+2 Acc - Material.em. 2024-25

XII - STANDARD
ACCOUNTANCY
STUDY MATERIAL
(AS PER NEW EDITION 2024-25)
PREPARED BY:
L.PANNEERSELVAM, M.COM.,B.ED.,M.PHIL.,SET.,
GOVERNMENT HIGHER SECONDARY SCHOOL,
NEDUNGAL, KRISHNAGIRI DT.
MOBILE NO: 8778305728.
L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 1
XII – STANDARD
ACCOUNTANCY
UNIT 1 ACCOUNTS FROM INCOMPLETE RECORDS
I. Choose the correct answer:
1. Incomplete records are generally maintained by
a) A company b) Government
c) Small sized sole trader business d) Multinational enterprises
2. Statement of affairs is a
a) Statement of income and expenditure b) Statement of assets and liabilities
c) Summary of cash transactions d) Summary of credit transactions
3. Opening statement of affairs is usually prepared to find out the
a) Capital in the beginning of the year b) Capital at the end of the year
c) Profit made during the year d) Loss occurred during the year
4. The excess of assets over liabilities is
a) Loss b) Cash c) Capital d) Profit
5. Which of the following items relating to bills payable is transferred to total creditors
account?
a) Opening balance of bills payable b) Closing balance of bills payable
c) Bills payable accepted during the year d) Cash paid for bills payable
6. The amount of credit sales can be computed from
a) Total debtors account b) Total creditors account
c) Bills receivable account d) Bills payable account
7. Which one of the following statements is not true in relation to incomplete records?
a) It is an unscientific method of recording transactions
b) Records are maintained only for cash and personal accounts
c) It is suitable for all types of organisations
d) Tax authorities do not accept
8. What is the amount of capital of the proprietor, if his assets are ₹ 85,000 and liabilities
are ₹ 21,000?
a) ₹ 85,000 b) ₹ 1,06,000 c) ₹ 21,000 d) ₹ 64,000
9. When capital in the beginning is ₹ 10,000, drawings during the year is ₹ 6,000, profit
made during the year is ₹ 2,000 and the additional capital introduced is ₹ 3,000, find
out the amount of capital at the end.
a) ₹ 9,000 b) ₹ 11,000 c) ₹ 21,000 d) ₹ 3,000
10. Opening balance of debtors: ₹ 30,000, cash received: ₹ 1,00,000, credit sales: ₹ 90,000;
closing balance of debtors is
a) ₹ 30,000 b) ₹ 1,30,000 c) ₹ 40,000 d) ₹ 20,000

Answers:
1. c 2. b 3. a 4. c 5. c 6. a 7. c 8. d 9. a 10. d
II. Very short answer questions:
1. What is meant by incomplete records?
When accounting records are not strictly maintained according to double entry system, these
records are called incomplete accounting records.
2. State the accounts generally maintained by small sized sole trader when double entry
accounting system is not followed.
Generally, cash account and the personal accounts of customers and creditors are maintained
fully and other accounts are maintained based on necessity.
3. What is a statement of affairs?
A statement of affairs is a statement showing the balances of assets and liabilities on a
particular date.
III. Short answer questions:
1. What are the features of incomplete records?
1. Nature:
It is an unscientific and unsystematic way of recording transactions. Accounting
principles and accounting standards are not followed properly.
2. Type of accounts maintained:
In general, only cash and personal accounts are maintained fully. Real accounts and
nominal accounts are not maintained properly. Some transactions are completely omitted.
3. Lack of uniformity:
There is no uniformity in recording the transactions among different organisations.
Different organisations record their transactions according to their needs and conveniences.
4. Financial statements may not represent true and fair view:
Due to the incomplete information and inaccurate records of accounts, the profit or loss
calculated from these records cannot be relied upon. It may not represent true profitability.
Assets and liabilities may not represent a true and fair view of financial position.
5. Suitability:
Only the business concerns which have no legal obligation to maintain books of accounts
under double entry system may maintain incomplete records. Hence, it may be maintained
by small sized sole traders and partnership firms.
6. Mixing up of personal and business transactions:
Generally, personal transactions of the owners are mixed up with the business transactions.
Example, purchase of goods for own use may be mixed up along with business purchases.

2. What are the limitations of incomplete records?
1. Lack of proper maintenance of records:
It is an unscientific and unsystematic way of maintaining records. Real and nominal
accounts are not maintained properly.
2. Difficulty in preparing trial balance:
As accounts are not maintained for all items, the accounting records are incomplete.
Hence, it is difficult to prepare trial balance to check the arithmetical accuracy of the
accounts.
3. Difficulty in ascertaining true profitability of the business:
Profit is found out based on available information and estimates. Hence, it is difficult to
ascertain true profit as the trading and profit and loss account cannot be prepared with
accuracy.
4. Difficulty in ascertaining financial position:
In general, only the estimated values of assets and liabilities are available from incomplete
records. Hence, it is difficult to ascertain true and fair view of state of affairs or financial
position as on a particular date.
5. Errors and frauds cannot be detected easily:
As only partial records are available, it may not be possible to have internal checks in
maintaining accounts to detect errors and frauds.
6. Unacceptable to government and other authorities:
As accounts maintained are incomplete, these may not comply with the legal requirements.
Hence, government, tax authorities and other legal authorities do not accept accounts
prepared from incomplete records.
3. State the differences between double entry system and incomplete records.
Basis of distinction Double entry system Incomplete records
1. Recording of Both debit and credit aspects of Debit and credit aspects of all the
transactions all the transactions are recorded. transactions are not recorded.
2. Type of accounts Personal, real and nominal Only personal and cash accounts
maintained accounts are maintained fully. are maintained fully.
3. Preparation of Trial balance can be prepared to It is difficult to prepare the trial
trial balance check the arithmetical accuracy balance
It is suitable for all types of It may be suitable for small sized
4. Suitability
organisations. sole traders and partnership firms.
It is reliable since it is It is not reliable since it is
5. Reliability
a scientific system unscientific.
Accounting records are Accounting records may not be
6. Acceptability
acceptable to all users acceptable to all users.

