the new profit sharing ratio, subject to the condition that a cash balance of
Rs.20,000 was to be maintained as working capital. Pass the necessary journal entries to give effect to the
above arrangements and prepare the Partner's Capital A/cs on 31st March, 2013.
Also show the Balance Sheet of the reconstituted firm.
[Ans. Profit on Revaluation Rs. 300 ; Gaining ratio 3 : 7; Balance of Capital A/cs : Compass Rs. 78,180,
Circle Rs. 52,120 ; Cash to be brought in by Compass Rs.27,230 and Circle Rs. 36,870. Balance Sheet
total Rs. 1,90,600 ; Amount due to Cone Rs.84,100.]
DEATH OF PARTNERS
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1. Hemant, Talat and Udhas were partners sharing profits and losses in the ratio of 5 : 4 : 1. Their Balance
sheet as on 31st December, 2017 is given below:
Liabilities Rs. Assets Rs.
Sundry creditors 25,000 Cash 2,000
Capitals: Sundry debtors 40,000
Hemant 40,000 Stock 20,000
Talat 30,000 Plant 53,000
Udhas 20,000 90,000
1,15,000 1,15,000
Hemant died on 31st March, 2018 and the partnership deeds provides inter alia that in the event of death
of a partner his legal representative will be entitled to :
(a) Share of profit up to the date of his death on the basis of average profit of four previous
years,
(b) Interest on capital @ 6% p.a.
(c) A share of Goodwill calculated on the basis of three years' purchase of the average net profits of
the past four years and
(d) Interest on drawings up to the date of death will be charged @ 8% p.a.
The net profits of the firm for the years 2014, 2015, 2016 and 2017 were Rs.18,000, Rs.17,000,
Rs.38,000 and Rs.23,000 respectively.
The drawings of Hemant up to the date of his death amounted to Rs.1,000.
You are asked to ascertain the amount payable to the legal representative of Hemant and to show the
Balance sheet of the firm immediately after his death.
[Ans.: Value of Goodwill Rs.72,000; Hemant's share of goodwill Rs.36,000; Hemant's
share of profit for the current year up to the date of his death Rs.3,000; Interest on Hemant's capital Rs.600
Interest on Hemant's drawings no; Amount due to Hemant's executors Rs.78,590; Balance Sheet total
Rs.1,53,590]

2. P, Q and R were partners' in a firm sharing profits and losses in the ratio of 1 : 2 : 2. Their balance sheet
on 31st December, 2017 was as follows:
Liabilities Rs. Assets Rs.
Sundry creditors 20,000 Goodwill 30,000
Bank loan 50,000 Building 1,20,000
General reserve 30,000 Computers 80,000
Capital accounts: Stock 20,000
P 40,000 Sundry debtors 20,000
Q 80,000 Cash at bank 20,000
R 80,000 2,00,000 Investments 10,000
3,00,000 3,00,000
R died on 31st December, 2017. His account has to be settled under the following terms:
Goodwil is to be calculated at two years' purchase on the basis of average of last three years' profits and
losses. The profits and losses for the three years were as detailed below:
Year ended on Profit (loss)
Rs.
31.3.17 30,000
31.3.16 20,000
31.3.15 (10,000)

P and Q agreed that goodwill should not continue to appear in books.

5
 Profit for the period 1st April, 2017 to 31st December 2017 shall be ascertained proportionately on the
basis of average profits and losses of the preceding three years. During the year ending on December,
2017 a car costing Rs.40,000 was purchased on 1st April, 2017 and debited to travelling expenses account
on which depreciation is to be calculated at 20% p.a. This asset is to be brought into account at the
depreciated value. Value of other assets were agreed as follows:
Building at Rs.1,40,000; Computers at Rs.50,000; Investment Rs.6,000; Stock at Rs.16,000; Debtors
considered good.
You are required to draw up partners' capital accounts and balance sheet of the firm as on 31st December,
2017, assuming that other items of assets and liabilities remained the same.
[Ans. : Loss on revaluation Rs.18,000 and profit on revaluation Rs.18,000 on reversal. Adjusted profit for
the year 2016-17 Rs.62,000, value of Goodwill Rs.48,000; R's share of profit for the period 1.4.17 to
31.12.17, Rs.7,200; Amount due to R's executors Rs.1,12,000; Balance of Capital Account P; Rs.36,400
Q Rs.72,800, Balance Sheet total Rs.2,91,200 (debiting R's share of profit to the Profit and Loss Suspense
Account]

ADMISSION –CUM RETIREMENT/ADMISSION CUM DEATH OF PARTNER

1. Durga and Kali were working in partnership sharing profits equally. On 31st December, 2017 Durga
decided to retire and in her place it was decided that Lakshmi, her daughter, would be admitted as partner
from January 1, 2018, and her share in profits will be one- third.
The Balance Sheet of the firm as on December 31, 2017 was as follows:
Liabilities Rs. Assets Rs.
Sundry Creditors 22,050 Goodwill 22,500
Capital: Land & Building 60,075
Durga 81,450 Motor Car 18,000
Kali 72,000 Furniture 13,950
Sundry Debtors 36,225
Cash & Bank Balances 24,750
1,75,500 1,75,500
It was further decided as follows :
(a) The Goodwill should be raised to Rs.30,000.
(b) The Motor Car would be taken over by Durga at its Book Value.
(c) The value of Land and Buildings would be increased by Rs.12,420.
(d) Kali and Lakshmi would introduce sufficient Capital to payoff Durga and to leave thereafter
a sum of n 1,025 as working Capital in a manner that the capitals of the new partners will be
in proportion to their profit sharing ratio.
(e) The capital payable by Lakshmi was to be gifted to her by her mother.
(f) The new partners decided not to show Goodwill as an asset.
The partners introduced the capital on January 10, 2018. Show the accounts of the partners, the Cash
Account and the Balance Sheet. [1999]
[Ans. Profit on Revaluation Rs.12,420; Increase in the value of goodwill Rs.7,500; Capital transferred
from Durga to Lakshmi Rs.47,215; Further Capital brought in by Kali Rs.12,470; Cash paid to Durga
Rs.26,195; Total of Balance (New) Sheet Rs.1,33,695.]

2. Hing and Ting were carrying on business as equal partners. On 1.4.2018, they agreed that Ting would
retire from partnership with effect from 30.6.2018 and his son Ch hat would join the firm as a partner with
effect from 1.7.2018 with a fourth share of the profits of the firm. The balance sheet of the firm as on
30.6.2018 is as follows:
Liabilities Rs. Assets Rs.

6
Capital accounts : Plant and machinery 25,000
Hing 30,400 Furniture and fixtures 10,000
Ting 24,400 54,800 Stock-in-trade 12,000
Sundry creditors 8,400 Sundry debtors 8,800
Cash at bank 5,950
Cash in hand 1,450
63,200 63,200
The agreement contained the following further provisions:
(a) Goodwill shall be valued at Rs.15,000 and shall be raised in the books of the firm.
(b) The plant and machinery and furniture and fixtures shall be revalued at Rs.27,500 and Rs.8,500
respectively.
(c) Stock shall be reduced to its market value of Rs.11,020.
(d) A reserve for bad and doubtful debts @ 21/2% shall be raised against sundry debtors.
(e) The existing cash and bank balance shall be maintained.
(f) Chhat's capital shall be in proportion to his profit sharing ratio.
(g) One-third of the capital to be contributed by chhat would be transferred to him by his father and
the balance should be brought in by him in cash.
(h) Hing would also bring in or withdraw any amount in order to make his capital proportionate to
his profit sharing ratio.
(i) Ting would be paid his dues in cash in full settlement
Show the Journal entries necessary to give effect to the above arrangements and draw the Balance sheet
after reconstruction.
[Ans.: Balance of Capital Accounts: Hing Rs.52,200 Chhat Rs. 17,400 Balance sheet total Rs.78,000;
Payment to Ting Rs.26,000; Capital Transferred from Ting to Chhat Rs.5,800; Cash brought in by Hing
Rs.14,400 and Chhat Rs.11,600]

PARTNERSHIP – II
7
1. Desert, Plain and Hill are in Partnership. They decided to dissolve the partnership firm on 31st March,
2018, when their Balance Sheet stood as follows:
Liabilities Rs. Assets Rs.
Outstanding expenses 1,500 Plant and machinery 35,000
Reserve fund 6,000 Furniture and Fixture 15,000
Trade creditors 12,500 Stock-in-trade 25,000
Capital accounts: Trade debtors 18,000
Desert 40,000 Bills receivable 4,000
Plain 30,000 Cash at bank 13,000
Hill 20,000 90,000
1,10,000 1,10,000
The profit and loss sharing ratio is equal to their capital ratio. Prepare the Realisation Account, Partners'
Capital Accounts and Bank Account after taking into consideration the following additional information:
(a) Stock worth Rs.4,000 taken over by Plain at Rs.3,000 and remainder of the stock realised
Rs.20,000.
(b) The trade creditors agreed to accept 10% less than the amount due to them and the outstanding
expenses were paid in full.
(c) The other assets realised as under:
Plant and machinery Rs.30,000, Furniture Rs.12,000, Trade debtors Rs.14,000, Bills receivable
Rs. 3,000.
(d) Dissolution expenses worth Rs.2,000.
[Ans. Loss on realisation Rs.15,750; Final payment to Desert Rs.35,667, Plain Rs.23,750; Hill Rs.17,833]

2. Ash, Blue and Green were partners sharing profits and losses as 2 : 2 : 1. They dissolved their firm when
their Balance sheet stood as follows:
Liabilities Rs. Assets Rs.
Capitals: Cash at bank 5,000
Ash 41,000 Sundry assets 97,000
Blue 26,000 67,000 Green's capital 8,000
General reserve 15,000 Profit and Loss A/c. 5,000
Creditors 33,000
1,15,000 1,15,000
Sundry assets realised Rs.90,000 and the Creditors were discharged at a discount of Rs.2,000. The
expenses of dissolution amounted to Rs.2,000. Green was declared insolvent and a final dividend of 50%
was realised from his private estate. Show the necessary accounts applying the Gamer vs. Murray rule.
[Ans. : Loss on realisation Rs.7,000; Share of loss on realisation brought in by Ash Rs.2,800 and Blue
Rs.2,800. Cash received from Green estate Rs.3,700. Green deficiency of Rs.3,700 was borne by Ash and
Blue in the ratio of 45 : 30 or 3 : 2. Final payment to Ash Rs.42,780. Blue Rs.28,520.]

