UNIT 1

1. ISSUE, FORFEITURE AND REISSUE OF SHARES

2. UNDERWRITING OF SHARES AND DEBENTURES

 CORPORATE ACCOUNTS
1.‘AB’ Limited was registered with an authorised capital of 2,00,000 shares of
Rs. 10 each. 1,40,000 shares were issued to the public. The public subscribed
for 1,00,000 shares. The company called up Rs. 7 per share. All the money
called up was duly received with the expectation of a call of Rs. 2 per share
on 1,000 shares. Show the details of share capital in Balance Sheet.

Balance sheet of AB Ltd as on 31st March

S NO. Particulars Note no. Rs.

1 Equity and Liability:
i. Shareholder’s fund 1 6,98,000
share capital
Notes to accounts
1. Share capital
Authorised capital: 20,00,000
2,00,000 shares of Rs. 10
each
Issued capital:
1,40,000 shares of Rs. 10 each 14,00,000
Subscribed shares:
Subscribed and fully paid up 99,000 6,93,000
shares of Rs. 10 each, 7 called up
Subscribed and not fully paid up 1000 shares of Rs. 10 each, 7 called up 7000

Less: calls-in-arrear (2000) 5000

6, 93,000

2. The authorised capital of a company is Rs. 15,00,000 which is divided

into 9,000, 7% preference shares of Rs. 100 each and 60,000 equity
shares Rs. 10 each. Out of these shares 8,000, 7% preference shares
and 50,000 equity share are issued on the condition that full amount
will be paid in a lump sum. All these shares were taken up and paid for
by the public. Pass necessary journal entries in the books of the
company.

S no. Particular L. F Debit Rs. Credit Rs.

 1. Bank a/c Dr. 8,00,000
To 7% preference
share capital a/c 8,00,00
(Being 8000
preference shares
issued for cash at par)
2. Bank a/c Dr. 5,00,000
To Equity share
capital a/c 5,00,000
(Being 50,000 equity
shares issued for each
as par)

3. Journalise the following transaction:

a) X Ltd. Issued 40,000 shares of Rs. 10 each for cash. The whole
amount is duly received.
b) Y Ltd. Issued 10,000 shares of Rs. 10 each for cash at a premium
of Rs. 2 each. The whole amount i8s duly received.
c) Z Ltd. Issued 1,00,000 shares of Rs. 10 each of cash at a discount
of 10 per cent. The whole amount is duly received.
d) PB Ltd. Issued 20,00 shares of Rs. 10 to a promoter, for service
rendered.
S no. Particulars L. F Debit Rs. Credit Rs.
1. Bank a/c Dr. 4,00,000
To Share capital
a/c 4,00,000
(Being 40,000
shares issued at Rs.
10 each)
2. Bank a/c Dr. 1,20,000
 To Securities
premium a/c 20,000
To Share capital
a/c 1,00,000
(Being 10,000
shares of Rs. 10
each issued at
premium at Rs. 2
3. Bank a/c Dr. 9,00,000
Discount on issue
of shares a/c Dr. 1,00,000
To Share capital
a/c 10,00,000
(Being 1,00,000
shares of Rs. 10
each issued at a
discount of Rs. 1
each)
4. Goodwill a/c Dr. 2,00,000
To Share capital
a/c 2,00,000
(Being service
rendered to the
-
promoter)
4)Afga Co Ltd. acquired land costing Rs 500000 and in payment allocated 5000
equityshares of Rs 100 each as fully paid. Further the company issued 20000
equity sharestothepublic.Thesharespayableasfollow:
Rs30onapplication
Rs30onallotment
Rs40on1standfinalcall
Thepublicappliedforallthesharesandtheywereallotted.Allthemoneywasreceivedexcept
thecallon1000shares.
Givejournalentriesandthebalancesheetofthecompany.

PARTICULARS L.F Dr Cr
Landa/c Dr 500000500,000
Tosharecapitala/c 500,000
(Being land purchased and in return
5000equity shares of Rs 100 each
allotted to vendor)
600,000
Bankacc A/c Dr 600,000
Toshareapplicationacc A/c

(Being equity share application money

received 20000shares @20 each)

Shareapplication accDr 600,000

Tosharecaptialacc A/c 600,000
(Being equity share application money
transferred to share capital)
Share allotment a/c Dr 600,000
To share capital a/c 600000
(Being equity share allotment due on
20000 share of 30 per share )
Bank a/c Dr 600,000
To share capital a/c 600,000
(Being share captial money received)
Share first call a/c Dr 800,000
To share capital a/c 800,0000

((Being share call due on 20000 of 40

per share of the board of directors)
Bank a/cDr 760000
Toshare first calla/c 760000

(Being share call money received)

 NOTES TO ACCOUNTS
1. Share 250000
captial
issued
paid up
Less:
Calls in 196000
arrears 0
2. Assets 500000

BALANCE SHEET AS ON …………….