4. State the procedure for calculating profit or loss through statement of affairs.
Following are the steps to be followed to find out the profit or loss when a statement of
affairs is prepared:
1. Ascertain the opening capital by preparing a statement of affairs at the beginning of the
year by taking the opening balances of assets and liabilities.
2. Ascertain the closing capital by preparing a statement of affairs at the end of the
Accounting period after making all adjustments.
3. Add the amount of drawings (both in cash and/in kind) to the closing capital.
4. Deduct the amount of additional capital introduced, to get adjusted closing capital.
5. Ascertain profit or loss by subtracting opening capital from the adjusted closing capital.
a) If adjusted closing capital is more than the opening capital, it denotes profit
b) If adjusted closing capital is lesser than the opening capital, it denotes loss
5. Differentiate between statement of affairs and balance sheet.
Basis of distinction Statement of affairs Balance sheet
Generally prepared to find out Prepared to ascertain the financial
1. Objective
the capital of the business. position of the business.
Statement of affairs is prepared Balance sheet is prepared when
2. Accounting
when double entry system is not accounts are maintained under
system
strictly followed. double entry system.
3. Basis of It is not fully based on ledger It is prepared exclusively on the
preparation balances. basis of ledger balances.
It is not reliable as it is based on It is reliable as it is prepared under
4. Reliability
incomplete records. double entry system.
It is difficult to trace the items
5. Missing items Omitted can be traced easily.
omitted
6. How is the amount of credit sale ascertained from incomplete records?
For ascertaining the amount of credit sales, the total debtors account should be prepared.
Dr Total debtors account Cr
Particulars ₹ Particulars ₹
To Balance b/d xxx By Cash A/c (received) xxx
(opening balance) By Bank A/c (cheques received) xxx
To Sales A/c (credit sales) xxx By Discount allowed A/c xxx
To Bank A/c xxx By Sales returns A/c xxx
(cheque dishonoured) By Bad debts A/c xxx
To Bills receivable A/c xxx By Bills receivable A/c xxx
(bills dishonoured) (bills received)
By Balance c/d xxx
xxxx (closing balance) xxxx
UNIT 2 ACCOUNTS OF NOT–FOR–PROFIT ORGANISATION
1. Receipts and payments account is a
a) Nominal A/c b) Real A/c c) Personal A/c d) Representative personal account
2. Receipts and payments account records receipts and payments of
a) Revenue nature only b) Capital nature only
c) Both revenue and capital nature d) None of the above
3. Balance of receipts and payments account indicates the
a) Loss incurred during the period b) Excess of income over expenditure of the period
c) Total cash payments during the period d) Cash and bank balance as on the date
4. Income and expenditure account is a
a) Nominal A/c b) Real A/c c) Personal A/c d) Representative personal account
5. Income and Expenditure Account is prepared to find out
a) Profit or loss b) Cash and bank balance c) Surplus or deficit d) Financial position
6. Which of the following should not be recorded in the income and expenditure account?
a) Sale of old news papers b) Loss on sale of asset
c) Honorarium paid to the secretary d) Sale proceeds of furniture
7. Subscription due but not received for the current year is
a) An asset b) A liability c) An expense d) An item to be ignored
8. Legacy is a
a) Revenue expenditure b) Capital expenditure c) Revenue receipt d) Capital receipt
9. Donations received for a specific purpose is
a) Revenue receipt b) Capital receipt c) Revenue expenditure d) Capital expenditure
10. There are 500 members in a club each paying ₹ 100 as annual subscription.
Subscription due but not received for the current year is ₹ 200; Subscription received
in advance is ₹ 300. Find out the amount of subscription to be shown in the income and
expenditure account.
a) ₹ 50,000 b) ₹ 50,200 c) ₹ 49,900 d) ₹ 49,800
Answers:
1. b 2. c 3. d 4. a 5. c 6. d 7. a 8. d 9. b 10. a
1. State the meaning of not–for–profit organisation.
Some organisations are established for the purpose of rendering services to the public without
any profit motive. These organisations are called not–for–profit organisation.
Ex: art, culture, education, sports, etc.
2. What is receipts and payments account?
Receipts and Payments account is a summary of cash and bank transactions of not–for–profit
organisations prepared at the end of each financial year.
3. What is legacy?
A gift made to a not–for–profit organisation by a will, is called legacy. It is a capital receipt.
4. Write a short note on life membership fees.
Amount received towards life membership fee from members. It is a capital receipt.
It is non-recurring in nature.
5. Give four examples for capital receipts of not–for–profit organisation.
1. Life membership fees 2. Legacies 3. Specific donations
4. Sale of fixed assets 5. Special funds 6. Tournament fund 7. Prize fund
6. Give four examples for revenue receipts of not–for–profit organisation.
1. Subscription 2. Interest on investment 3. Interest on fixed deposit
4. Sale of (old) sports materials 5. Sale of (old) newspapers
1. What is income and expenditure account?
Income and expenditure account is a summary of income and expenditure of a not–for–profit
organisation prepared at the end of an accounting year. It is prepared to find out the
surplus or deficit pertaining to a particular year.
2. State the differences between Receipts and Payments Account and Income and
Expenditure Account.
Basis Receipts and Payments Account Income and ExpenditureAccount
It is prepared to know the cash It is prepared to know whether
1. Purpose
receipts and cash payments. surplus or deficit.
2. Nature of
It is a real account. It is a nominal account.
account
3. Basis of It is based on cash system of It is based on accrual system of
accounting accounting. accounting.
4. Opening It commences with an opening
There is no opening balance. It ends
and closing balance and ends with closing
with surplus or deficit.
balance balance of cash and bank.
It contains actual receipts and It contains only revenue items, that
5. Nature of
payments irrespective of revenue or is, only revenue expenses and
items
capital items in nature. revenue incomes.
All cash receipts and payments made
during the year pertaining to the past It contains only the items relating to
6. Period
period, current period and the current period.
subsequent period are recorded.

3. How annual subscription is dealt with in the final accounts of not–for–profit
organisation?
A) Treatment in Income and Expenditure Account:
Dr. Income and Expenditure Account for the year ended... Cr.
Expenditure ₹ Income ₹ ₹
By Subscription xxx
Less: Subscription for the previous year xxx
xxx
Less: Subscription for the subsequent year xxx
xxx
Add: Outstanding subscription for
the current year xxx
xxx
Add: Received in advance during the
previous year for the current year xxx xxx
B) Treatment in Balance Sheet

Balance sheet as on ...
Liabilities ₹ Assets ₹
Subscription received in advance Outstanding subscription for the:
for the subsequent year xxx current year xxx
previous year xxx
4. How the following items are dealt with in the final accounts of not–for–profit
organisation?
a) Sale of sports materials b) Life membership fees c) Tournament fund
a) Sale of sports materials:
If there is any sale of old sports materials, etc., that will be shown on the credit side
of income and expenditure account or can be subtracted from the respective items
consumed on the debit side of income and expenditure account.
b) Life membership fees:
Amount received towards life membership fee from members. It is a capital receipt.
It is non-recurring in nature.
c) Tournament fund:
If there is any tournament fund received, it should be added with the opening balance of
fund and the expenses made during the year on behalf of conducting the tournament it
should be subtracted from the tournament fund.

UNIT 3 ACCOUNTS OF PARTNERSHIP FIRMS – FUNDAMENTALS
1. In the absence of a partnership deed, profits of the firm will be shared by the
partners in
a) Equal ratio b) Capital ratio c) Both (a) and (b) d) None of these
2. In the absence of an agreement among the partners, interest on capital is
a) Not allowed b) Allowed at bank rate
c) Allowed @ 5% per annum d) Allowed @ 6% per annum
3. As per the Indian Partnership Act, 1932, the rate of interest allowed on loans advanced
by partners is
a) 8% per annum b) 12% per annum c) 5% per annum d) 6% per annum
4. Which of the following is shown in Profit and loss appropriation account?
a) Office expenses b) Salary of staff
c) Partners’ salary d) Interest on bank loan
5. When fixed capital method is adopted by a partnership firm, which of the
following items will appear in capital account?
a) Additional capital introduced b) Interest on capital
c) Interest on drawings d) Share of profit
6. When a partner withdraws regularly a fixed sum of money at the middle of every
month, period for which interest is to be calculated on the drawings on an average is
a) 5.5 moths b) 6 months c) 12 months d) 6.5 months
7. Which of the following is the incorrect pair?
a) Interest on drawings – Debited to capital account
b) Interest on capital – Credited to capital account
c) Interest on loan – Debited to capital account
d) Share of profit – Credited to capital account
8. In the absence of an agreement, partners are entitled to
a) Salary b) Commission c) Interest on loan d) Interest on capital
9. Pick the odd one out
a) Partners share profits and losses equally
b) Interest on partners’ capital is allowed at 7% per annum
c) No salary or remuneration is allowed to partners
d) Interest on loan from partners is allowed at 6% per annum.
10. Profit after interest on drawings, interest on capital and remuneration is ₹ 10,500.
Geetha, a partner, is entitled to receive commission @ 5% on profits after charging
such commission. Find out commission.
a) ₹ 50 b) ₹ 150 c) ₹ 550 d) ₹ 500