3. The following was the Balance sheet of M/s Ideal Works in which A, Band C were partners sharing profits
and losses as 6: 3: 5.
Liabilities Rs. Assets Rs.
Capital accounts : Land and buildings 10,000
A 25,000 Furniture 5,000
C 15,000 40,000 Stock-in-trade 23,100
Current. accounts : Sundry debtors 30,000
A 1,000 Cash at bank 2,500
C 500 1,500 Current account

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 General reserve 1,400 B 4,900
Sundry creditors 28,600
Loan on Mortgage of
Land and buildings 4,000
75,500 75,500
It was decided to dissolve the partnership as on the date of the Balance sheet. The assets of the firm
realised as under :
Land and buildings Rs.6,000; Furniture Rs. 2,000; Stock-in-trade 15,000 and Sundry debtors Rs.20,000.
the expenses of realisation amounted to Rs.,650. The Sundry creditors agreed to receive 75 paise in the
rupee in full satisfaction of their claims. Loan on mortgage was paid. It was ascertained that B had become
insolvent. B's estate had contributed only 50 paise in the rupee.
Write up the Realisation Account, Bank Account, Capital Account and Current Account of the partners
following the rules given in Garner vs. Murray.
[Ans. : Loss on realisation Rs.19,600; share of loss on realisation brought in by A Rs.8,400 and C
Rs.7,000; cash received from 8's estate Rs.4,400; 8's deficiency of Rs.4,400 was borne by A and C in the
ratio of 25 : 15 i.e. 5 : 3. Final payment to A Rs.23,850 : and to C Rs.14,350]

4. Key, Ell, Emm and Enn are partners in a firm sharing profits and losses in the ratio of 4 : 1 : 2: 3. The
following was their Balance sheet as at 31st March, 2018.
Liabilities Rs. Assets Rs.
Sundry creditors: 30,000 Cash in hand 14,000
Capital accounts : Sundry debtors 35,000
Key 70,000 Less : Provision for
Enn 30,000 1,00,000 bad debts 5,000 30,000
Other assets 51,000
Capital accounts :
Ell 20,000
Emm 15,000 35,000
1,30,000 1,30,000
On 31st March, 2018 the firm was dissolved. The partnership agreement provided that the deficiency of
an insolvent partner will be borne by the solvent partners in the ratio of capitals as they stood just before
the dissolution.
The following arrangements were agreed upon:
(a) Key would take over 60% of the book debts at 70% and Enn would take over the balance at
75%. Further they were to be allowed Rs.2,100 and Rs.1,100 respectively to cover future losses.
(b) Enn is to realise other assets and payoff the creditors. He was to receive 5% commission on
the amounts payable final\y to other partners but to bear expenses of realisation. He reported
that:
Other assets realised at a loss of 2% on net collection and creditors were paid off at a discount
of 30%. Realisation expenses amounted to Rs.3,000 but the same was paid by the firm. Ell was
declared insolvent and a dividend @ 20% in the rupee was realised from his estate.
Prepare Cash account, Realisation account, Capital account and Deficiency account.
[Ans. : Profit or loss on Realisation NIL, Final receipts from Ell Rs.4,000 and Emm Rs.15,000; Deficiency
of Ell of Rs.16,000 was borne by Key and Enn in the ratio 7: 3. Final payment to Key Rs.44,000 and Enn
Rs.15,000, Commission of Enn Rs.2,200]
5. J, G and M are partners, sharing profits in the ratio of 2 : 3 : 1. They decided to dissolve the partnership
on 30.6.2018 and the Balance sheet as on that date was as under:
Liabilities Rs. Assets Rs.
Creditors 18,000 Freehold property 8,000

9
 Bank overdraft 8,000 Plant and machinery 14,400
(guarranteed by J) Stock 9,600
Capital accounts : Debtors 2,400
J 4,800 Current accounts
G 6,000 G 4,400
M 4,000 14,800 M 5,200 9,600
Current account
-J 3,200
44,000 44,000
The Freehold property realised Rs.5,600; Plant and machinery Rs.10,800; Stock Rs.6,000 and Debtors
Rs.2,400. J paid off the Bank overdraft. Expenses of realisation amount to Rs.480. G and M both became
insolvent, the estate of the former paying 25 paise in the rupee and of the latter 10 paise in the rupee.
Close the books of the firm.
[Ans. Loss on realisation Rs.10,080; Deficiency In G's capital Rs.2,580 and M's Capital Rs.2,592 to be
borne by J. Final payment to J Rs.7,468]

6. Anita and Burdy are in equal partnership. Their Balance Sheet stood as:
Liabilities Rs. Assets Rs.

Anita's capital 600 Machinery and plant 1,475

Creditors 3,900 Furniture 400
Debtors 500
Stock 625
Cash at bank 300
Burdy's drawings 1,200
4,500 4,500
The assets were realised as follows :
Stock Rs.350 : Furniture Rs.200; Debtors Rs.500 and Machinery Rs.700.
The cost of collecting and distributing the estate amounted to Rs.150. Anita's private estate
is not sufficient even to pay his private debts, whereas in Burdy's private estate there is a
surplus Rs. 50.
Prepare a Realisation A/c, Bank A/c. Profit and Loss A/c. and Creditors A/c. showing what dividend is
paid to creditors.
[Ans. Loss on realisation Rs.1,400; Deficiency in Anita's capital Rs.100 and In Burdy's capital Rs.1,850;
Amount unpaid to Creditors Rs.1,950]

7. Rimi, Simi and Rakhi were partners in a firm sharing profits and losses in the ratio of 5 : 3 : ;2. On March
31, 2018 their Balance Sheet was as follows :-
Balance Sheet
Liabilities Rs. Assets Rs.
Sundry Creditors 40,000 Furniture 8,000
Rimi's Loan 16,000 Stock 52,000
Simi's Loan 12,000 Debtors 64,000
Capital: Cash at Bank 4,000
Rimi 30,000
Simi 24,000
Rakhi 6,000 60,000
1,28,000 1,28,000
The firm was dissolved on 1st April, 2018. The assets realised were as follows.-.

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 2018 Stock Debtors Furniture Expen.
April 30 12,000 10,000 3,000 1,000
June 30 12,000 10,000 --- 1,600
July 31 16,000 30,000 4,000 3,000
August 31 10,000 4,000 --- 1,000
Cash received was paid to the rightful claimants at the end of each month. Prepare the statement showing
the distribution of cash. [1993]
[Ans. On 30th April Rs.28,000 to S/Creditors; On 30th June Rs.12,000 to S/Creditors; Rs.4,800 for Rimi's
Loan and Rs.3,600 for Simi's Loan; On 31st July Rs.11,200 for Rimi's Loan, Rs.8,400 for Simi's Loan,
Rs.13,375 to Rimi and Rs.14,025 to Simi; On 31st August Rs.6,825 to Rimi, Rs.4,095 to Simi, Rs.2,080
to Rakhi; Loss on Realisation Rs.19,600.]

8. Luck , Duck and Pluck were partners sharing profits and losses as 2 : 1 : 1. Their Balance Sheet as on
31.12.2017 is given below and they dissolved their partnership on that date:
Liabilities Rs. Assets Rs.
Creditors 15,000 Cash 9,000
Income Tax payable 4,000 Stock 40,000
Loan from Bank (secured Debtors 60,000
by pledge of stock) 30,000 Furniture 36,000
Duck's loan 10,000 Motor Car 25,000
Capitals:
Luck 40,000
Duck 40,000
Pluck 30,000 1,10,000
1,70,000 1,70,000
The Bank could realise only Rs.25,000 on disposal of stock. A sum of Rs.3,000 was spent for Motor Car
for getting better price. Other assets were realised as follows:
Rs. Rs.
January 2018 12,000 April 2018 30,000
February 2018 15,000 May 2018 34,000
March 2018 10,000
Duck took over unsold furniture worth Rs.1,000 at the end of May 2018. The partners distributed the cash
as & when realised. Show the distribution of Cash. [2007]
[Ans. Surplus Capital Method: 1st realisation to expenses Rs.3,000: Income Tax Rs.4,000: Bank Loan
Rs.3,500 and Creditors Rs.10,500.
2nd Realisation Bank Loan Rs.1,500: Creditors Rs.4,500: Duck Loan Rs.9,000.
3rd Realisation Duck Loan Rs.2,000; Duck's Capital Rs.8,000.
4th Realisation Luck Rs.4,000: Duck Rs.14,000 and Pluck Rs.12,000.
5th Realisation Luck Rs.17,500: Duck Rs.8,750 and Pluck Rs.8,750: Loss on realisation
Rs.37,000.]