I. Equityshares&Liability NoteNo
1. shareholderfunds
sharecaptial 1 2460000

2. Noncurrentliability
3. Currentliablity

TOTAL 2460000

II. Assets
1. Noncurrentasset
a.fixedassets
tangible(land) 2 500000

2. Currentasset
Cashatbank 1960000

TOTAL 2460000
5. BalaCoLtdwasregisteredwithasharecaptialofRs1000000insharesofRs100each.
ThecompanyacquiredthebusinessofM/sSundar&SonsforRs200000payable
astoRs150000infullypaidsharesandthebalanceincash.Thedirectorsalsodeci
dedtoallot150sharescreditedasfullypaidtothepromotersfortheirservice.

Passtheentriesinthebookofthecompany.

PARTICULAR LF DEBIT CREDIT

Sundar&Sonsacc Dr 200000
Tosharecaptiala/c 150000
Tocash 50000
(Beingtheconsiderationpaidtosundar,,
with2000sharesworthofRs100andbala
ncebycash)

Goodwillacc Dr 15000
Tosharecaptiala/c 15000
(Being150sharesofRs100
issuedtopromotersforth
eirservice)
6. GaneshLtdissuedprospectusinvitingapplicationsforRs10000equitysharesofRs10

each,payableasfollows
On applicationRs 2 per
shareon allotment Rs 4
per
shareonfirstcallRs4pershar
e
The issued if fully subscribed. Pass journal entries in the book of
Ganesh
Ltdassumingthatallpaymentdueasstatedabovewerereceived.

PARTICULARS L.F Dr Cr
Bank a/c Dr 20,000
Toshareapplicationa/c 20,000
(Being application money received)

Shareapplicationacc Dr 20,000
Tosharecaptiala/c 20,000
(Being application money transferred
to captial)
Share allotment a/c Dr 40,000
To share capital a/c 40000
Being share allotment amount due @
4 per share)
Bank a/c Dr 40,000
To share allotment a/c 40,000
(Being the amount received on
allotment)
Share first call a/c Dr 40,000
To share capital a/c 40000

(Being the call amount due @ 4 per

share )
Bank a/cDr 40,000
Toshare first calla/c 40,000

(Being the call money received)

OTHER EXERCISES
SUM NO.7
Ram Ltd. Invited application of 1,40,000 shares of Rs. 10 each payable Rs.2 on application, Rs.2
on allotment, and Rs.6 on first and final call. The company received application for 2,00,000
shares and pro-rata allotment was made. Pass necessary journal entries and prepare cash book,
assuming all the instalments were duly received.
JOURNAL ENTRIES

S.NO PARTICULARS L.F DEBIT CREDIT WORKINGS

Rs. Rs.
1. Bank A/C Dr. 4,00,000 2,00,000x2
To Share Application A/C 4,00,000
(Being application money received on
2,00,000 shares of Rs.2 each)
2. Share Application A/C Dr. 4,00,000 2,00,000x2
To Share Capital A/C 2,80,000 1,40,000x2
To Share Allotment A/C 1,20,000 4,00,000-
(Being application money transferred) 2,80,000
3. Share Allotment A/C Dr. 2,80,000 1,40,000x2
To Share Capital A/C 2,80,000
(Being allotment money due)
4. Bank A/C Dr. 1,60,000 2,80,000-
1,20,000
To Share Allotment A/C 1,60,000
(Being allotment money received)
5. Share First Call A/C Dr. 8,40,000 1,40,000x6
To Share Capital A/c 8,40,000
(Being first call money due)
6. Bank A/C Dr. 8,40,000 1,40,000x6
To Share First Call A/C 8,40,000
(Being first call money received)
 CASH BOOK (BANK COLUMN)
RECEIPT RS. PAYMENT RS.

To Share Application A/C 4,00,000 By Balance C/D 14,00,000

To Share Allotment A/C 1,60,000

To First and Final Call A/C 8,40,000

14,00,000 14,00,000

To Balance B/D 14,00,000

SUM NO.8
The Bangalore Bottling Co. Ltd issued a prospectus inviting applications for 1,00,000 equity
shares of Rs.10 each, payable of Rs. 2 on application, Rs.3 on allotment and the balance at the
discretion of the directors. Applications for 1,20,000 shares were received. The directors allotted
the shares as follows:

To applicants of 80,000 shares-Full allotment

To applicants of 30,000 shares-20,000 shares
To applicants of 10,000 shares-Nil.
Give journal entries assuming that all the sum due on allotment has been received and no call
has been made.
JOURNAL ENTRIES

S.NO PARTICULARS L.F DEBIT CREDIT WORKINGS

RS. RS.
1. Bank A/C Dr. 2,40,000 1,20,000x2
To Share Application A/C 2,40,000
(Being application money received on
1,20,000 shares of Rs. 2 each)
2. Share Application A/C Dr. 2,40,000 1,20,000x2
To Share Capital A/C 2,00,000 1,00,000x2
To Bank A/C 20,000 10,000x2
To Share Allotment A/C 20,000 10,000x2
(Being application money transferred)
3. Share Allotment A/C Dr. 3,00,000 1,00,000x3
To Share Capital A/C 3,00,000
(Being allotment money due)

4. Bank A/C Dr. 2,80,000 3,00,000-

20,000
To Share Allotment A/C 2,80,000
(Being allotment money received)
SUM NO.9
A company offered for public subscription 20,000 equity shares of Rs.100 each payable as Rs.20
per share on application, Rs.30 on allotment, Rs.20 three months after allotment and the balance
six months after allotment. The offer was subscribed by 5000 shares and the amount due on
allotment was received in full. Rs.3,80,000 and Rs.5,55,000 were received on first, second and
final calls respectively. You are required to give the journal entries for the above information.