Answers:
1. a 2. a 3. d 4. c 5. a 6. b 7. c 8. c 9. b 10. d
II.Very short answer questions:
1. Define partnership.
According to Section 4 of the Indian Partnership Act, 1932, partnership is defined as, “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”.
2. What is a partnership deed?
Partnership deed is a document in writing that contains the terms of the agreement among the
partners.
3. What is meant by fixed capital method?
Under fixed capital method, the capital of the partners is not altered and it remains generally
fixed. Two accounts are maintained for each partner namely
1. Capital account and 2. Current account.
4. What is the journal entry to be passed for providing interest on capital to a partner?
a) For providing interest on capital:
Date Particulars L.F. Debit ₹ Credit ₹
Interest on capital A/c Dr. xxx
To Partner‟s capital / current A/c xxx
b) For closing interest on capital account:

Profit and loss appropriation A/c Dr. xxx
Interest on capital A/c xxx
5. Why is Profit and loss appropriation account prepared?
The profit and loss appropriation account is an extension of profit and loss account prepared
for the purpose of adjusting the transactions relating to amounts due to and amounts due from
partners.
1. State the features of partnership.
Following are the essential features of partnership:
1. Partnership is an association of two or more persons. The maximum number of partners
is limited to 50.
2. There should be an agreement among the persons to share the profit or loss of the
business. The agreement may be oral or written or implied.
3. The agreement must be to carry on a business and to share the profits of the business.
4. The business may be carried on by all the partners or any of them acting for all.

2. State any six contents of a partnership deed.
Generally, partnership deed contains the following:
1. Name of the firm and nature and place of business
2. Date of commencement and duration of business
3. Names and addresses of all partners
4. Capital contributed by each partner
5. Profit sharing ratio
6. Amount of drawings allowed to each partner
7. Rate of interest to be allowed on capital
8. Rate of interest on drawings of partners
9. Rate of interest on loans provided by partners
10. Amount of salary to be allowed to any partner
3. State the differences between fixed capital method and fluctuating capital method.
Basis of
Fixed capital method Fluctuating capital method
distinction
Two accounts are maintained for Only one account, that is, capital
1. Number of
each partner, that is, capital account is maintained for each
accounts
account and current account. partner.
The amount of capital normally
2. Change in remains unchanged except when The amount of capital changes from
capital additional capital is introduced or period to period.
capital is withdrawn permanently.
Capital account always shows a
Capital account generally shows
3. Closing credit balance. But, current
credit balance. It may also show a
balance account may show either debit or
debit balance.
credit balance.
All adjustments relating to interest
All adjustments relating to interest on
on capital, interest on drawings,
capital, interest on drawings, salary or
4.Adjustments salary or commission, share of
commission, share of profit or loss are
profit or loss are done in current
done in the capital account.
account.

4. Write a brief note on the applications of the provisions of the Indian Partnership Act,
1932 in the absence of partnership deed.
If there is no partnership deed or when there is no express statement in the partnership deed,
then the following provisions of the Act will apply:
1. Remuneration to partners:
No salary or remuneration is allowed to any partner. [Section 13(a)]
2. Profit sharing ratio:
Profits and losses are to be shared by the partners equally. [Section 13(b)]
3. Interest on capital:
No interest is allowed on the capital. Where a partner is entitled to interest on capital
contributed as per partnership deed, such interest on capital will be payable only out of
profits. [Section 13(c)]
4. Interest on loans advanced by partners to the firm:
Interest on loan is to be allowed at the rate of 6 per cent per annum. [Section 13(d)]
5. Interest on drawings:
No interest is charged on the drawings of the partners.
5. Jayaraman is a partner who withdrew ₹ 10,000 regularly in the middle of every month.
Interest is charged on the drawings at 6% per annum. Calculate interest on drawings
for the year ended 31st December, 2018.
Interest on drawings = Amount of drawings x Rate of interest x Period of interest
6 6 6 6
= 10,000×12× × = 1,20,000 × × = ₹ 3,600
100 12 100 12

UNIT 4 GOODWILL IN PARTNERSHIP ACCOUNTS
1. Which of the following statements is true?
a) Goodwill is an intangible asset b) Goodwill is a current asset
c) Goodwill is a fictitious asset d) Goodwill cannot be acquired
2. Super profit is the difference between
a) Capital employed and average profit b) Assets and liabilities
c) Average profit and normal profit d) Current year‟s profit and average profit
3. The average rate of return of similar concerns is considered as
a) Average profit b) Normal rate of return
c) Expected rate of return d) None of these
4. Which of the following is true?
a) Super profit = Total profit / number of years
b) Super profit = Weighted profit / number of years
c) Super profit = Average profit – Normal profit
d) Super profit = Average profit × Years of purchase
5. Identify the incorrect pair
a) Goodwill under Average profit method - Average profit × Number of years of purchase
b) Goodwill under Super profit method - Super profit × Number of years of purchase
c) Goodwill under Annuity method - Average profit × Present value annuity factor
d) Goodwill under Weighted average - Weighted average profit × Number of years of
profit method purchase
6. When the average profit is ₹ 25,000 and the normal profit is ₹ 15,000, super profit is
a) ₹ 25,000 b) ₹ 5,000 c) ₹ 10,000 d) ₹ 15,000
7. Book profit of 2017 is ₹ 35,000; non-recurring income included in the profit is ₹ 1,000
and abnormal loss charged in the year 2017 was ₹ 2,000, then the adjusted profit is
a) ₹ 36,000 b) ₹ 35,000 c) ₹ 38,000 d) ₹ 34,000
8. The total capitalised value of a business is ₹ 1,00,000; assets are ₹ 1,50,000 and liabilities
are ₹ 80,000. The value of goodwill as per the capitalisation method will be
a) ₹ 40,000 b) ₹ 70,000 c) ₹ 1,00,000 d) ₹ 30,000
Answers:
1. a 2. c 3. b 4. c 5. c 6. c 7. a 8. d
1. What is goodwill?
Goodwill is the good name or reputation of the business which brings benefit to the business.
2. What is acquired goodwill?
Goodwill acquired by making payment in cash or kind is called acquired or purchased
goodwill.
3. What is super profit?
Super profit is the excess of average profit over the normal profit of a business.
Super profit = Average profit – Normal profit
4. What is normal rate of return?
It is the rate at which profit is earned by similar business entities in the industry under normal
circumstances.
5. State any two circumstances under which goodwill of a partnership firm is valued.
1. When there is a change in the profit sharing ratio
2. When a new partner is admitted into a firm
3. When an existing partner retires from the firm or when a partner dies
4. When a partnership firm is dissolved
1. State any six factors determining goodwill.
Generally, the following factors determine the value of goodwill of a partnership firm:
1. Profitability of the firm:
The profit earning capacity of the firm determines the value of its goodwill.
2. Favourable22 location of the business enterprise:
If the firm is located in a prominent place which is easily accessible to the customers, it
Can attract more customers.
3. Good quality of goods or services offered:
If a firm enjoys good reputation among the customers and general public for the good
quality of its products or services, the value of goodwill for the firm will be high.
4. Tenure of the business enterprise:
A firm which has carried on business for several years will have higher reputation among
its customers as it is better known to the customers.
5. Efficiency of management:
A firm having efficient management will earn more profits and the value of its goodwill
will be higher compared to a firm with less efficient managerial personnel.
6. Degree of competition
In the case of business enterprises having no competition or negligible competition, the
value of goodwill will be high.
7. Other factors:
There are other factors which add to the value of goodwill of a business such as popularity
of the proprietor, impressive advertisements and publicity, good relations with
customers,etc.