9. Yana, Madonna and Angelina are in partnership sharing profits and losses in the proportion of 3 : 4 : 5.
The partnership was dissolved on 31st March, 2018 when the position of accounts was as under :
Balance Sheet as at 31st March 2018
Liabilities Rs. Assets Rs.
Sundry creditors 22,000 Sundry assets 73,000
Partners loan account Cash at Bank 5,000
Yana 12,000
Madonna 8,000 20,000

11
 Capital accounts:
Yana 20,000
Madonna 12,000
Angelina 4,000 36,000
78,000 78,000
It was agreed that, after paying the creditors’ Rs.20,000 in full settlement of their claim 'and after retaining
Rs.3,000 out of cash for meeting expense, the net proceed of realisation should be distributed monthly.
The assets was realised in the following instalment:
April, 2018 Rs.30,000 June, 2018 Rs.10,500
May, 2018 Rs.12,000 July, 2018 Rs.19,800
Actual expenses of realisation amounted to Rs.2,500.
Prepare a scheme for equitable distribution amongst the partners, taking into consideration the profit
sharing ratios.
[Ans. Loss on Realisation Rs.1,200. Surplus Capital Method: 31st March, 2018 ; Creditors : Rs.2,000:
April, 2018 : Creditors Rs.18,000: Yana (towards Loan) Rs.7,200 : Madonna (towards Loan) Rs.4,800:
May, 2018 (towards Loan) Yana Rs.4,800 ; Madonna Rs.3,200 (towards Capital) Yana Rs.4,000 : June
2018 : (towards Capital) Yana Rs.8,500: Madonna Rs.2,000: July 2018 : Yana Rs.7,200 : Madonna
Rs.9,600 : Angelina Rs.3,500.]

10. A, B, and C are partners of a firm and share profits and losses in the ratio 4 : 3 : 3. Their Balance Sheet
as on 31st December, 2017 was as under:
Liabilities Rs. Assets Rs.
Capital Accounts: Cash in hand 2,000
A 20,000 Bank 3,000
B 12,000 Other Assets 65,000
C 8,000 40,000
Reserve Fund 8,000
Contingency Reserve 4,000
A’s Loan 5,000
B's Loan 3,000
Sundry Creditors 10,000
70,000 70,000
The Partnership is dissolved and the assets are realised as follows:
Rs.
st
1 Realisation 12,000
nd
2 Realisation 30,000
3rd Realisation 15,000
Realisation expenses were estimated at Rs. 3,000 but actual expenses was Rs. 2,500 and paid on 3rd
realisation. C took stock worth Rs.700 at the time of 2nd realisation. .
Prepare a statement showing how the distribution should be made by following 'Surplus Method’.
[Ans. Loss on Realisation Rs. 9,800 ; Amount paid on n.1.18 Rs. 2,000 to Creditors. Realisation : Rs.
8,000 to creditors, Rs. 2,500 to A and Rs. 1,500 to B for Loan; 2nd realisation: Rs.2,500 to A and Rs.1500
to B for Loan, paid to A Rs.14,680, paid to B Rs.8010 paid to C Rs.4010; 3rd Realisation: Paid to A
Rs.6200 paid to B and C Rs.4,650 each]

INVESTMENT ACCOUNTS
1. Mrs Bhakat furnishes the details of her holding in 6% Govt. Bonds.
1.1.2018 Opening balance-face value Rs.60,000-cost - Rs. 59,000.
1.3.2018 Purchased 100 units ex-interest at Rs. 98.
12
 1.7.2018 Sold 200 units ex-interest at Rs. 100.
1.10.2018 Purchased 50 units at Rs. 98 cum interest
1.11.2018 Sold 200 units ex-interest at Rs. 99.
Mrs Bhakat closes her books every December, 31 and interest dates are March, 31 and September 30.
Show the Investment Account in the Books of Mrs Bhakata. [2010]
[Ans. Interest to be transferred to Profit & Loss A/c Rs.3,375; Profit on sale of investment: On 1.8.18
Rs.333; On 1.12.18 Rs.133 (Under FIFO basis); Closing balance; Nominal Rs.35,000; Principal
value Rs.34,366 Accrued interest Rs.525.]

2. On 1.4.18 Subiman had 35,000 Equity Shares in Alfred Ltd. at a book value of Rs.15 per share (Face
Value Rs.10). On 1.6.18 he purchased 5,000 more shares of the company at Rs.16 per share. On 15.8.18
Alfred Ltd. issued Bonus Shares on the basis of 1 : 4.
Dividend @ 10% for the year ended 31.03.18 were paid by Alfred Ltd. on 31.10.18 but no dividend was
paid on Bonus Shares. On 1.12.18,30,000 Equity Shares were sold at a premium of Rs. 5 per share.
Prepare Investment Account in the books of Subiman on 31.12.18.
[Ans. Dividend for the year Rs.35,000, No of bonus share issued 10,000 Cl. Balance of investment
Account: Nominal Rs.Rs.2;00,000; Capital Rs.2,40,000; Profit on sale of share Rs.90,000.]

3. Following information relate to investment of X. Ltd. in shares of Row Ltd. You are required to make out
the investment in Shares of Row Ltd. Account in the Investment Ledger of X. Ltd. Ignore Income Tax.
(a) On 1.4.2017, X. Ltd. had 10,000 Equity Shares at Rs.10 each in Flow Ltd. These shares were
purchased for Rs.1,32,000 on 07-09-2013.
(b) On 1.8.2017, X. Ltd purchased 2,000 more shares in Row Ltd. at a premium of Rs. 3.50 per share.
(c) On 15.8.2017, Row Ltd. made a Bonus issue of 1 fully paid share for 2 shares held. In addition, on
the same day right shares were issued, at 2 for 3 held, at a premium of Rs.3. These shares are not
to rank for dividend for the year ending on 31.03.2017.
(d) 4,000 right shares were taken up by X. Ltd., balance right being sold at Rs.2.50 each on 25.10.2017.
(e) On 15.1.2018, Row Ltd. paid a dividend of 10% for the year ending on 31.03.2017.
(f) On 20.02.2018, X. Ltd. sold 5,000 shares at 19 per share. [2014]
[Ans. Balance of Investment Account: Nominal Rs.1,70,000; cost Rs.1,61,500; Income for the year Rs.
20,000; profit on sale of shares Rs.47,500]

4. Sonali Ltd. was dealing in 10% Government Stock. They furnished the following details about their
transactions:
1.3.2018 Opening Balance: Face value Rs.30,000, cost Rs. 25,000.
𝟕
1.3.2018 'Purchased Rs. 12,000 Stock @ Rs. 91 % cum int.
𝟖
𝟓
15.6.2018 Sold Rs. 5,000 Stock @ 93𝟖% cum interest
𝟑
1.8.2018 Bought Rs. 8,000 Stock @ Rs. 90𝟖% ex. interest
𝟏
1.9.2018 Sold Rs. 4,000 Stock @ Rs.94𝟖% ex. interest
𝟏
12.2018 Bought Rs. 6,000 Stock @ Rs. 93𝟖% cum interest.
Interest being payable on March 31, and September 30 each year.
𝟏
Prepare Investment A/c for the year ended 31.12.18 assuming Brokerage is payable at 𝟖t% in each case.
[Detailed workings are to be given]
[Ans. Interest to be transferred to Statement of P/L Rs.3,979; Profit on sale of investments (under
FIFO Method) on 15.6.18 Rs.404, on 1.9.18 Rs. 427; Closing balance Rs. 47,000 Nominal and
Rs.40, 795 Principal; Accrued interest on 31.12.18 Rs. 1,175.]

13
5. Rupa Co. Ltd. was dealing in 12% Convertible Debentures of FBI Co. Ltd. Rupa Co; Ltd. Furnished the
following details about its transactions:
1.1.2018 Opening Balance: Face Value Rs.3,00,000, Cost Rs.2,50,000.
𝟕
1.3.2018 Purchased Rs.1,20,000 Convertible Debentures @ 91 𝟖% cum interest
𝟓
15.6.2018 Sold Rs. 50,000 Convertible Debentures @ 93𝟖% cum interest
𝟑
1.8.2018 Purchased Rs. 80,000 Convertible Debentures @ 90𝟖% ex. interest
𝟏
1.9.2018 Sold Rs. 40,000 Convertible Debentures @ 94𝟖% ex. interest
30.12.2018 FBI Ltd. converted 10% of Debentures held into 4,000 Equity shares of Rs. 10 each.
Interest being payable on March 31, and September 30 each year.
Prepare 12% Convertible Debentures Account for the year ended 31.12.2018. Brokerage is payable Rs.
% in each case. Apply FIFO Method. [1997]
[Ans. Profit of sale on Investments (under FIFO Method) : on 15.6.18 Rs.3,833, on 1.9.18 Rs.4,267;
Balance of Investment at the end at cost Rs.3,16,620 and Rs.3,69,000 Nominal; Accrued interest on
31.12.18 Rs.11,070; Interest to be transferred to P/L A/c Rs.47,150.]