S.NO PARTICULARS L.F DEBIT CREDIT WORKINGS

RS. RS.
1. Bank A/C Dr. 5,00,000 25,000x20
To Share Application A/C 5,00,000
(Being application amount received on
25,000 shares of Rs. 20 each)
2. Share Application A/C Dr. 4,00,000 20,000x2
To Share Capital A/C 4,00,000
(Being application money transferred)
3. Share Application A/C Dr. 1,00,000 5000x20
To Bank A/C 1,00,000
(Being application money rejected)
4. Share Allotment A/C Dr. 6,00,000 20,000x30
To Share Capital A/C 6,00,000
(Being allotment money on due)
5. Bank A/c Dr. 6,00,000 20,000x30
To Share Allotment A/C 6,00,000
(Being allotment money received)
6. Share First Call A/C Dr. 4,00,000 20,000x20
To Share Capital A/C 4,00,000
(Being share first call amount due)
7. Bank A/C Dr. 3,80,000 4,00,000-
20,000
To Share First Call A/C 3,80,000
(Being share first call money received)
8. Share Second Call A/C Dr. 6,00,000 20,000x30
To Share Capital A/C 6,00,000
(Being share second call money due)
9. Bank A/C Dr. 5,55,000 6,00,000-
45,000
To Share Second Call A/C 5,55,000
(Being share second call money received)
10)

10.Altdcompany issued10,000sharesofrs.10eachpayableasunder:
Rs.2onapplication;rs3onallotment;rs.3onfirstcallandrs.2onsecondcall.
The public applied for 9000 shares . the final call was not made. All the money due on these
shareswasreceivedexceptyhefirstcall on400shares.

PARTICULARS DEBIT CREDIT

Banka/c (9000*2) dr 18000
To share application a/c 18000
(receipt of application money)
Share application a/c dr 18000
To share capital a/c 18000
(transfer application money to share capital)
Share allotment A/c dr. 27000
To share capital 27000
(due amount on share allotment money)
Banka/c dr 27000
To share allotment a/c 27000
(receipt of allot money)
Share first call a/c dr 27000
To share capital a/c 27000
(due amount on share first call)
Banka/c dr 25800
To share first call a/c 25800
(receipt of share first call
money;400shares unpaid)

Dr. Bank a/c Cr.

Particulars Amount Particulars Amount

To Share Application a/c 18,000 By balance c/d 70,800
To Share Allotment a/c 27,000
To Share 1st Call a/c 25,800

70,800 70,800

Dr. Share Capital a/c Cr.

Particulars Amount Particulars Amount

To balance c/d 72,000 By Share Application a/c 18,000
By Share Allotment a/c 27,000
By Share 1st Call a/c 27,000

72,000 72,000
Balance Sheet

Particulars Note no. Amount

I. Equity and Liabilities
Shareholder’s fund
Share Capital 1 70,800
Total 70,800
II. Assets
Current Assets
Bank 2 70,800
Total 70,800

NOTES TO ACCOUNTS

1. Share Capital
Called up and paid capital
9,000 shares @ Rs. 8 72,000
Less: Calls-in-arrears (400x3) 1,200 70,800
2. Bank 70,800
Q. 11
On 1st April 1995, A Ltd. Issued 50000 shares of Rs.100 each payable as follows:
By 20th May 40000 shares were applied for and all applications were accepted.
Rs.20 on application
Rs30 on allotment
Rs 25 on 1st 0ct 1995 and
Rs 25 on 1st Feb 1996
All sums due on allotment were received on 15th July. Those on 1st call were received on
20th October.
on 20th October. When accounts were closed on 31st March 1996, the second and final call
on 400 shares had not been received. Journalise these transactions

PARTICULARS DR CR
Bank a/c Dr
800000
To share application a/c
800000
(Being Money received on application of
shares)
Share application a/c Dr 800000
To share capital a/c 800000
(Being amount transferred to share capital)
Share allottment a/c Dr 1200000
To share capital a/c 1200000
(Being amount transferred to share capital)
Bank a/c Dr 1200000
To share allottment a/c 1200000
(Being amount received on allottment)
Share first call a/c Dr 1000000
To share capital a/c 1000000
(Being amount transferred to share capital)
Share second call a/c Dr 1000000
To share capital a/c 1000000
(Being amount transferred to share capital)
Bank a/c Dr 990000
10000
Calls in arrears a/c Dr