2. How is goodwill calculated under the super profits method?
1. Super profit is the excess of average profit over the normal profit of a business.
Super profit = Average profit – Normal profit
2. Average profit is calculated by dividing the total of adjusted actual profits of certain
number of years by the total number of such years.
3. Normal profit is the profit earned by the similar business firms under normal conditions.
Normal profit = Capital employed × Normal rate of return
4. Capital employed = Fixed assets + Current assets – Current liabilities
5. Normal rate of return = It is the rate at which profit is earned by similar business entities in
the industry under normal circumstances.
3. How is the value of goodwill calculated under the capitalisation method?
1. Under this method, goodwill is the excess of capitalised value of average profit of the
business over the actual capital employed in the business.
2. Goodwill = Total capitalised value of the business – Actual capital employed
3. The total capitalised value of the business is calculated by capitalising the average profits
on the basis of the normal rate of return.
Average profit
4. Capitalised Value of the business = × 100
Normal rate of return
5. Actual capital employed = Fixed assets (excluding goodwill) + Current assets – Current
liabilities
4. Compute average profit from the following information.
2016: ₹ 8,000; 2017: ₹ 10,000; 2018: ₹ 9,000
Total profit 8,000+10,00+9,000 27,000
Average profit = = = = 9,000
Number of Years 3 3
Answer: Average profit = ₹ 9,000
5. Calculate the value of goodwill at 2 years purchase of average profit when average
profit is ₹ 15,000.
Goodwill = Average profit × Number of year purchase = 15,000 × 2 = ₹ 30,000
Answer: Goodwill = ₹ 30,000
Mind Map

UNIT 5 ADMISSION OF A PARTNER
1. Revaluation A/c is a
a) Real A/c b) Nominal A/c c) Personal A/c d) Impersonal A/c
2. On revaluation, the increase in the value of assets leads to
a) Gain b) Loss c) Expense d) None of these
3. The profit or loss on revaluation of assets and liabilities is transferred to the capital
account of
a) The old partners b) The new partner
c) All the partners d) The Sacrificing partners
4. If the old profit sharing ratio is more than the new profit sharing ratio of a partner, the
difference is called
a) Capital ratio b) Sacrificing ratio c) Gaining ratio d) None of these
5. At the time of admission, the goodwill brought by the new partner may be credited to
the capital accounts of
a) all the partners b) the old partners
c) the new partner d) the sacrificing partners
6. Which of the following statements is not true in relation to admission of a partner
a) Generally mutual rights of the partners change
b) The profits and losses of the previous years are distributed to the old partners
c) The firm is reconstituted under a new agreement
d) The existing agreement does not come to an end
7. Match List I with List II and select the correct answer using the codes given below:
List I List II
i) Sacrificing ratio 1. Investment fluctuation fund
ii) Old profit sharing ratio 2. Accumulated profit
iii) Revaluation Account 3. Goodwill
iv) Capital Account 4. Unrecorded liability
Codes:
(i) (ii) (iii) (iv)
(a) 1 2 3 4
(b) 3 2 4 1
(c) 4 3 2 1
(d) 3 1 2 4
8. Select the odd one out
a) Revaluation profit b) Accumulated loss
c) Goodwill brought by new partner d) Investment fluctuation fund

9. James and Kamal are sharing profits and losses in the ratio of 5:3. They admit Sunil as
a partner giving him 1/5 share of profits. Find out the sacrificing ratio.
a) 1:3 b) 3:1 c) 5:3 d) 3:5
10. Balaji and Kamalesh are partners sharing profits and losses in the ratio of 2:1. They
admit Yogesh into partnership. The new profit sharing ratio between Balaji, Kamalesh
and Yogesh is agreed to 3:1:1. Find the sacrificing ratio between Balaji and Kamalesh.
a) 1:3 b) 3:1 c) 2:1 d) 1:2
Answers:
1. b 2. a 3. a 4. b 5. d 6. d 7. b 8. c 9. c 10. d

1. What is meant by revaluation of assets and liabilities?
When a partner is admitted into the partnership, the assets and liabilities are revalued as the
current value may differ from the book value. Determination of current values of assets and
liabilities is called revaluation of assets and liabilities.
2. How are accumulated profits and losses distributed among the partners at the time of
admission of a new partner?
At the time of admission of a new partner, any reserve and accumulated profits and losses
belong to the old partners and hence these should be distributed to the old partners in the old
profit sharing ratio.
3. What is sacrificing ratio?
Sacrificing ratio is the proportion of the profit which is sacrificed or foregone by the old
partners in favour of the new partner.
4. Give the journal entry for writing off existing goodwill at the time of admission of a new
partner.
Journal Entry
Old partners‟ capital / current A/c (in old ratio) Dr. xxx
To Goodwill A/c xxx
(Existing goodwill written off)
5. State whether the following will be debited or credited in the revaluation account.
a) Depreciation on assets b) Unrecorded liability
c) Provision for outstanding expenses d) Appreciation of assets
a) Depreciation on assets - Debited
b) Unrecorded liability - Debited
c) Provision for outstanding expenses - Debited
d) Appreciation of assets - Credited
1. What are the adjustments required at the time of admission of a partner?
1. Distribution of accumulated profits, reserves and losses
2. Revaluation of assets and liabilities
3. Determination of new profit-sharing ratio and sacrificing ratio
4. Adjustment for goodwill
5. Adjustment of capital on the basis of new profit sharing ratio (if so agreed)
2. What are the journal entries to be passed on revaluation of assets and liabilities?
Following are the journal entries to be passed to record the revaluation of assets and
liabilities:
1. For increase in the value of asset:
Concerned asset A/c Dr. xxx
To Revaluation A/c xxx
2. For decrease in the value of asset:
Revaluation A/c Dr. xxx
To Concerned asset A/c xxx
3. For increase in the amount of liabilities:
To Concerned liability A/c xxx
4. For decrease in the amount of liability
Concerned liability A/c Dr. xxx
5. For recording an unrecorded asset:
Concerned asset A/c Dr. xxx
6. For recording an unrecorded liability:
To Concerned liability A/c xxx
7. For transferring the balance in revaluationA/c
a) If there is profit on revaluation
To Old partners‟ capital A/c (individually in old ratio) xxx
b) If there is loss on revaluation
Old partners‟ capital A/c (individually in old ratio) Dr. xxx

3. Write a short note on accounting treatment of goodwill.
1. When new partner brings cash towards goodwill
When the new partner brings cash towards goodwill in addition to the amount of capital, it
is distributed to the existing partners in the sacrificing ratio.
2. When the new partner does not bring goodwill in cash or in kind
If the new partner does not bring goodwill in cash or in kind, his share of goodwill must be
adjusted through the capital accounts of the partners.
3. When the new partner brings only a part of the goodwill in cash or in kind
Sometimes the new partner may bring only a part of the goodwill in cash or assets. In such
a case, for the cash or the assets brought, the respective account is debited and for the
amount not brought in cash or kind, the new partner‟s capital account is debited.
4. Existing goodwill
If goodwill already appears in the books of accounts, at the time of admission if the
partners decide, it can be written off by transferring it to the existing partners‟ capital
account / current account in the old profit sharing ratio.