6. On 1.4.2018 Investors Ltd. had 15,000 Equity shares of Rs. 10 each in I.T.C. Ltd. purchased for
Rs.1,75,000.
On 15.7.2018 I.T.C. Ltd. made a bonus issue of 1 fully paid up share for 3 held. Again on 1.9.2018 I.T.C.
Ltd offered right entitlement of 3 for 5 held on that date at a premium of Rs.2 per share. Investors Ltd.
exercised one-fourth of its right entitlement and sold the rest at Rs. 3 each on 11.9.2018.
On 15.8.2018 I.T.C. Ltd. declared dividend of 10% for the year ending on 31.03.2018. Bonus shares were
not considered for dividend.
On 31.01.2019 Investors Ltd. sold half of the right shares purchased at cost plus 20%.
Show Investment Account in the books of Investors Ltd. for the accounting year 2018-19.
[Ans. Dividend Received Rs.15,000; Closing Balance: Rs.2,15,000 (Nominal); Rs.l,93,000 (Principal);
Profit on Sale of Shares Rs. 3,600 (transferred to P&L A/c]

BUSINES ACQUISITION AND CONVERSION OF

PARTNERSHIP INTO LIMITED COMOPANY
1. From the following information, calculate the ratio of sales between pre-incorporation period and Post
incorporation Period in each case separately.
(a) (i) Date of Acquisition - 1.4.2017; Date of incorporation - 1.7.2017 and date of closing the books of
account -31st March, every year.
(ii) The sales for the year ending on 31st March, 2018 were Rs.24,00,000 of which Rs.4,80,000 were sold
during first six months of the accounting period.
14
 (b) (i) The accounts were made upto 31.12.18. The company was incorporated on 01.05.18 to take over a
business from the preceding 1st January.
(ii) Total sales for the year were Rs.12,00,000. It is ascertained that the sales for Nov. and Dec. are one
and half times the average of those for the year, whilst those for Feb. & April are only half of the average.
(c) (i) X Ltd. was incorporated on 01.7.17 to take the existing business of Mr. X from 01.4.17. Date of
closing the books of account-31.3.18.
(ii) Monthly sales in April, 2017, Feb. 2018, March 2018 are double the average monthly sales for
remaining months of the year.
(d) (i) S. Ltd. was incorporated on 1st Aug. 2017 to take over the running business of Dhar Bros. with
effect from 01.04.17. The company received the certificate of commencement of business on 01.10.17.
(ii) Total sales for the year 2017-18 was Rs.16,00,000 arose evenly upon the date of certificate of
commencement, where after they recorded an increase of 2/3rd. during the remaining period.
[Ans.. (a) Ratio of Sales 1:9; (b) Ratio of Sales 1 : 3; (c) Ratio of Sales 4: 11; (d) Ratio of Sales 1:3.) ]

2. A company was incorporated on 1st May, 2018 to take over a business from the preceding 1st January,
2018. The Accounts were made upto 31st December, 2018 as usual and the Trading and Profit & Loss
Account gave the following result:
Particulars Amount Particulars Amount
Rs. Rs.
To Opening Stock 1,40,000 By Sales 12,00,000
To Purchase 9,10,000 By Closing Stock 1,50,000
To Gross Profit c/d 3,00,000
13,50,000 13,50,000
To Rent, Rates and Insurance 18,000 By Gross Profit b/d 3,00,000
To Directors' Fees 20,000
To Salaries 51,000
To Office Expenses 48,000
To Travellers' Commission 12,000
To Discounts 15,000
To Bad Debts 3,000
To Audit Fees 8,500
To Depreciation 6,000
To Debenture Interest 4,500
To Net Profit 1,14,000
3,00,000 3,00,000
It is ascertained that the sales for November and December are one and half time the average of those for
the year, whilst those for February and April are only half the average.
Apportion the year's Profit between the pre-incorporation and the post-incorporation period.
[Ans. Capital profit Rs.23,667 and Net Profit Rs.90,333.]

3. A company was incorporated on 1st May, 2018 to take over a business from the preceding
1st January. The accounts were made upto 31st December, 2018 as usual and the Trading and Profit and
Loss Account gave the following result:
Particulars Rs. Particulars Rs.
To Opening stock 1,40,000 By Sales 12,00,000
,, Purchases 9,10,000 ,, Closing Stock 1,50,000
,, Gross Profit c/d 3,00,000
13,50,000 13,50,000
To Rent, Rates and Insurance 18,000 By Gross Profit b/d 3,00,000
,, Director's Fees 20,000
,, Salaries 51,000
15
 ,, Office expenses 48,000
,, Travellers' Commission 12,000
,, Discounts 15,000
,, Bad Debts 3,000
,, Audit fees 8,500
,, Depreciation 6,000
,, Debenture Interest 4,500
,, Net Profit 1,14,000
3,00,000 3,00,000
It is ascertained that the sales for November and December are one and half times the average of those
for the year, whilst those for February and April are only half the average. Apportion the year's profit
between the pre-incorporation and post-incorporation period.
[Ans. Capital Profit Rs.23,667 and Net Profit Rs.90,333.]

4. Star Pvt. Ltd. was incorporated on 1st March, 2018 to acquire a running business with effect from 1st
January, 2018. The purchase consideration was agreed at Rs.90,000 to be satisfied by issue of:
3,000 Equity Shares of no each fully paid and Rs.60,000, 8% Debentures.
The following Profit & Loss Account for the year ended 31st December, 2018 is presented to you:
Rs. Rs.
Staff Salary 12,000 Gross profit 80,000
Selling & Distribution 6,000
Expenses
Rent and Rates 4,200
Debenture Interest 3,600
Bad Debt (there was no
cash sales) 1,000
Preliminary expenses 25,000
Interest on Purchase 2,250
consideration
Balance 25,950
80,000 80,000
You obtain the following additional information:
(a) Sales for the year was Rs.4,00,000, whereas sales incurred by the Company after incorporation
was Rs.3,00,000.
(b) The shares and 8% Debentures were issued to the Vendor on 1st April. 2018.
(c) Interest at 10% per annum was paid on the Purchase consideration from 1st January, 2018 to the
date of payment.
Prepare a statement showing the amount of profit made before and after incorporation. [2006]
[Ans. Capital Profit Rs.14,050 to be transferred to Capital Reserve and Net Profit Rs.11,900 to be
transferred to Profit & Loss Appropriation Account.]

5. Sweetex Ltd. was incorporated as a private Limited Company on 1st August, 2017 to take over a business
as a going Concern as from 1st February, 2017. The purchase price of the business for such acquisition
was fixed on the basis of the Balance Sheet of the firm as at 31st January, 2017 but this agreement
provided that the vendors would get 80% of the profits earned prior to 1st August, 2017 as compensation.
Company's accounts were made upto 31st January each year and the summarised Trading and Profit &
Loss
Account for the year ended 31st January, 2018 disclosed the following results:
Rs. Rs.
16
 To Materials consumed 1,86,000 By Net Sales 2,60,000
,, Manufacturing Wages 48,500 ,, Stock
,, Misc. Expenses of Manufacture 18,600 Finished goods 49,000
,, Carriage Inward 6,300 Incomplete goods 6,000
,, Gross Profit c/d 55,600
3,15,000 3,15,000
To Salaries & Establishment charges 18,300 By Gross profit b/d 55,600
,, Office expenses 2,750 ,, Bad debts recovered 500
,, Directors' fees 1,800
,, Bad debts 2,300
,, Debentures interest 1,250
,, Commission & discounts 7,800
,, Carriage outwards 1,600
,, Depreciation 10,300
,, Net Profit for the year 10,000
56,100 56,100

Further information available was that:

a) Sales from 1.2.17 to 31.7.17 amounted to Rs. 1,16,000.
b) Bad debts amounting to Rs. 1,100 were written off prior to 1st August, 2017.
c) Recovery of Bad debts was in respect of debts written off during 2016.
Prepare a statement showing profits earned prior to and after incorporation. State also the amount of profit
prior to 1st August, 2017 thus payable to the vendors.
[Ans. Net profit : pre-incorporation : Rs.4,337; post-incorporation : Rs.5,663.]

ACCOUNTING FOR ACQUISITION OF BUSINESS

1. A and B are partners. They share Profits and Losses in the ratio of 3:2. Their Balance Sheet as on
31.12.2017 was as below:
Balance Sheet
Rs. Rs.

Capital Goodwill 5,000

A 30,000 Other Fixed Assets 30,000
B 20,000 50,000 Joint Life Policy 20,000
17
 Reserve 15,000 Other assets 40,000
Current Liabilities 30,000
95,000 95,000
On 30.6.18 AB Ltd. was formed to take over the partnership business. Upto that date a net profit of
Rs.10,000 was made after charging depreciation of fixed assets @ 10% p.a. For the purpose of transfer,
Goodwill was valued at Rs.30,000. The Joint Life policy was surrendered for Rs.15,000 and nothing was
withdrawn by the partners.
Purchase consideration was paid by shares of ~ 10 each. The company also issued 15,000 shares (of
Rs.10 each) to the public as fully paid. All shares were sold.
Close the books of the firm showing only the Realisation Account and the Capital Accounts of A and B.
Show also the opening Balance Sheet of AB Ltd.
[Ans. Profit on Realisation Rs.25,000; Purchase consideration Rs.95,000; Balance Sheet total Rs.
2,45,000, Loss on Surrender of JLP - Rs. 5,000 to be distributed in the profit sharing ratio.]

2. Sania and Sonai carried on business as partners, sharing Profits and Losses equally. The following is their
Balance Sheet as on 31st March, 2018.
Liabilities Rs. Assets Rs.
Capital Accounts Goodwill 10,000
Sania 35,000 Premises 15,000
Sonai 30,000 65,000 Plant & Machinery 25,000
Loan on Mortgage of Premises 10,000 Furniture 5,000
Sundry Creditors 22,500 Motor cars 7,500
Bills Payable 7,500 Stock 10,000
Sundry Debtors 30,000
Cash at Bank 2,500
1,05,000 1,05,000
Meghna Ltd. was incorporated on 1st April, 2018 to take over the business of Sania and Sonia and agreed
to pay Rs.1,02,500 in the form of 5,000 Equity Shares of Rs. 10 each at a premium of 10% and the balance
in the form of 12% Debentures issued at a discount of 5%. The company did not take over the loan on
mortgage and made the following revaluation of assets:
Premises Rs. 30,000; Plant & Machinery Rs. 22,500 and Furniture Rs. 4,000. The promoters of the
company were allotted 250 shares of Rs. 10 each as fully paid for the services rendered by them.
Give Journal entries in the books of the company.
[Ans. Goodwill = Rs.28,500; Discount on Debenture Rs.2,500; Securities Premium Rs.5,000; issued of
Debenture Rs.47,500.]