To Share second call a/c 1000000

(Being amount received on second call
except for 400 shares rs 25 each)
 Q. 12

K.Ltd issued 75000 equity shares of Rs.10 each and 5000 12% preference shares of Rs.100
each payable as under:

Equity Preference
shares shares
On
application 2 20
On allotment 2 30
On first call 3 50
On second 3
call
The company received applications for 135000 equity shares and 4500
preference shares. Applications totalling for 10000 equity shares were rejected.
Allotment on other applications for equity shares were made on
pro-rata basis. All applications for preference shares were accepted in full.
Calls were made on due dates. All moneys were duly received. Show journal
entries for the above mentioned transactions.

Working Notes:

135000 x 2 = 270000
75000 x 2 = 150000
10000 x 2 = 20000

Excess transferred to allotment: 270000 – 150000 – 20000 = 100000

PARTICULARS DR CR

Bank a/c Dr 360000

To Equity share application 270000
To Equity share allotment 90000
(Being amount received on application
of equity shares, excess 10000 shares
rejected and remaining amount to be
adjusted on pro-rata basis)
Equity share application a/c Dr 270000
Preference share application a/c Dr 90000
To equity share capital a/c 180000
To preference share capital a/c 90000
To bank 20000
To equity share allotment 100000
(Being amount transferred to share capital and excess
returned)
Equity share allotment a/c dr 150000
Preference share allotment a/c dr 135000
To equity share capital 150000
 To preference share capital 135000
(Being amount received on allotment
transferred to share capital)
Bank a/c Dr 185000
To Equity share allotment 50000
To preference share allotment 135000
(Being amount received on allotment of
equity and preference shares)
Equity share first call a/c 225000
Dr 225000
Preference share first & 225000
final call Dr 225000
To equity share capital
To preference share
capital

(Being amount received

on first call transferred to
share capital)
Bank a/c Dr 450000
To Equity share first call 225000
To preference share first and final call 225000
(Being amount received on first call)
Equity share second call a/c Dr 225000
To equity share capital 225000
(Being amount received on second call transferred to
equity share capital)
Bank a/c Dr 225000
225000
To equity share second call a/c
(Being amount received on second call)
 Q. : 13
A company made an issue of 30000 shares of Rs. 10 each payable Rs.3 on application, Rs. 5 on
allotment, Rs. 2 on call. 93200 shares were applied for and owing to this heavy over subscription
allotments were made as follows:
Applicants for 21500 shares received 10200 shares, applicants for 50600 shares received 12600
shares, applicants for 21100 shares received 7200 shares.
Excess application money of all the pro rata applicants was
applied towards allotment and call moneys and any
balance was then returned.

All moneys due on allotment and call were realised.

Write up the cash A/c and ledger accounts relating to this
issue of shares.

No of shares application No of shares Actual Excess

applied money allotted application
money

1st lot 21500 64500 10200 30600 33900

2nd lot 50600 151800 12600 37800 114000
3rd lot 21100 63300 7200 21600 41700

Working Notes:

Excess
1. 64500 – 30600 = 33900
2. 151800 – 37800 = 114000
3. 63300 – 21600 = 41700

Money for allotment

1. 10200 x 5 = 51000
51000 – 33900 = 17100
2. 12600 x 5 = 63000
114000 – 63000 = 51000
3. 7200 x 5 = 36000
41700 – 36000 = 5700

Excess transferred to 1st call

1. 10200 x 2 = 20400
51000 – 20400 = 30600
2. 12600 x 2 = 25200
51000 – 25200 = 25800
3. 7200 x 2 = 14400
14400 – 5700 = 8700
PARTICULARS DR CR
Bank a/c Dr 279600
To share application a/c 279600
(Being money received on application)
Share application a/c dr 279600
To share capital 90000
To share allotment 132900
To share call 30900
To bank a/c 25800
(Being amount received on application
transferred to share capital
and excess on application transferred to
allotment and call on pro-rata basis, with
excess being returned)
Share allotment a/c Dr 150000
To share capital 150000
(Being amount received on allotment
transferred to share capital)
Bank a/c dr 17100
To share allotment 17100
(Being money adjusted for allotment)
Share 1st call a/c dr 60000
To share capital 60000
(Being amount transferred to share capital)
Bank a/c Dr 29100
To share 1st call 29100
(Being money adjusted for call)

LEDGER ACCOUNTS

Cash book

Dr Particulars cash bank Cr Particulars cash bank

To share application 279600 By share 25800
application
To share allotment 17100 By bal c/d 300000
To share call 29100
325800 325800

Share application a/c

Dr Particulars ₹ ₹ Cr Particulars ₹ ₹
To share capital 90000 By bank 279600
To share allotment 132900
To share call 30900
To bank 25800
279600 279600
 Share allotment a/c

Dr Particulars ₹ ₹ Cr Particulars ₹ ₹
To share capital 150000 By Share application 132900
By bank 17100
150000 150000