UNIT 6 RETIREMENT AND DEATH OF A PARTNER
1. A partner retires from the partnership firm on 30th June. He is liable for all the acts
of the firm up to the
a) End of the current accounting period b) End of the previous accounting period
c) Date of his retirement d) Date of his final settlement
2. On retirement of a partner from a partnership firm, accumulated profits and losses are
distributed to the partners in the
a) New profit sharing ratio b) Old profit sharing ratio
c) Gaining ratio d) Sacrificing ratio
3. On retirement of a partner, general reserve is transferred to the
a) Capital account of all the partners b) Revaluation account
c) Capital account of the continuing partners d) Memorandum revaluation account
4. On revaluation, the increase in liabilities leads to
a) Gain b) Loss c) Profit d) None of these
5. At the time of retirement of a partner, determination of gaining ratio is required
a) To transfer revaluation profit or loss b) To distribute accumulated profits and losses
c) To adjust goodwill d) None of these
6. If the final amount due to a retiring partner is not paid immediately, it is transferred to
a) Bank A/c b) Retiring partner‟s capital A/c
c) Retiring partner’s loan A/c d) Other partners‟ capital A/c
7. ‘A’ was a partner in a partnership firm. He died on 31st March 2019. The final amount
due to him is ₹ 25,000 which is not paid immediately. It will be transferred to
a) A‟s capital account b) A‟s current account
c) A‟s Executor account d) A’s Executor loan account
8. A, B and C are partners sharing profits in the ratio of 2:2:1. On retirement of B,
goodwill of the firm was valued as ₹ 30,000. Find the contribution of A and C to
compensate B:
a) ₹ 20,000 and ₹ 10,000 b) ₹ 8,000 and ₹ 4,000
c) ₹ 10,000 and ₹ 20,000 d) ₹ 15,000 and ₹ 15,000
9. A, B and C are partners sharing profits in the ratio of 4:2:3. C retires. The new profit
sharing ratio between A and B will be
a) 4:3 b) 3:4 c) 2:1 d) 1:2
10. X, Y and Z were partners sharing profits and losses equally. X died on 1st April 2019.
Find out the share of X in the profit of 2019 based on the profit of 2018
which showed ₹ 36,000.
a) ₹ 1,000 b) ₹ 3,000 c) ₹12,000 d) ₹ 36,000

Answers:
1. c 2. b 3. a 4. b 5. c 6. c 7. d 8. b 9. c 10. b

1. What is meant by retirement of a partner?
When a partner leaves from a partnership firm, it is known as retirement.
A partner who retires from the firm is called an outgoing partner or a retiring partner.
2. What is gaining ratio?
The continuing partners may gain a portion of the share of profit of the retiring partner.
Gaining Ratio = New share – Old share
3. What is the purpose of calculating gaining ratio?
The purpose of finding the gaining ratio is to bear the goodwill to be paid to the retiring
partner.
4. What is the journal entry to be passed to transfer the amount due to the deceased
Partner to the executor of the deceased partner?
Deceased partner‟s capital A/c Dr. xxx
To Deceased partner‟s executor A/c xxx
(Being Deceased partner‟s amount transferred to the
Deceased partner‟s executor‟s capital account)
1. List out the adjustments made at the time of retirement of a partner in a partnership
firm.
1) Distribution of accumulated profits, reserves and losses
2) Revaluation of assets and liabilities
3) Determination of new profit sharing ratio and gaining ratio
4) Adjustment for goodwill
5) Adjustment for current year‟s profit or loss upto the date of retirement
6) Settlement of the amount due to the retiring partner
Mind Map

2. Distinguish between sacrificing ratio and gaining ratio.
Basis Sacrificing ratio Gaining ratio
1. Meaning It is the proportion of the profit which It is the proportion of the profit
is sacrificed by the old partners in which is gained by the continuing
favour of a new partner. partners from the retiring partner.
2. Purpose It is calculated to determine the amount It is calculated to determine the
to be adjusted towards goodwill for the amount to be adjusted towards
sacrificing partners. goodwill for the gaining partners.
3. Time of It is calculated at the time of admission It is calculated at the time of
calculation of a new partner. retirement of a partner.
4. Method It is the difference between the old It is the difference between the new
of ratio and the new ratio ratio and the old ratio.
calculation Sacrificing ratio = Old profit sharing Gaining ratio = New profit sharing
ratio – New profit sharing ratio ratio - Old profit sharing ratio
3. What are the ways in which the final amount due to an outgoing partner can be settled?
a) When the amount due is paid in cash immediately:
Retiring partner‟s capital A/c Dr. xxx
To Cash / Bank A/c xxx
b) When the amount due is not paid immediately in cash:

To Retiring partner‟s loan A/c xxx
c) When the amount due is partly paid in cash immediately:

To Cash / Bank A/c (amount paid) xxx
To Retiring partner‟s loan A/c xxx

UNIT 7 COMPANY ACCOUNTS
1. A preference share is one
i) which carries preferential right with respect to payment of dividend at fixed rate
ii) which carries preferential right with respect to repayment of capital on winding up
a) Only (i) is correct b) Only (ii) is correct
c) Both (i) and (ii) are correct d) Both (i) and (ii) are incorrect
2. That part of share capital which can be called up only on the winding up of a company
is called:
a) Authorised capital b) Called up capital c) Capital reserve d) Reserve capital
3. At the time of forfeiture, share capital account is debited with
a) Face value b) Nominal value c) Paid up amount d) Called up amount
4. After the forfeited shares are reissued, the balance in the forfeited shares account
should be transferred to
a) General reserve account b) Capital reserve account
c) Securities premium account d) Surplus account
5. The amount received over and above the par value is credited to
a) Securities premium account b) Calls in advance account
c) Share capital account d) Forfeited shares account
6. Which of the following statement is false?
a) Issued capital can never be more than the authorised capital
b) In case of under subscription, issued capital will be less than the subscribed capital
c) Reserve capital can be called at the time of winding up
d) Paid up capital is part of called up capital
7. When shares are issued for purchase of assets, the amount should be credited to
a) Vendor‟s A/c b) Sundry assets A/c c) Share capital A/c d) Bank A/c
8. Match the pair and identify the correct option
1) Under subscription - (i) Amount prepaid for calls
2) Over subscription - (ii) Subscription above the offered shares
3) Calls in arrear - (iii) Subscription below the offered shares
4) Calls in advance - (iv) Amount unpaid on calls
(1) (2) (3) (4)
a) (i) (ii) (iii) (iv)
b) (iv) (iii) (ii) (i)
c) (iii) (ii) (iv) (i)
d) (iii) (iv) (i) (ii)
9. If a share of ₹ 10 on which ₹ 8 has been paid up is forfeited. Minimum reissue price is
a) ₹ 10 per share b) ₹ 8 per share c) ₹ 5 per share d) ₹ 2 per share
10. Supreme Ltd. forfeited 100 shares of ₹ 10 each for non-payment of final call of ₹ 2 per
share. All these shares were re-issued at ₹ 9 per share. What amount will be
transferred to capital reserve account?
a) ₹ 700 b) ₹ 800 c) ₹ 900 d) ₹ 1,000
Answers:
1. c 2. d 3. d 4. b 5. a 6. b 7. c 8. c 9. d 10. a
1. What is a share?
The capital of a company is divided into small units of fixed amount.
These units are called shares.
2. What is over-subscription?
When the number of shares applied for is more than the number of shares offered for
subscription, it is said to be over subscription.
3. What is meant by calls in arrear?
When a shareholder fails to pay the amount due on allotment or on calls, the amount
remaining unpaid is known as calls in arrears. In other words, the amount called up but not
paid is calls in arrears.
4. Write a short note on securities premium account.
When a company issues shares at a price more than the face value (nominal value), the shares
are said to be issued at premium. The excess is called as premium amount and is transferred
to securities premium account.
5. Why are the shares forfeited?
When a shareholder defaults in making payment of allotment and/or call money, the shares
may be forfeited.
1. State the differences between preference shares and equity shares.
Basis Preference Shares Equity Shares
Preference shares are ones that
Equity shares are ordinary shares
carry preferential rights in terms
1. Meaning of a company that represent
of dividend payment and
ownership of the company.
repayment of capital.
2. Rate of Dividends Dividends at a fixed rate Dividend rate is not fixed.
3. Voting Rights Do not have the voting rights. Enjoy the right to voting right
Can be converted into equity Cannot be converted into
4. Convertibility
shares. preference shares.
Preference shares can be Equity stocks cannot be
5. Redemption
redeemed redeemed

2. Write a brief note on calls in advance.
The excess amount paid over the called up value of a share is known as calls in advance. It is
the excess money paid on application or allotment or calls. Such excess amount can be
returned or adjusted towards future payment.
3. What is reissue of forfeited shares?
Shares forfeited can be reissued by the company. The shares can be reissued at any price.
But,the reissue price cannot be less than the amount unpaid on forfeited shares.
4. Write a short note on (a) Authorised capital (b) Reserve capital
a) Authorised capital:
It means such capital as is authorised by the memorandum of association. It is the
maximum amount which can be raised as capital. It is also known as registered capital or
nominal capital.
b) Reserve capital:
The company can reserve a part of its subscribed capital to be called up only at the time of
winding up. It is called reserve capital.
5. What is meant by issue of shares for consideration other than cash?
A company may issue shares for consideration other than cash when the company acquires
fixed assets such as land and buildings, machinery, etc. Under such situation, the following
journal entries are to be passed.
Journal entries
i) For purchase of asset:
Respective asset A/c Dr. xxx
To Vendor A/c xxx
ii) For issue of shares:
Vendor A/c Dr. xxx
To Equity share capital A/c xxx
To Securities premium A/c (if issued at premium) xxx
Meaning of Forfeiture

UNIT 8 FINANCIAL STATEMENT ANALYSIS
1. Which of the following statements is not true?
a) Notes and schedules also form part of financial statements.
b) The tools of financial statement analysis include common-size statement
c) Trend analysis refers to the study of movement of figures for one year
d) The common–size statements show the relationship of various items with some
common base, expressed as percentage of the common base
2. Balance sheet provides information about the financial position of a business concern
a) Over a period of time b) As on a particular date
c) For a period of time d) For the accounting period
3. Which of the following tools of financial statement analysis is suitable when data
relating to several years are to be analysed?
a) Cash flow statement b) Common size statement
c) Comparative statement d) Trend analysis
4. The financial statements do not exhibit
a) Non-monetary data b) Past data c) Short term data d) Long term data
5. Which of the following is not a tool of financial statement analysis?
a) Trend analysis b) Common size statement
c) Comparative statement d) Standard costing
6. The term ‘fund’ refers to
a) Current liabilities b) Working capital c) Fixed assets d) Non-current assets
7. Which of the following statements is not true?
a) All the limitations of financial statements are applicable to financial statement analysis
also.
b) Financial statement analysis is only the means and not an end.
c) Expert knowledge is not required in analysing the financial statements.
d) Interpretation of the analysed data involves personal judgement.
8. A limited company’s sales has increased from ₹ 1,25,000 to ₹ 1,50,000. How does this
appear in comparative income statement?
a) + 20 % b) + 120 % c) – 120 % d) – 20 %
9. In a common-size balance sheet, if the percentage of non-current assets is 75, what
would be the percentage of current assets?
a) 175 b) 125 c) 25 d) 100
10. Expenses for a business for the first year were ₹ 80,000. In the second year, it was
increased to ₹ 88,000. What is the trend percentage in the second year?
a) 10 % b) 110 % c) 90 % d) 11%

Answers:
1. c 2. b 3. d 4. a 5. d 6. b 7. c 8. a 9. c 10. b

1. What are financial statements?
Financial statements are the statements prepared by the business concerns at the end of the
accounting period to ascertain the operating results and the financial position.
2. List the tools of financial statement analysis.
1. Comparative statement
2. Common-size statements
3. Trend analysis
4. Funds flow analysis
5. Cash flow analysis
3. What is working capital?
The „Fund‟ refers to working capital. Excess of current assets over current liabilities is
called working capital. Working capital = Current Assets – Current Liabilities
4. When is trend analysis preferred to other tools?
Trend analysis refers to the study of movement of figures over a period. When data for more
than two years are to be analysed, it may be difficult to use comparative statement. For this
purpose, trend analysis may be used. So trend analysis is acceptable.
1. ‘Financial statements are prepared based on the past data’.
Explain how this is a limitation.
1. Lack of qualitative information:
Qualitative information that is non-monetary information is also important for business
decisions. But, this is ignored in financial statements.
2. Record of historical data:
Financial statements are prepared based on historical data. They may not reflect the
current position.
3. Ignore price level changes:
Adjustments for price level changes are not made in the financial statements. Hence,
financial statements may not reveal the current position.
4. Lack of consistency:
Different business concerns may use different accounting methods. Hence, comparison
between two business concerns becomes difficult.