3. Sangita, Debjani and Barnali are partners in a firm, sharing profit & losses in the ratio 3: 2 : 1 respectively.
The Balance Sheet of the firm as on 31st December, 2018 is as given below:
Liabilities Rs. Assets Rs.
Sundry creditors 30,000 Plant & Equipment 60,000
Capital Accounts: Debtors 50,000
Sangita 60,000 Bills receivable 8,000
Debjani 40,000 Stock 25,000
Barnali 20,000 1,20,000 Cash at bank 5,000
Cash in hand 2,000
1,50,000 1,50,000

18
 The partners agree to sell the business to a Limited Company which was incorporated with 65,000 shares
of Rs.10 each. The purchasing Company agrees to take over the assets and liabilities and discharge the
purchase consideration by the issue of 8,250 shares of Rs.10 each and cash Rs.56,000. The cost of
dissolution Rs.2,500 is paid by the firm and balance amount of cash is distributed among the partners.
You are asked to prepare journal entries and necessary Ledger Accounts in the books of the firm and close
the books of the firm. [1994]
[Ans. Profit on Realisation Rs.16,000; final settlement-Sangita Rs.26,750; Debjani Rs.17,833; Barnali Rs.
8,917; Purchase consideration Rs. 1,38,000 (Shares Rs. 9,250, Cash received Rs. 56,000)]

4. Somsons Ltd. agreed to purchase the business of a firm consisting of two brothers - K. Som and D. Som
as on 31st March, 2018. The Balance Sheet of the firm on that date was as follows:
Rs. Rs.
Capital Accounts: Land and Building 47,000
K. Som 76,000 Plant & Machinery 28,000
D. Som 58,000 Furniture and Fixtures 7,000
General reserve 30,000 Stock-in-trade 62,000
Sundry creditors 37,000 Sundry Debtors 55,000
Outstanding expenses 3,000 Cash 5,000
7,04,000 7,04,000

The company agreed to take over the liabilities and all the assets, with the exception of cash, the agreed
purchase price being Rs.1,80,000 to be satisfied as to 1/4 in cash and 3/4 by the issue of fully paid equity
shares of Rs. 10 each at an agreed value of Rs. 12.50 per share.
The company made the following revaluations of the assets taken over when bringing them into books:
Rs.
Land and Building 62,000
Plant and Machinery 25,000
Furniture and Fixtures 5,000
Stock-in-trade 58,000
Sundry Debtors 50,000
Give the entries necessary to record the acquisition of the business in the books of the company. [2000]
[Ans. Net Assets taken over Rs. 1,60,000; Value of Goodwill Rs. 20,000; No. of Equity shares issued
10,800.]

BRANCH ACCOUNTING
1. From the following particulars prepare a Branch Account in the books of Head Office assuming that the
sales at Branch are on cash basis:
Rs.
Opening Stock at Branch 30,000
Goods sent to Branch 90,000
Sales 1,20,000
Expenses at Branch:
Salaries 10,000
Other Expenses 4,000
19
 Closing Stock could not be ascertained but it is known that the branch usually sells at cost plus 20%. The
Branch manager is entitled to a commission of 5% on the profit before charging such commission. [2007]
[Ans. Branch profit Rs. 5,700; Value of closing unsold stock Rs. 20,000 Manager commission Rs. 300.]

2. From the following details regarding West Coast Branch of Bombay Trading Co. prepare a Branch
Account, Branch Debtors, Account in respect of the year 2018.
Rs. Rs.
Stock on 1st January 12,000 Bad Debts 600
Stock on 31st December 9,600 Discounts Allowed to Customers 310
Debtors on 1st January, 2018 10,000 Returns from Customers 3,000
Debtors on 31st Dec. 2018 11,500 Expenses paid by H.O.
Goods sent to Branch during 2018 42,000 Salaries and Wages
Cash Sales 25,800 Rent (from January, 1,2018 to
Credit Sales 36,000 March 31, 2019)
Returns to H.O. 4,800 Sundry Expenses
[Ans. Branch Net Profit Rs. 2,090; Cash collected and remitted Rs. 30,590.]

3. Sawan & Co. of Mumbai has a branch at Siliguri. Goods are invoiced to the branch at cost-plus 25%. The
branch is instructed to deposit everyday in the H.O. Account with the bank. All the expenses are paid
through cheques by the Head office except petty cash expenses which are paid by the branch. From the
following information, prepare Siliguri Branch Account in the books of Head Office:
Rs.
Stock on 1.4.2017 (invoice price) 82,000
Stock on 31.3.2018 (invoice price) 96,000
Sundry Debtors on 1.4.2017 31,700
Sundry Debtors on 31.3.2018 42,150
Furniture and Fixtures as on 1.4.2017 23,400
Cash sales 4,01,300
Credit sales 3,72,100
Goods sent to branch by Head Office (invoice price) 6,28,000
Expenses paid by Head Office 1,32,000
Petty expenses paid by branch 10,450
Furniture acquired by the branch on 1.10.2017
(on permission from head office) 2,500
Depreciation to be provided on Furniture and Fixtures @ 10% p.a. on WDV basis.
[Ans. Branch Profit Rs.1,37,285 ; Collection from Debtors Rs. 3,61,650.] [2014]

4. From the following details prepare necessary accounts in the books of the head office:
Opening Closing
Rs. Rs.
Branch 1,000 2,000
Branch debtors 40,000 60,000
Branch stock 50,000 80,000
Rs.2,00,000 worth of goods were sent by head office to branch at cost and the branch returned Rs.10,000
worth of goods to head office.
The branch remitted Rs.2,40,000 to the head office. Branch debtors returned Rs.5,000 worth of goods to
the branch and Rs.2,000 branch debtors were written off as bad debt. The branch does not maintain
complete double entry books of account.
[Ans. Gross Profit Rs. 1,03,000; Net Profit Rs. 1,01,000; Sales Rs. 2,68,000; Collection from debtors

20
 Rs.2,41,000]

5. P Ltd with their head office at Kolkata, invoiced goods to their Burdwan Branch at invoice price. The
invoice price is 20% less than list price, which is cost plus 100% with instruction that sales are made at
list price.
From the following particulars ascertain the profit earned by the Head Office and Branch:
Kolkata Burdwan
H.O. Branch
Rs. Rs.
Opening stock 60,000 48,000
Purchases 3,00,000 ---
Goods sent to Branch at cost price 93,750 ----
Goods received from H.O. at invoice price ---- 1,44,000
Sales 2,55,000 1,20,000
Trade Expenses 21,000 12,000
Stock at head office are valued at invoice price. [2009]
[Ans. Gross Profit: H.O Rs.1,83,750; Branch Rs. 24,000; Net Profit: H.O. Rs. 1,42,500; Branch Rs.
12,000; Unrealised profit - on closing stock of Branch Rs. 38,250; On opening Stock of Branch
Rs.18,000.]

6. A company has its Head Office at Kolkata and a retail branch at Patna. Goods are sold at 60% profit on
cost. The wholesale price is cost plus 40%. Goods are invoiced from Kolkata Head Office to Patna Branch
at wholesale price. From the following particulars, prepare Trading and Profit and Loss Account of both
Head Office and Branch for the year ended on 31st December, 2018:
Head Office Patna Branch
Rs. Rs.
Opening stock 1,25,000 14,000
Purchases 10,50,000 ---
Goods sent to Branch
(at invoice price) 3,78,000
Sales 10,71,000 4,16,000
Closing stock 3,00,000 ?
Salaries 20,000 12,000
Other expenses 5,000 2,000
Stocks at head office are valued at cost price but those of Branch are valued at Invoice price. Sales at
Head office are made only on wholesale basis and that at Branch only to retail customers. [2015]
[Ans. Gross Profit - H.O Rs.5,74,000 ; Branch Rs.52,000, Net Profit - H.O Rs. 5,45,000, Branch Rs.
38,000]
7. PQR Ltd. of Kolkata has three branches at Agra, Bangalore and Chandigar. For efficient and speedy
disposal of goods, these branches are authorised to enter into inter branch transactions under advice to the
Head Office.
Following are the Inter branch transactions during the month of March 2018:
Agra Bangalore Chandigarh
Rs. Rs. Rs.
(X) Goods sent to
(i) by Agra ---- 4,000 3,000
(ii) by Bangalore 2,000 ---- 1,000
(iii) by Chandigarh 3,000 2,000 ---
(Y) Acceptances given to
(i) by Agra ---- 5,000 4,000
21
 (ii) by Bangalore 6,000 ---- 5,000
(iii) by Chandigarh 1,000 3,000 ---
(Z) Service charges paid on behalf of
(i) by Agra --- 500 300
(ii) by Bangalore 200 --- 100
(iii) by Chandigarh 400 700 ---
Record the Single Journal Entry that the Head office should pass on 31st March 2018.
Workings must be shown. [2004]
[Ans. Bangalore (Dr.) 900, Chandigarh (Dr.) Rs.3,300 ; Agra (Cr.) Rs.4,200.]

8. A Kolkata merchant has a branch at Delhi to which he charges out the goods at cost plus 25 percent. The
Delhi Branch keeps its own Sales Ledger and transmits all cash received to the Head Office every day.
All expenses are paid from the Head Office.
The transactions for the Branch were as follows:
Rs. Rs.
Stock (1.1.18) 22,000 Returns Inward 1,000
Debtors (1.1.18) 2,000 Cheques sent to Branch:
Petty Cash (1.l.l8) 200 Rent 1,200
Cash Sales 5,300 Wages 400
Goods sent to Branch 40,000 Salaries and other expenses 1,800
Collections on Ledger Accounts 42,000 Stock (31.12.18) 26,000
Goods returned to Head Office 600 Debtors (31.12.18) 4,000
Bad debts 600 Petty Cash (31.12.18) including
Allowances to Customers 500 Miscellaneous Income not remitted Rs.50 250
Prepare the Branch Account and the Branch Trading and Profit & Loss Account for the year ended
31.12.18 in the Head Office Books. [1986]
[Ans.: Branch Gross Profit Rs.21,680; Branch Net Profit Rs.17,630; Credit Sales Rs.46,100. Assume
Miscellaneous income is related to the Delhi Branch.]