Share call a/c

Dr Particulars ₹ ₹ Cr Particulars ₹ ₹
To share capital 60000 By share application 30900
By bank 29100
60000 60000
 Share capital a/c

Dr Particulars ₹ ₹ Cr Particulars ₹ ₹
To bal c/d 300000 By share application 90000
By share allotment 150000
By share call 60000
300000 300000
Q. 14

Dee Ltd offered to the public 20,000 equity shares of Rs. 100 each @ a premium of Rs. 10 per. Share
The payment was to be made as follows;

On application Rs:20

On Allotment Rs:40 ( including premium) On 1st call Rs:25 , on 2nd call Rs :25

Application totalled for 35,000 shares , application for 10,000 shares were rejected; those totaling
15000 shares were alloted 10,000 shares and the remaining application were accepted in full. The
directors made both the calls . One shareholder, holding 500 shares ( full allottee) failed to pay the
calls. Expenses of the issue amounted Rs. 10,000.

Pass journal entries and relevant extracts from the balance sheet relating to the above transportation.

Particulars Debit Credit

Bank a/c (35000×20 ) Dr 700,000

To share Application 700,000

(Being share appreciate received)

Share application A/ c Dr 700,000

To share capital A/c (20000×20) 400,000

To Bank a/c (10000×20) 200,000

To share allotment a/c 100,000

(5000×20)

(Being application money received)

Share allotment a/c dr 8,00,000

To securities premium 200000

(20000×10)

To share capital a/c 600,000

( due entry for allotment )

Bank a/c DR. 7,00,000

To share allotment a/c 7,00,000

(Being share allotment duely received)

Share 1st call a/c DR. 5,00,000

To share capital a/c 5,00,000

(Being share 1st call money due)

Bank a/c (5,00,000-(500×25)) DR. 4,87,500

To share 1st call a/c 4,87500

(Being share first call money received)

Share 2nd call a/c (20,000*25) DR. 5,00,000

To share capital a/c 500,000

(Being share 2nd call money due)

Bank A/c ( 5,00,000-12500) DR. 487500

To share 2nd call a/c 487500

(Being 2nd call money received)

Notes to accounts :-

1. Share capital Rs

subscribed and paid up capital

20,000 shares of Rs 100 each 20,00,000

Less: calls in arrear of 500 -25000

shares 19,75,000

2. Reserve and surplus

security premium 2,00,000

20,000×10
Balance sheet as on ……….

PARTICULARS NOTE NO RS
|.Equity &liability

1.Shareholders fund

equity share 1. 19,75, 000

2.Reserve and surplus 2 2,00,000

21,75,000

||. ASSET

Current asset

Bank 2175000

21,75,000

Q 15.)

Company issued 6000 shares of rupees 10 each payable at premium of Rs:3 per share installments
where fixed as under :

Rs:3 on application (including Rs:1 for premium ) Rs:3 on allotment( including Rs:1 for premium) Rs:7
on call (including rs:1 Premium )

All the amounts were duly received. prepare cash account in the books of the company and pass
necessary journal entries.

PARTICULARS DEBIT CREDIT

Bank a/c (6000×3) dr 18,000

To share allotment 18,000

( being share application received)

Share application a/c dr 18,000

To share capital (6000×2) 12,000

To sec premium a/c 6000

( being amt transferred to share capital )

PARTICULARS DEBIT CREDIT

Share allotment a/c(6000×3) 18,000

To share capital 12,000

To security premium 6000

(Being share allotment due)

Bank a/c dr 18,000

To share allotment 18000

(Being share allotment duly received)

Share 1st call a/c (6, 000×7) dr 42,000

To share capital 36,000

To security premium a/c 6000

(Being share first call due)

Bank a/c dr 42,000

To share 1st call a/c 42000

( being share first call &final call duly received)

CASH BOOK (BANK COLUMN ONLY )

Particulars Rs Particulars Rs

To share application 18,000 By balance c/d 78,000

To share allotment 18,000

To share 1st call 42,000

78,000 78,000

To balance b/d 78000

Q. 16

1,00,000 equity shares of rs.10 each at a premium of rs.2 per share payable as follows:

Rs.2 on application ; rs.5 on allotment (including premium); rs.3 on first call; rs.2 on second call. All
the shares offered were subscribed and cash received duly. Make jounal entries and prepare cash
book entries.