5. Give only interim reports:
Financial statements are prepared at the end of every accounting period. But, the actual
position of the business can be known only when the business is closed. Hence, financial
statements may not reveal the exact position of the business concern.
6. Influenced by personal judgement:
Preparation of financial statements may be influenced by personal judgements and
therefore these are not free from bias.
2. Write a short note on cash flow analysis.
 Cash flow analysis is concerned with preparation of cash flow statement which shows the
inflow and outflow of cash and cash equivalents in a given period of time.
 Cash includes cash in hand and demand deposits with banks.
 Cash equivalents denote short term investments which can be realised easily within a
short period of time, without much loss in value.
 Cash flow analysis helps in assessing the liquidity and solvency of a business concern.
3. Briefly explain any three limitations of financial statements.
1. Lack of qualitative information:
Qualitative information that is non-monetary information is also important for business
decisions. But, this is ignored in financial statements.
2. Record of historical data:
Financial statements are prepared based on historical data. They may not reflect the
current position.
3. Ignore price level changes:
Adjustments for price level changes are not made in the financial statements. Hence,
financial statements may not reveal the current position.
4. Explain the steps involved in preparing comparative statement.
A comparative statement has five columns. Following are the steps to be followed in
preparation of the comparative statement:
i) Column 1 : In this column, particulars of items of income statement or balance sheet
are written.
ii) Column 2 : Enter absolute amount of year 1.
iii) Column 3 : Enter absolute amount of year 2.
iv) Column 4 : Show the difference in amounts between year 1 and year 2. If there is an
increase in year 2, put plus sign and if there is decrease put minus sign.
v) Column 5 : Show percentage increase or decrease of the difference amount shown in
column 4 by dividing the amount shown in column 4 (absolute amount of
increase or decrease) by column 2 (year 1 amount). That is,
𝐀𝐛𝐬𝐨𝐥𝐮𝐭𝐞 𝐚𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞 𝐨𝐫 𝐝𝐞𝐜𝐫𝐞𝐚𝐬𝐞
Percentage increase or decrease = × 𝟏𝟎𝟎
𝐘𝐞𝐚𝐫 𝟏 𝐀𝐦𝐨𝐮𝐧𝐭

5. Explain the procedure for preparing common-size statement.
Common-size statement can be prepared with three columns. Following are the steps to be
followed in preparation of common-size statement:
i) Column 1 : In this column, particulars of items of income statement or balance sheet
are written.
ii) Column 2 : Enter absolute amount.
iii) Column 3 : Choose a common base as 100. For example, revenue from operations can
be taken as the base for income statement and total of balance sheet can be
taken as the base for balance sheet. Work out the percentage for all the
items of column 2 in terms of the common base and enter them in column 3.
--------
Mind Map

UNIT 9 RATIO ANALYSIS
1. The mathematical expression that provides a measure of the relationship between two
figures is called
a) Conclusion b) Ratio c) Model d) Decision
2. Current ratio indicates
a) Ability to meet short term obligations b) Efficiency of management
c) Profitability d) Long term solvency
3. Current assets excluding inventory and prepaid expenses is called
a) Reserves b) Tangible assets c) Funds d) Quick assets
4. Debt equity ratio is a measure of
a) Short term solvency b) Long term solvency c) Profitability d) Efficiency
5. Match List I with List II and select the correct answer using the codes given below:
List I List II
i) Current ratio 1. Liquidity
ii) Net profit ratio 2. Efficiency
iii) Debt-equity ratio 3. Long term solvency
iv) Inventory turnover ratio 4. Profitability
Codes:
(i) (ii) (iii) (iv)
a) 1 4 3 2
b) 3 2 4 1
c) 4 3 2 1
d) 1 2 3 4
6. To test the liquidity of a concern, which of the following ratios are useful?
i) Quick ratio ii) Net profit ratio iii) Debt-equity ratio iv) Current ratio
Select the correct answer using the codes given below:
a) (i) and (ii) b) (i) and (iv) c) (ii) and (iii) d) (ii) and (iv)
7. Proportion of share holders' funds to total assets is called
a) Proprietary ratio b) Capital gearing ratio c) Debt equity ratio d) Current ratio
8. Which one of the following is not correctly matched?
a) Liquid ratio – Proportion
b) Gross profit ratio – Percentage
c) Fixed assets turnover ratio – Percentage
d) Debt-equity ratio – Proportion
9. Current liabilities ₹ 40,000; Current assets ₹ 1,00,000 ; Inventory ₹ 20,000 .
Quick ratio is
a) 1:1 b) 2.5:1 c) 2:1 d) 1:2
10. Cost of revenue from operations ₹ 3,00,000; Inventory in the beginning of the year
₹ 60,000; Inventory at the close of the year ₹ 40,000. Inventory turnover ratio is
a) 2 times b) 3 times c) 6 times d) 8 times
Answers:
1. b 2. a 3. d 4. b 5. a 6. b 7. a 8. c 9. c 10. c
1. What is meant by accounting ratios?
When ratios are calculated on the basis of accounting information, these are called
„accounting ratios‟.
2. What is quick ratio?
Quick ratio gives the proportion of quick assets to current liabilities. It is otherwise called
„liquid ratio‟ or „acid test ratio‟. It is computed as follows:
Quick assets
Quick ratio =
Current liability
3. What is meant by debt equity ratio?
Debt equity ratio is calculated to assess the long term solvency position of a business
concern. Debt equity ratio expresses the relationship between long term debt and
shareholders‟ funds. It is computed as follows:
Lo ng term debts
Debt equity ratio =
Shareholder ′ s fund
4. What does return on investment ratio indicate?
Return on investment shows the proportion of net profit before interest and tax to capital
employed (shareholders‟ funds and long term debts).
Net profit before interest and tax
Return on Investment (ROI) = × 100
Capital employed
5. State any two limitations of ratio analysis.
1. Ratios are only means:
Ratios are not end in themselves but they are only means to achieve a particular purpose.
2. Accuracy of financial information:
If the financial statements are inaccurate, ratios computed based on that will also be
inaccurate.
1. Explain the objectives of ratio analysis.
1. To simplify accounting figures
2. To facilitate analysis of financial statements
3. To analyse the operational efficiency of a business
4. To help in budgeting and forecasting
5. To facilitate intra firm and inter firm comparison of performance

2. What is inventory conversion period? How is it calculated?
Inventory conversion period is the time taken to sell the inventory. A shorter inventory
conversion period indicates more efficiency in the management of inventory.
It is computed as follows:
Number of days in a year
Inventory conversion period (in days) =
Inverntory turnover ratio
Number of months in a year

Inventory conversion period (in months) =
Inverntory turnover ratio
3. How is operating profit ascertained?
Operating profit is calculated by the following ways:
Operating profit = Gross profit* – Operating expenses**
Operating profit = Revenue from operations – Operating Cost
*Gross profit = Sales – Cost of goods sold
**Operating Cost = Selling + Office + Distribution + Administrative Expenses
4. State any three advantages of ratio analysis.
1. Measuring operational efficiency:
Ratio analysis helps to know operational efficiency of a business by finding the
relationship between operating cost and revenues and also by comparison of present ratios
with those of the past ratios.
2. Measuring financial solvency:
Ratio analysis helps to ascertain the liquidity or short term solvency and long term
solvency of a business concern.
3. Facilitating investment decisions:
Ratio analysis helps the management in making effective decisions regarding profitable
avenues of investment.
4. Analysing the profitability:
Ratio analysis helps to analyse the profitability of a business in terms of sales and
investments.
5. Intra firm comparison:
Comparison of efficiency of different divisions of an organisation is possible by comparing
the relevant ratios.
6. Inter firm comparison:
Ratio analysis helps the firm to compare its performance with other firms.