9. Main Hoon Na Co. of Mumbai has a branch at Kolkata. Goods are invoiced to the branch at cost plus
25%. The branch does not maintain account books and all collections at the branch are remitted to head
office. The expenses of the branch are reimbursed by the head office.
From the following particulars, Prepare the branch account in the books of head office for the six months
ending 30th September, 2018:
Balance as on 1.04.18 : Rs.
Stock (at cost to head office) 27,500
Debtors 7,500
Furniture 6,000
Petty cash 250
Transactions for six months:
Goods received from head office (at invoice price) 1,12,500
Cash sales 97,500
Credit sales 40,000
Goods returned to head office (at invoice price) 6,375
Normal loss 500
Sales returns by customers to branch 250
Cash received from debtors 25,000
Bad debts 200
Trade discount to customers

22
 (already taken into account while invoicing) 6,000
Bills receivable received from customers at branch 7,500
Goods sent to branch on 27.09.18
received by branch on 05.10.2018 (at invoice price) 750
Cash sent to branch for expenses 5,250
Cash discount allowed to customers 400
Balance on 30.9.18
Stock (at cost to head office) 2,800
Debtors ?
Petty cash 250
Depreciate furniture @ 20% per annum
[Ans. Branch profit Rs. 21,200 ; Balance of branch debtors as on 30.09.18 Rs. 14,150.]

10. Kal Ho Na Ho Co. Ltd., has a head office in Kolkata and also a Branch in chennai where all sales are on
credit basis. All goods are purchased by the head office and invoiced to the branch at cost plus 33113%.
For the year ended 30.09.2018, the following particulars are available:
Rs.
Goods sent to Chennai Branch (at cost to H. O) 20,250
Sales as shown by Chennai Branch reports 24,800
Goods returned to Head Office 900
(at invoice price to Branch)
Cash received from branch debtors and remitted
to head office at Kolkata 22,800
Discount allowed to branch debtors 50
Debtors balance at branch written off as bad 300
Branch debtors on 30.09.17 900
Stock of goods on 30.09.17 (at invoice price to branch) 5,400
Stock of goods on 30.09.18 (at invoice price to branch) 6,600
You are required to record the following accounts as they would appear in the Head Office Books showing
the balance as on 30.09.2018 and the branch gross profit and net profit for the year ended on that date.
(a) Chennai Branch Stock Account
(b) Goods Sent to Branch Account.
(c) Chennai Branch Debtors Account
(d) Branch Adjustment Account
(e) Branch Profit and Loss Account.
[Ans. Branch Gross profit: Rs.6,200; Net Profit Rs.5,775 ; Shortage (I.P) Rs.100.]
11. Jo Jeeta Wahi Sikandar Co. Ltd., Delhi has its branches at Lucknow and Chennai. It charges goods to its
branches at cost plus 25%. Following information is available of the transactions of the Lucknow branches
for the year ended on 31st March, 2018.
Balance on 1.4.2017
Stock 30,000
Debtors 10,000
Petty cash 50
Transactions during 2017 - 18 (Lucknow branch): (All figures in rupees)
Rs.
Goods sent to Lucknow branch at invoice price 3,25,000
Goods returned to head office at invoice price 10,000
Cash sales 1,00,000
Credit sales 1,75,000

23
 Goods pilfered (invoice price) 2,000
Goods lost in fire (invoice price) 5,000
Cash sent for petty expenses 34,000
Bad debts at branch 500
Goods transferred to Chennai branch under H.O advice 15,000
Insurance charges paid by H. O. 500
Goods returned by Debtors 500
Insurance Co. paid to H. 0 for loss by fire at Lucknow 4,000
Balance on 31.03.2018 : Petty Cash Rs.230 : Debtors Rs.14,000, Goods worth Rs.15,000 (included above)
sent by Lucknow branch to Chennai branch was in transit on 31.03.2018.
Show the following accounts in the books of Jo Jeeta Wahi Sikandar Co Ltd.
(a) Lucknow Branch Stock Account.
(b) Lucknow Branch Debtors Account.
(c) Lucknow Branch Adjustment Account.
(d) Lucknow Branch Profit and Loss Account.
(e) Stock Reserve Account.
(f) Goods Sent to Lucknow Branch Account.
[Ans. Gross Profit Rs. 54,900 ; Net Profit Rs. 18,480 : Collection from Branch debtors Rs. 1,70,000 ;
Petty Cash expenses Rs. 33,820 : Closing stock at Branch Rs. 48,500 (at invoice price)]

12. Begumpur Handloom Co-operative Ltd. has a Branch in Cuttack. Goods are invoiced to Cuttack at cost
plus 331/3%. Cuttack Branch maintains only a Sales Ledger, except that all other transactions are recorded
in Head Office Book. Branch sells good both in cash and credit. All cash collected by branch is sent to
the Head Office at regular intervals and all Branch Expenses are met by Head Office.
The following particulars are related to the Cuttack Branch for the accounting year ended 31st December,
2018 :- Rs.
Stock on 1st January, 20148 24,000
Branch Debtors as on 1st January, 2018 18,000
Goods received from Head Office (Cost price) 72,000
Branch Sales:
Cash 20,000
Credit 80,000
Goods returned by Debtors 4,000
Cash received from Debtors 72,000
Goods returned to Head Office (Invoice Price) 4,000
Discount Allowed to Customers 1,600
Bad Debts 1,400
Cash sent to Branch for:
Wages 2,000
Freight 2,500
Salary and other expenses 4,000
Stock on 31st December, 2018 (at cost) 13,200
Prepare: (1) Branch Stock Account (in Double Column), (2) Branch Debtor's Account, and (3) Branch
Profit & Loss Account, from the above particulars in the Head Office Book. [1998]
[Ans.: Gross Profit on Branch Rs.24,000; Closing Debtors Rs.19,000; Net Profit Rs.10,700; Stock
Shortage Rs.2,400; Closing Stock Rs.17,600.]

WHOLE SALE AND RETAIL PROFIT AT BRANCH

13. P. K. Co. Ltd. with their Head Office at Kolkata, invoiced goods to their Mumbai Branch at Invoice Price.

24
 The invoice price is 20% less than list price, which is cost plus 100% with instruction that sales are made
at list price. From the following particulars ascertain the profit earned by the Head Office and Branch.
Kolkata H.O. Mumbai Branch
Rs. Rs.
Opening stock 40,000 32,000
Purchases 2,00,000 ---
Goods sent to Branch at Cost price 62,500 ---
Goods received from H.O. at Invoice price --- 96,000
Sales 1,70,000 80,000
Trade Expenses 14,000 8,000
Stock at Head Office are valued at cost price but those of Branch are valued at invoice price. [1994]
[Ans. : Gross Profit Rs.1,22,500 (H.O.), Rs.16,000 (Branch); Net Profit--Rs.95,000 (H.O.), Rs.8,000
(Branch); Closing Stock (Invoice Price)--Rs. 64,000 (Branch), Rs.92,500 (H.O.); Provision for unrealised
profit--On Opening Branch Stock Rs. 12,000, On Closing Branch Stock Rs.24,000, on Goods in Transit
Rs. 1,500.]

JOURNAL ENTRIES FOR INCORPORATION OF BRANCH ADJUSTMENTS

14. Give the Journal entries to rectify or adjust the following in the books of both the head office and the
branch :
(a) Goods (cost Rs.1,000) purchased by branch, but payment made by head office. The Head office
has debited the amount to its own Purchase Account.
(b) Branch paid Rs.2,000 as salary to a visiting head office official. The branch had debited the amount
to Salaries Account.
(c) Charge depreciation @ 20% on the branch assets of Rs.40,000 whose accounts are kept in head
office books.
(d) Expenses Rs.3,000 to be charged to branch for work done on its behalf by the head office.
(e) Goods sent by the head office to the branch of Rs.4,000 not get received by the branch.

DEPARTMENTAL ACCOUNTS
1. Mr. Ganguli is the proprietor of a shop dealing with books, periodicals, newspapers, children’s games,
toys and fancy goods, For accounting purpose he wishes to divide the business into the following two
departments.
Department X: Books, periodicals and newspapers.
Department Y: Games, toys and fancy goods.
The following balances have been extracted from his nominal ledger at 31st March, 2018:

Sales: Wages of newspaper delivery boys 2,800

Dept: X 2,00,000 Rent and rates 2,500
:Y 1,00,000 Fine Insurance-
Stock (1.4.14) Buildings 1,000
Dept: X 4,000 Lighting 1,800
25
 :Y 3,000 Internal telephone 1,500
Repairs to premises 2,000 General office salaries 6,000
Purchases: Accountancy and audit charges 9,000
Dept: X 1,20,000 General office expenses 900
:Y 80,000 Discount received 500
Wages of Sales assistants:
Dept: X 16,000
:Y 8,000
Cleaning 1,200

Some other relevant information is given below:

(a) Stock at 31st March, 2018
Dept X : Rs. 12,000 Dept Y : Rs. 8,000
(b) The proportion of total floor area occupied by each department was:
Dept X: Two-fifth Dept Y : Three fifth .
(c) The no. of light point hold by each department was:
Dept X : 18 Dept Y : 9
Compile Ganguly's Trading and Profit & Loss Account for the year ended 31st March, 2015, apportioning
the overhead expenses where over felt necessary to ascertain the departmental result.
[Ans. Gross Profit: Dept X Rs.88,000 ; Dept Y Rs. 25,000 ; Net Profit : Dept X : Rs.54,420 ; Dept Y Rs.
6,380]

2. Prepare Departmental Trading Accounts from the following particulars assuming that the rate of gross
profit is same in each department.
Dept. 'A’ Dept. 'B' Dept 'C'
Purchase (at a total)
cost of Rs.1,00,000 1,000 units 2,000 units 2,400 units.
Opening Stock (units) . 120 units . 80 units 152 'units
Sales 1,020 units 1,920 units 2,496 units
@ Rs. 20 each @ Rs. 22.50 each @ Rs. 2,5.00 each
[Ans. Dept : A : Closing stock Rs. 1,600 ; Gross profit Rs. 4,080 ; Purchase Rs. 16,000;
Dept. B: Closing stock Rs. 2,880; Gross profit Rs. 8,640; Purchases Rs. 36,000;
Dept C : Closing Stock Rs. 1,120 : Gross Profit Rs. 12,480 ; Purchase Rs.48,000.]