PARTICULARS DEBIT CREDIT

Bank a/c dr 200,000

To share application a/c 200,000

(receipt of application money)

Share application a/c dr 200000

To share capital a/c 200000

(transfer application money to share capital )

Share allotment a/c dr 500000

To security premiun 200000

To share capital 300,000

(due amt on allotment with premium)

Bank a/c dr 500,000

To share allotment a/c 500,000

(receipt of sh allotment money )

Share first call a/c 300,000

To share capital a/c 300,000

(due amt on first call)

Bank a/c 300,000

To share first call a/c 300000

(receipt of first call amt )

Share second call a/c 200,000

To share capital a/c 200,000

(due amt on second call)

Bank a/c dr. 200,000

To share second call a/c 200,000

(receipt of second call money )

CASH BOOK (BANK COLUMN ONLY )

PARTICULARS AMT PARTICULARS AMT

To share application a/c 200000 By balance c/d 1200000

To share allotment a/c 500000

To share first call A/c 300000

To share second call a/c 200000

1200000 1200000

To balance b/d 1200000

 CORPORATE ACCOUNTING ASSIGNMENT
ISSUE, FORFEITURE AND REISSUE OF SHARES

Q17) Prosperous Co. Ltd., invited applications for 1,00,000 shares of Rs.
10 each at a premium of Rs. 2 per share. The shares are payable Rs. 3
on application, Rs.5 on allotment (including premium), Rs. 4 on first and
final call.

There was over subscription and applications were received for

1,90,000 shares. Allotment was made as under:

Shares applied Shares allotted

To applicants of 80000 80000
To applicants of 10000 Nil
To applicants of 100000 20000

Excess money paid on application was adjusted against sums due on

allotment and first and final call. All money due were received. Find out
the total amount refunded to applicants and pass journal entries in the
books of company.

Ans:
S. Particulars L.F Debit Credit
No
1. Bank A/c Dr 5,70,000
To share application A/c 5,70,000
( Being application money received)

2. Share application A/c Dr 5,70,000

To share capital A/c 3,00,000
To share allotment A/c 1,00,000
To bank A/c 90,000
To share final call A/c 80,000
(Being application money transferred, money
adjusted towards allotment and final call
and money refunded)
3. Share allotment A/c Dr 5,00,000
To share capital A/c 3,00,000
To Securities premium A/c 2,00,000
(Being allotment made)
4. Bank A/c Dr 4,00,000
To share allotment A/c 4,00,000
(Being allotment money received )
5. Share final call A/c Dr 4,00,000
To share capital A/c 4,00,000
(Being final call made)
6. Bank A/c Dr 3,20,000
To share final call A/c 3,20,000
(Being amount received for final call)
W.N:
Shares Application No. of Application excess Actual 1st call return
applied amount shares money allotment
received allotted actual

80,000 2,40,000 80,000 2,40,000 - - - -

10,000 30,000 - 0 - - - 30,000
1,00,000 3,00,000 20,000 60,000 2,40,000 1,00,000 80,000 60,000
1,90,000 5,70,000 1,00,000 3,00,000 2,00,000 1,00,000 80,000 90,000

Q18) Rakesh Ltd. Issued to public 5,000 equity shares of Rs. 100 each at
a premium of Rs. 10 per share payable as follows:

On application Rs. 20

On allotment Rs. 40

On first and final call Rs. 50

Applications were received for 4,000 shares and all were accepted. All
money due were fully received except the first and final call on 300
shares. Pass journal entries and prepare the balance sheet.
Ans:

S. Particulars L.F Debit Credit

No
1. Bank A/c Dr 80,000
To share application A/c 80,000
(Being application money received)
2. Share application A/c Dr 80,000
To share capital A/c 80,000
(Being application money transferred to
share capital account)
3. Share allotment A/c Dr 1,60,000
To share capital A/c 1,20,000
To securities premium A/c 40,000
(Being allotment made)
4. Bank A/c Dr 1,60,000
To share allotment A/c 1,60,000
(Being allotment money received)
5. Share first and final call A/c Dr 2,00,000
To share capital A/c 2,00,000
(Being final call made)
6. Bank A/c Dr 1,85,000
To share first and final call A/c 1,85,000
(Being final call amount due received )
 BALANCE SHEET OF RAKESH LTD. AS ON….

PARTICULARS NOTE NO. Rs.

I. EQUITY & LIABILITIES

i. Shares holders’ funds:
Share capital 1 3,85,000
Reserves and surplus 2 40,000
ii. NCL -
iii. CL -

TOTAL 4,25,000
II. ASSETS
i. NCA
ii. CA:
Cash & bank 4,25,000

TOTAL 4,25,000

Note To Accts:

Particulars Amount
1.Share Capital 5000*100 500000
Issued Share Capital 4000*100 400000
Subscribed Fully Called Up Partly Paid Up 4000*50
Less Calls In Arrears 300*50 200000
Total 15000
2. Reserves and surplus 3,85,000
Securities premium
Total
40000
40000
Q30) A company issued 1,00,000 shares of Rs. 10 each payable as to Rs.
1 on application, Rs. 2 on allotment, Rs. 3 on first call and Rs. 4 on final
call. All the amounts were received with the following exceptions:

P holding 1,000 shares has not paid the money due on allotment and
calls. A who holds 500 shares had not paid the money due on first and
final calls. K who holds 300 shares has not paid the money due on final
call.

The shares of P, A and K were, therefore, fortified. These shares were

subsequently reissued at a discount of 5%.
Pass journal entries recording the above issue of shares.