5. Bring out the limitations of ratio analysis.
1. Ratios are only means:
Ratios are not end in themselves but they are only means to achieve a particular purpose.
2. Accuracy of financial information:
The accuracy of a ratio depends on the accuracy of information taken from financial
statements. If the statements are inaccurate, ratios computed based on that will also be
inaccurate.
3. Consistency in preparation of financial statements:
Inter firm comparisons with the help of ratio analysis will be meaningful only if the firms
follow uniform accounting procedures consistently.
4. Non-availability of standards or norms:
Ratios will be meaningful only if they are compared with accepted standards or norms.
Only few financial ratios have universally recognised standards. For other ratios,
comparison with standards is not possible.
5. Change in price level:
Ratio analysis may not reflect price level changes and current values as they are calculated
based on historical data given in financial statements.
Mind Map

UNIT 10 COMPUTERISED ACCOUNTING SYSTEM-TALLY
1. Accounting report prepared according to the requirements of the user is
a) Routine accounting report b) Special purpose report
c) Trial balance d) Balance sheet
2. Function key F11 is used for
a) Company Features b) Accounting vouchers
c) Company Configuration d) None of these
3. Which submenu displays groups, ledgers and voucher types in Tally?
a) Inventory vouchers b) Accounting vouchers c) Company Info d) Account Info
4. What are the predefined Ledger(s) in Tally?
i) Cash ii) Profit & Loss A/c iii) Capital A/c
a) Only (i) b) Only (ii) c) Both (i) and (ii) d) Both (ii) and (iii)
5. Contra voucher is used for
a) Master entry b) Withdrawal of cash from bank for office use
c) Reports d) Credit purchase of assets
6. Which is not the default group in Tally?
a) Suspense account b) Outstanding expense c) Sales account d) Investments
7. Salary account comes under which of the following head?
a) Direct Incomes b) Direct Expenses c) Indirect Incomes d) Indirect Expenses
8. ₹ 25,000 withdrawn from bank for office use. In which voucher type, this transaction
will be recorded
a) Contra Voucher b) Receipt Voucher c) Payment Voucher d) Sales Voucher
9. In which voucher type credit purchase of furniture is recorded in Tally
a) Receipt voucher b) Journal voucher c) Purchase voucher d) Payment voucher
10. Which of the following options is used to view Trial Balance from Gateway of Tally?
a) Gateway of Tally -> Reports -> Trial Balance b) Gateway of Tally -> Trial Balance
c) Gateway of Tally -> Reports -> Display -> Trial Balance d) None of these
Answers:
1. b 2. a 3. d 4. c 5. b 6. b 7. d 8. a 9. b 10. c

1. What is automated accounting system?
Automated accounting is an approach to maintain up-to-date accounting records with the aid
of accounting software.
2. What are accounting reports?
Accounting report is a compilation of accounting information that are derived from the
accounting records of a business concern.
3. State any five accounting reports.
1. Day books / Journal 2. Ledger 3. Trial balance 4. Income statement
5. Balance sheet 6. Cash flow statement
4. What is Accounting Information System (AIS)?
Accounting Information System (AIS) collects financial data, processes them and provides
information to the various users. To provide information AIS requires data from other
information system that is manufacturing, marketing and human resources.
5. What is a group in Tally.ERP 9?
In 2009, Tally Solutions introduced the software Tally.ERP 9. The software offers
comprehensive business management solution. It maintains all books of accounts. Different
types of vouchers such as vouchers for receipt, payment, sales, purchases, etc.,
1. Write a brief note on accounting vouchers.
Voucher is a document which contains details of transactions. Transactions are to be recorded
through voucher entries. Tally has a set of predefined vouchers such as Purchase, Sales,
Payment, Receipt and Contra.
To view the list of voucher types:
Gateway of Tally > Masters > Accounts Info > Voucher Types > Display
2. What are the pre-defined ledgers available in Tally.ERP 9?
Tally has two predefined ledgers:
1. Cash 2. Profit & Loss A/c.
3. Mention the commonly used voucher types in Tally.ERP 9.
1. Receipt Voucher 2. Payment Voucher 3. Contra Voucher
4. Purchase Voucher 5. Sales Voucher 6. Journal Voucher
1. Receipt Voucher:
All transactions related to receipt either in cash or through bank are recorded using receipt
voucher. In this voucher, cash or bank account is debited and other ledger account is
credited. To record receipt:
Gateway of Tally > Transactions > Accounting Vouchers > F6:Receipt
2. Payment Voucher:
All transactions related to payments either in cash or through bank are recorded using
payment voucher. In this voucher, cash or bank account is credited and other ledger
account is debited. To record payment:
Gateway of Tally > Transactions > Accounting Vouchers > F5:Payment
3. Contra Voucher:
A transaction involving both cash account and bank account is recorded using contra
voucher. The transaction may be for deposit of cash into bank account or withdrawal of
cash from bank account. To record contra:
Gateway of Tally > Transactions > Accounting Vouchers > F4:Contra
4. Purchase Voucher:
Purchase vouchers are used for recording both cash and credit purchases of goods.
To record purchases:
Gateway of Tally > Transactions > Accounting Vouchers > F9:Purchase
5. Sales Voucher:
Sales vouchers are used for recording both cash and credit sales of goods.
To record sales:
Gateway of Tally > Transactions > Accounting Vouchers > F8:Sales
6. Journal Voucher:
Journal vouchers are used for recording transactions involving other than cash, bank,
purchases and sales such as depreciation, provision for bad debts. To record journal:
Gateway of Tally > Transactions > Accounting Vouchers > F7:Journal
4. Explain how to view profit and loss statement in Tally.ERP 9.
To view Profit and Loss Account
F10: A/c Reports > Profit & Loss A/c > AltF1 (detailed)
(or)
Gateway of Tally > Reports > Profit & Loss A/c > AltF1 (detailed)
5. Explain any five applications of computerised accounting system.
The applications of CAS are as follows:
1. Maintaining accounting records:
In CAS, accounting records can be maintained easily and efficiently for long time period.
2. Inventory management:
CAS facilitates efficient management of inventory. Fast moving, slow moving and
obsolete inventory can be identified.
3. Pay roll preparation:
Pay roll involves the calculation of amount due to an employee. Pay of an employee may
be calculated based on hours/days worked or units produced.
4. Report generation:
CAS helps to generate various routine and special purpose reports.
5. Data import/export:
Accounting data and information can be imported from or exported to other users within
the organisation as well as outside the organisation.
6. Taxation:
CAS helps to compute various taxes and to deduct these and deposit the same to the
Government account.
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XII - STANDARD

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 2

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 3

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 4

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 7

B) Treatment in Balance Sheet

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 8

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 9

b) For closing interest on capital account:

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 10

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 11

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 12

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 14

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 15

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 16

II. Very short answer questions:

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 18

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 19

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 20

II. Very short answer questions:

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 21

b) When the amount due is not paid immediately in cash:

c) When the amount due is partly paid in cash immediately:

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 22

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 24

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 25

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 26

II. Very short answer questions:

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 27

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 28

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 29

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 31

Number of months in a year

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 32

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 33

II.Very short answer questions:

L.PANNEERSELVAM, M.Com.,B.Ed.,M.Phil.,SET., GOVT.HR.SEC.SCHOOL, NEDUNGAL, KRISHNAGIRI DT. 8778305728 36

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