3. A hotel proprietor has two departments, viz. (i) Apartment Department and (ii) Meals Department.
Following Trial Balance of the business is given on 31.12.18.
Dr. Cr.
Rs.
Provisions 15,500 Income from Apartment
Stock of Provisions in the beginning 1,020 Department 46,000
Cash at Bank 10,000 Income from Meals Department 32,000
Customers Account 800 Capital 2,20,000
Buildings (1110 is used for Supplier's Account 9,800
Meals Department) 2,10,000 Provision for Depreciation to
Furniture and Equipments 60,000 Buildings 24,000
General Expenses 27,410 Interest 1,130
Interest accrued 200
Income Tax 400
26
 Life Insurance Premium (for
Proprietor) 1,600
Wages 6,000
3,32,930 3,32,930
Additional Information:
(a) The servants in the Apartment Department had occupied a room worth Rs.120 and took
meals worth Rs. 60. Similarly, servants in the Meals Department had occupied a room worth
Rs.150 and took meals worth Rs. 90.
(b) Wages are charged in the proportion of 1/2% to the Apartment Department 1/4 th to the Meals
Department and remaining to the General Profit and Loss Account,
(c) Increase provision for Depreciation of the Buildings to Rs.30,000.
(d) A sum of Rs. 800 representing accommodation Rs.240 and meals Rs.560 to be charged to
proprietor of the hotel.
You are required to prepare final accounts (including Balance Sheet) for the year ending 31.12.18.
[Ans. Department profit --- Apart, Dept. Rs. 37,930, Meals Dept. Rs. 13,850; Net Profit transferred to
Capital A/c Rs. 24,000; Balance Sheet total Rs. 2,81,000; Revenues & Income-Rs. 46,390 (Apart Dept.),
Rs. 32,620 (Meals Dept.); Wages--Rs. 3,060 (Apart. Dept.), Rs. 1,650 (Meals Dept.), Rs.1,500 (General);
Drawings Rs.2,800.]

4. O and K are two departments of Red Company of Kolkata. O Dept. sells goods to K Dept. at normal
market prices. From the following particulars, prepare a Trading and Profit and Loss Account of the two
departments for the year ended 31st March, 2018.
Dept. O Dept. K General Total
Rs. Rs. Rs.
Stock on April 1,2017 12,000 Nil
Purchases 2,76,000 24,000
Goods from O Dept. ---- 84,000
Wages 12,000 19,200
Salaries 8,000 5,000
Stock on March 31, 2018 at
Cost to Dept. 60,000 21,600
Sales 2,76,000 1,74,000
Stationery and Printing 2,560 1,960
Plant & Machinery 14,400
Salaries (General) 18,000
Miscellaneous Expenses 3,600
Advertisement 9,600
Bank Charges 2,400
Depreciate Plant and Machinery by 10%, the general unallocated expenses are to be apportioned in the
ratio--O : 3, K: 2. [1984]
[Ans. Gross Profit--- Rs.1,20,000 (Dept. O), Rs. 68,400 (Dept. K); Net Profit-Rs.89,280 (Dept. O), Rs.
46,560 (Dept. K); Rate of Gross Profit of Dept. O = 33% %; Provision for unrealised Profit on stock Rs.
5,600; Net Profit transferred to capital A/c. Rs. 1,30,240.]

5. M/s. Suman Hosiery Mills produces three varieties of products: Sona, Mona and Dona. The cost of
production during 2018 of these varieties amounted to Rs.8,00,000. Output during the year was : Sona
4,000 units, Mona 8,000 units and Dona 9,600 units. Stock on January 1, 2018 were: Sona 450 units,
Mona 300 units and Dona 600 units. Sales during the year 2018 were: Sona 4,100 units @ Rs. 48 each,
Mona 7,700 units @Rs. 54 each and Dona 10,000 units @Rs. 60 each. The rate of gross profit is the same
27
 in each. Total departmental expenses of Rs. 96,000 were to be apportioned to various
Departments in the ratio 1: 2 : 2.
Prepare Departmental Trading Accounts.
[Ans. Sona Mona Dona
Rs. Rs. Rs.
Cost Price per unit 32 36 40
Opening Stock 14,400 10,800 24,000
Gross Profit 46,400 1,00,200 1,61,600
Closing Stock 11,200 21,600 8,000
Cost of Production 1,28,000 2,88,000 3,84,000]

DEPARTMENTAL TRADING AND PROFIT & LOSS A/C

6. M/s. ABC carried on business as Departmental Stores in Kolkata. The partners A, B and C were in charge
of Departments X, Y and Z respectively. The partners are entitled to a remuneration equal to 50% of the
profits (without taking the partners remuneration into consideration) of the respective departments of
which they are in charge and the balance of the profits are to be distributed among A, Band C in the ratio
5 : 3 : 2. The following are the balance of the revenue items in the books for the year 31.3.18 :
DEPARTMENTS
X Y Z
Rs. Rs. Rs.
Opening Stock 1,51,560 96,000 80,000
Purchases 5,62,800 3,32,400 1,77,600
Sales 7,20,000 5,40,000 3,60,000
Closing Stock 1,80,320 69,920 86,360
Other Revenue Items: Rs.
Salaries & Wages 1,92,000
Discount Allowed 5,400
Advertising 9,000
Discount Received 3,200
Rent 43,200
Sundry Expenses 48,600
Depreciation on Furniture & Fittings 3,000
(a) Prepare the Departmental Trading and Profit & Loss Account for the year ended 31.3.18.
(b) Show the distribution of profits amongst the partners after taking into account the following:
(i) Goods having a transfer price of Rs.42,800 and Rs. 2,400 were transferred from Departments
X and Y respectively to Department Z. The inter-departmental transfers are made at 125%
of the cost.
(ii) The various items shall be apportioned amongst the three Departments in the following
proportions:-
DEPARTMENTS
X Y Z
Rent 2 2 5
Salaries 1 1 1
Depreciation 1 1 1
Discount Received 8 5 3
All other expenses: On the basis of sales (excluding inter-departmental transfers) of each department.
The Opening Stock of Department Z does not include Goods transferred from other Departments but the
Closing Stock includes Rs. 34,200 valued at the inter-departmental transfer prices. [1995]
[Ans. Gross Profit--Dept. X Rs. 2,28,760, Dept. Y Rs. 1,83,920, Dept. Z Rs. 1,43,560; Net Profit Dept. X

28
 Rs. 1,27,760, Dept. Y Rs. 89,320, Dept. Z Rs. 41,160; Prov. for unrealised profit on Opening Stock--Nil,
on Closing Stock Rs. 6,840; Actual Net Profit Rs. 2,51,400.]

7. Bubbles Ltd. has three operating Departments. The details of operations of each Department during 2018
had been as follows:
Dept- I Dept – II Dept – III
Rs. Rs. Rs.
Sales to Customers 4,00,000 6,00,000 8,00,000
Purchases from outsiders 3,00,000 4,00,000 5,00,000
Opening Stock (out of local purchase) 80,000 1,00,000 1,20,000
Transfer to Dept. III 1,35,000 --- ----
Closing Stock 50,000 50,000 1,00,000
Common Expenses : Rs.
Selling Commission 36,000
Depreciation 45,000
Administration Expenses 1,60,000
Interest on Capital 90,000
Stock of Dept. m includes 20% transfers from Dept. I. Prepare Departmental Profit and Loss A/c, and
ascertain the net profit of the company after considering the following details:
Dept - I Dept – II Dept - III
Fixed Assets installed (Rs.) 3,60,000 2,00,000 1,60,000
Capital employed (Rs.) 2,00,000 3,00,000 3,00,000
Administration expenses to be shared 4/10 3/10 3/10
Dept. I transfers supplies to Dept. m at normal selling price less 10%. [1999]
[Ans. Gross Profit--Rs. 2,05,000 (Dept. I), Rs. 1,50,000 (Dept. II), Rs. 1,45,000 (Dept. III); Net Profit--
Rs. 88,000 (Dept. I), Rs. 43,750 (Dept. II), Rs. 37,250 (Dept. III); Prov. for unrealised profit-on Op. Stock-
Nil, on Closing Stock Rs.6,667]

8. A concern has two departments A and B. From the following particulars prepare Departmental Trading.
Account and Consolidated trading Account for the year ending December 31,2018:
Dept – A Dept – B
Rs. Rs.
Opening Stock (at cost) 20,000 12,000
Purchases 92,000 68,000
Carriage 2,000 2,000
Wages 12,000 8,000
Sales 1,40,000 1,12,000
Purchase goods transferred
by B to A 10,000 ---
By A to B --- 8,000
Finished goods transferred
by B to A 35,000
By A to B 40,000
Return of finished goods
by B to A 10,000
by A to B 7,000
Closing stock
(i) Purchase goods 4,500 6,000
(ii) Finished goods 24,000 14,000

29
 You are informed that purchased good have been transferred mutually at their respective departmental
purchase cost and finished goods at departmental market price and that 20% of the finished stock (closing)
at each department represented finished goods received from the other department.
[Ans. Gross Profit Dept is A Rs. 42,500; Dept B: 42,000; Combined Gross profit Rs.82,360.]