Ans:

S. Particulars L.F Debit Credit

No
1. Forfeited shares:
Share capital A/c 10,000
Dr 2,000
To share allotment A/c 3,000
To share first call A/c 4,000
To share final call A/c 1,000
To forfeited calls A/c
(Being 1000 shares of P forfeited)
2. Share capital A/c 5,000
Dr 1,500
To share first call A/c 2,000
To share final call A/c 1,500
To forfeited calls A/c
(Being 500 shares of A forfeited)
3. Share capital A/c 3,000
Dr 1,200
To share final call A/c 1,800
To forfeited calls A/c
(Being 300 shares of K forfeited)
4. Reissue:
Bank A/c 9,500
Dr 500
Share forfeited A/c 10,000
Dr
To share capital A/c
(Being 1000 shares of P reissued)
5. Share forfeited A/c 500
Dr 500
To capital reserve A/c
(Being 500 shares of A reissued)
6. Share forfeited A/c 1,250
Dr 1,250
To Capital reserve A/c
(Being 300 shares of K reissued)
7. Bank A/c 2,850
Dr 150
Shares forfeited A/c 3,000
Dr
To share capital A/c
(Being amount received on reissue)
9. Share forfeited A/c 1,650
Dr 1,650
To capital reserve A/c
(Being amount transferred to capital
reserve)
31) Gopu Industries Ltd. issued 50,000 shares of Rs. 20 each at par. The
following are the details of the amounts payable.
Date Call Rs. per share
1997 June 30 Application 4
1997 Sept. 30 Allotment 5
1997 Dec. 31 First call 3
Except Rajan, a shareholder holding 1,000 shares failed to paythe allotment
amount and the first call, all the other amounts were received. On March 15,
1998, the shares of Rajan were forfeited. Show the journal entries in the books
of the company for the above transactions.
ANS:
S No. Particulars Debit Credit
A Bank a/c (50,000x4) Dr 2,00,000
To Share Applications a/c 2,00,000
(Application money received)
B Share Applications a/c Dr 2,00,000
To Share Capital a/c 2,00,000
(Application money transferred to Share capital)
C Share Allotment a/c (50,000x5) Dr 2,50,000
To Share Capital a/c 2,50,000
(Called up Allotment money)
D Bank a/c (49,500x5) Dr 2,45,000
To Share Allotment a/c 2,45,000
(Allotment money received except for 1,000
shares)
E Share 1st call a/c (50,000x3) Dr 1,50,000
To Share Capital a/c 1,50,000
(1st call made)
F Bank a/c (49,000x3) Dr 1,47,000
To Share 1st call a/c 1,47,000
(1st call money received except for 1,000 shares)
G Share Capital a/c (1,000x12) Dr 12,000

To Share Forfeiture a/c (1,000x4) 4,000

To Share Allotment a/c (1,000x5) 5,000
To Share 1st call a/c (1,000x3) 3,000
 (1,000 shares forfeited)

32) A Ltd. Issued 10,000 equity shares of Rs. 10 each payable as under:
Rs. 2 on application
Rs. 5 on allotment
Rs. 3 on first and final call.
The public applied for 8,000 shares which are allotted. All the money due on
shares was received except the first and final call on 100 shares. These shares
were forfeited and reissued at Rs. 8 per share. Show the journal entries in the
books of the company.
ANS:
S No. Particulars Debit Credit
A Bank a/c (8,000x2) Dr 16,000
To Share Application a/c 16,000
(Applications money received)
B Share Application a/c Dr 16,000
To Share Capital a/c 16,000
(Application money received)
C Share Allotment a/c (8,000x5) Dr 40,000
To Share Capital a/c 40,000
(Called up Allotment money)
D Bank a/c Dr 40,000
To Share Allotment a/c 40,000
(Allotment money received)
E Share 1st call a/c (8,000x3) Dr 24,000
To Share Capital a/c 24,000
(1st call made)
F Bank a/c (7,900x3) Dr 23,700
To Share 1st call a/c 23,700
(1st call money received except for 100 shares)
G Share Capital a/c (100x10) Dr 1,000
To Share Forfeiture a/c (100x7) 700
To Share 1st call a/c (100x3) 300
(100 shares forfeited)
H Bank a/c (100x8) Dr 800
Share forfeiture a/c (100x2) Dr 200
To Share Capital a/c 1,000
(100 shares reissued at Rs.8)
I Share forfeiture a/c (700-200) Dr 500
To Capital Reserve a/c 500
(Balance transferred to Capital Reserve a/c)