HIRE PURCHASE AND INSTALMENT PAYMENT SYSTEM

1. X Purchased machinery under hire-purchase arrangements from Y. The cash price of the machinery was
Rs.15,500. The payment for the purchase, is to be made as under:
Rs.
On signing the agreement 3,000
First year end 5,000
Second year end 5,000
Third year end 5,000
Make necessary entries in the books of the parties.
[Ans: Interest; 1st year Rs.1,250; 2nd year Rs.833; 3rd year Rs.417]

2. On 1st January, 2016 Babley and Lovely Co. purchased one machine from Fatacasto Trading Corporation
on hire-purchase system and paid Rs.4,000 on the date of agreement and the balance in three instalments
of Rs.12,000, Rs.10,400 and Rs.9,600 in three subsequent years. Each instalment consists of interest on
the unpaid capital plus an equal part of the capital sum. Calculate the cash price of the machine and the
total amount of interest paid by Babley and Lovely Co. and also show the Vendor's Account in Hirer's
books.
[Ans, Cash price of the Machine Rs.28,000; Total interest Rs.8,000; Interest : 2016 f 4,000; 2017 :
Rs.2,400; 2018 : Rs.1,600]

3. A manufacturer purchases a plant for Rs.22,730 on the instalment payment system. The first payment is
to be made at the time of taking delivery of the plant and entire payment is to be completed by four more
equal annual payments. The vendor charges interest at 5% per annum. Assuming depreciation to be
charged at 10% per annum on the reducing instalment plan, draw up the Plant Account and the Vendors'
Account in the books of the manufacturer.
N.B. The present value of Re 1 paid at the beginning of each year for 5 years at 5% per annum is
Rs.4.5460.
[Ans. Interest 1st year : Rs.886; 2nd year Rs.681; 3rd year Rs.465; 4th year Rs.238; Amount of instalment
Rs.5,000]

4. Khosla Bras, which sells products on hire purchase terms, has the following balances as on dates
mentioned below:
2018 Rs.
Jan. 1 Stock out on hire at hire purchase prices 12,000
Stock at shop 1,500
Instalments overdue 900
Dec.31 Stock out on hire at hire purchase prices 13,800
Stock at shop 2,100
Instalments overdue 1,500
Prepare the H.P Trading Account for the year ending on 31.12.2018, if cash of Rs.24,000 is received
during the year by way of instalments and gross profit is reckoned at 25% on selling price. (2013)
[Ans: Hire purchase profit Rs.6,150; Matured Instalment Rs.24,600.]
30
5. M/s H.P. Trader sells goods on hire purchase basis at cost plus 50%. From the following information,
prepare Hire Purchase Trading Account for the year ending on 31.3.2018:
2017 Rs.
April 1 Stock with customers (at HP price) 90,000
Stock at shop (at cost) 1,80,000
Instalments due but not yet received 50,000
During the year:
Purchases 6,00,000
Cash received from customers 6,00,000
Goods repossessed (against instalments due Rs.20,000) 5,000
2018
March 31 Stock with customers (at HP Price) 3,00,000
Stock at Shop (excluding repossessed) 2,00,000
goods)
Instalments due but not yet received 90,000
[Ans. H.P profit Rs.2,05,000, Amount of Matured Instalment Rs.6,40,000. Instalment Rs.6,40,000]

6. Decor Ltd. supply goods on hire purchase system at a profit of 50% over the cost. The following are the
transactions for the year ending December 31,2018 :
Rs.
Stock out on hire purchase at Cost on:
01.01.18 60,000
31.12.18 48,000
Instalments due (customers are still paying) on:
01.01.18 5,400
31.12.18 9,000
Goods re-possessed during the year
(for instalments unpaid Rs.900) evaluated at: 450
Instalments realised during the year 1,17,000
Prepare the Hire-Purchase Stock Account, Hire Purchase Debtors' Account and the Hire Purchase
Adjustment Account.
[Ans. Balance of H.P. Debtors Account Rs.9,000 (Dr.) Hire purchase profit Rs.40,050; Goods Sent to
Customers on H.P. Price Rs.1,03,500; Matured Instalment Rs.1,21,500; Loss on goods repossessed
Rs.450.] [2009, 2014]

7. A machinery is purchased on the hire purchase system. As per agreement the payment shall be made in
three annual instalments of Rs.12,000 each. The rate of interest is 20% p.a. and the interest amount is
included in the annual payment of Rs.12,000. The purchaser defaulted in the payment of the final
instalment and the vendor re-possessed the machinery. The purchaser provides depreciation on the
machinery @ 10% p.a. under diminishing balance method. Show Machinery Account in the books of the
purchaser. (Statement of interest calculation has to be shown)
[Ans. Cash price of the machine Rs.25,277: Interest: Rs. 5,056, Rs.3,667, Rs. 2,000: Depreciation Rs.
2,528, Rs. 2,275, Rs. 2,047, Loss on taken over Rs.6,427.]

8. Roman Transport Co. purchased five Trucks from Ramos Auto Ltd. on 1st January, 2017 on hire purchase
system. The cash price of each Truck is Rs.1,20,000. The mode of payments was as follows :
(i) 15% of cash price down.
(ii) 25% of cash price at the end of each year for 4 years.
Roman Transport Co. writes off 15% depreciation annually. The payment due on 31st December, 2018,
could not be made. Ramos Auto Ltd. agreed to leave three trucks with the buyer on the conditions that

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 the value of the other two Trucks would be adjusted against the amount due, the Trucks being valued at
cost less 25% depreciation.
Show the necessary accounts in the books of Roman Transport Co. [1982]
[Ans. Ramos Auto Ltd. bat. Rs.2,88,000; Motor Truck A/c Rs. bal. 2,60,100 (Dr.); Value of repossessed
trucks Rs.1,35,000, Loss on repossession Rs.38,400; Interest for two years Rs. 36,000, Rs. 27,000]

9. Arunangshu Transport Agency purchased 2 Motor Vans costing Rs.80,000 each from Debika Auto
Company on 1st January, 2016 on the hire purchase system. The terms of payment were as follows :
Payment of Rs.20,000 each for Motor Van on delivery. Remainder in three equal instalments together
with interest 10% p.a. to be paid at the end of each year. Arunangshu Transport Agency write off 20%
depreciation each year on the diminishing balance method. Hire purchaser paid two instalments due on
31st December, 2016 and 2017 but could not pay the final instalment.
Debika Auto Company re-possessed one Motor Van adjusting its value against the amount due. The re-
possession was done on the basis of 25% depreciation on the Fixed-instalment method.
Write up the Ledger Accounts in the books of Arunangshu Transport Agency. [1994]
[Ans. : Motor Van A/c Rs.40,960 (Bal.); Debika Auto Co. Rs. 24,000 (Bal.), Interest Rs.12,000, Rs. 8,000,
Rs. 4,000; Value of Van repossessed Rs. 20,000, Loss on Repossession Rs. 20,960]

10.Panaji Ltd. which sells goods on hire-purchase at a gross profit of 20% on sales, have the following
balances :
Rs.
Stock on hand (at the shop)
on 1.4.17 9,000
on 31.3.18 7,500
Stock with customers on hire-purchase on 1.4.17 10,800
Purchases 19,380
Goods sent out this year 26,100
Instalments due (Customers still paying)
on 1.4.17 600
on 31.3.18 900
Prepare the necessary accounts for the year ending on 31st March, 2018, if cash of Rs.18,000 is received
during the year by way of instalments. [1984]
[Ans.: H.P. Profit Rs.3,660; H.P. Sales Rs.18,600 (Bal.); H.P. Debtors Rs.19,500 (bal.), Amt. of
instalment matured Rs.18,300.]

11.Bravewell Traders sell on Hire Purchases terms consumer durables. Details of its activities during 2018
are given below:
Product Television Washing Machine Motor Cycle
No. of units sold 100 80 40
Cost per unit Rs.10,000 Rs.12,000 Rs.18,000
Price per unit payable on Delivery Rs.2,500 Rs.4,000 Rs.6,000
10 month by 32 bi-monthly 12 quarterly
Balance in instalment of instalments of instalments of
Rs.1,250 each Rs.500 each Rs.2,000 each
No. of instalments received in 2018 980 1,600 110
Two washing machine on which only six instalments in all, and one motor cycle on which 3 instalments
were received, were repossessed as the customers defaulted in payment of subsequent instalments. These
were taken back at original cost less 30%.
Prepare Hire-purchase Trading A/c. of Bravewell Traders for the year 2018. [1999]
[Ans.: H.P. Profit Rs.11,24,867; Instalment matured during the year Rs.30,58,000; Value of re-possessed
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 goods Washing Machine Rs.16,800; Motor cycle Rs.12,600.]

12. Sambhu Bros. sells its products under hire purchase method. The following information was available as
on the dates noted below : Rs.
2018 Jan. 1. Stock out on hire purchase price 90,000
Shop Stock Balance 11,250
Instalments due (customers still paying) 6,750
2018 Dec.31 Stock out on hire purchase price 1,03,000
Shop Stock Balance 15,750
Instalments due (customers still paying) 11,250
It is ascertained that cash of Rs.1,80,000 has been received during the year and gross profit is reckoned at
25% of selling price.
Prepare: (i) H.P. Trading A/c and (ii) the Accounts under Stock Debtors Method.
[Ans. : H.P. Profit Rs.46,125; Matured instalment Rs.1,84,500; Goods sent on H.P. at selling price
Rs.1,97,500; Purchase Rs.1,52,625.] [1992]

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