33) Bhooma Ltd. Issued 50,000 shares of Rs. 100 each payable as follows:
Rs. 20 on application; Rs. 30 on allotment;
Rs. 25 on first call and Rs. 25 on final call.
The company received applications for 40,000 shares and all these applications
were accepted. All sums due on allotment, first and final calls were received
except the final call on 400 shares. These 400 shares were subsequently
forfeited by the company and reissued at Rs. 80 per share. Give journal entries
in the books of the company.
ANS:
S No. Particulars Debit Credit
A Bank a/c (40,000x20) Dr 8,00,000
To Share Application a/c 8,00,000
(Applications money received)
B Share Application a/c Dr 8,00,000
To Share Capital a/c 8,00,000
(Application money received)
C Share Allotment a/c (40,000x30) Dr 12,00,000
To Share Capital a/c 12,00,000
(Called up Allotment money)
D Bank a/c Dr 12,00,000
To Share Allotment a/c 12,00,000
(Allotment money received)
E Share 1st call a/c (40,000x25) Dr 10,00,000
To Share Capital a/c 10,00,000
(1st call made)
F Bank a/c Dr 10,00,000
 To Share 1st call a/c 10,00,000
(1st call money received)
G Share 2nd call a/c (40,000x25) Dr 10,00,000
To Share Capital a/c 10,00,000
(2nd call made)
H Bank a/c (39,600x25) Dr 9,90,000
To Share 2nd call a/c 9,90,000
(2nd call money received except for 400 shares)
I Share Capital a/c (400x100) Dr 40,000
To Share Forfeiture a/c (400x75) 30,000
To Share 2nd call a/c (400x25) 10,000
(400 shares forfeited)
J Bank a/c (400x80) Dr 32,000
Share forfeiture a/c (400x20) Dr 8,000
To Share Capital a/c (400x100) 40,000
(400 shares reissued at Rs.80)
K Share forfeiture a/c (30,000-8,000) Dr 22,000
To Capital Reserve a/c 22,000
(Balance transferred to Capital Reserve a/c)
34. B ltd issued 1,00,000 equity shares of rs.10 each payable Rs2.50 each on
application, allotment, first call and final calls respectively.
Application for 80000 shares were received and allotment was done in full. By the
end of the accounting year on 31.12.89, the following amounts werereceived.
On 60000 shares – full amount
On 18000 shares – 7.5Rs per share

On 500 shares – Rs5 per share

On 1500 share – Rs2.50 per share
shares on which less than rs75 had been paid were forfeited and reissuedat rs8 per
share on the same date
Pass entries and show the balance sheet of the company.

Date Particulars Debit Credit

Bank a/c dr 200000
To share application a/c 200000
Share application a/c dr 200000
To share capital a/c 200000
Share allotment a/c dr 200000
To share capital a/c 200000
Bank a/c dr 196250
To share allotment a/c 196250
Share first call a/c dr 200000
To share capital a/c 200000
Bank a/c dr 195000
 To share first call a/c 195000
Share final call a/c dr 200000
To share capita a/c 200000
Bank a/c dr 150000
To share final call a/c 150000
Share capital a/c dr 5000
To share forfeited a/c 2500
To share first call a/c 1250
To share final call a/c 1250
Share capital a/c dr 15000
To share forfeited a/c 3750
To share allotment a/c 3750
To share first call a/c 3750
To share final call a/c 3750
Bank a/c dr 16000
Share forfeited a/c 4000
To share capital a/c 20000
Share forfeited a/c dr 2250
To capital reserve a/c 2250

Balance sheet of b Ltd as on 31.12.89

 I. Equity and liabilities: Rs 7,57,250
• Shareholder’s funds:
Share capital
• Non-current liabilities
7,57,250
• Current liabilities
Total:

II. Assets:
• Non-current assets
• Current assets 1,28,100
Cash at bank Total:
1,28,100

35. XYZ company ltd made a public issued of 20000 equity sharesof rs100 each at a
premium of rs10 each. The amount payable is as under:
Application Rs25 + Allotment (25+ 10) + 1st Call Rs30 + 2nd Call Rs20
All the shares were subscribed when calls were made, except on100 shares of Mr
Arjun who failed to pay the first and final call, all moneys were received. The
directors have forfeited these shares, and reissued them at rs75 each as fully paid.
given the necessaryjournal entries.

Date particulars Debit Credit

Bank a/c dr 500000
To share application a/c 500000
Share application a/c dr 500000
To share capital a/c 500000
Share allotment a/c dr 700000
To share capital a/c 500000
To share premium a/c 200000
Bank a/c dr 700000
To share allotment a/c 700000
Share first call a/c dr 600000
To share capital a/c 600000
Bank a/c dr 597000
 To share first call a/c 597000
Share final call a/c dr 400000
To share capita a/c 400000
Bank a/c dr 398000
To share final call a/c 398000
Share capital a/c dr 10000
To share forfeited a/c 5000

To share first call a/c 3000

To share final call a/c 2000
Bank a/c dr 7500
Share forfeited a/c 2500
To share capital a/c 10000
Share forfeited a/c dr 2500
To capital reserve a/c 2500
36. M Ltd issued a prospectus offering 10000 equity shares ofrs20 each at
rs22per share, payable as follow:
On application rs3 per share
On allotment rs8 per share (including premium)On first call
rs6 per share
On final call rs5 per share
Applications were received for 10000shares and all money on allotment, first call
and final call were received expect the final callamount on one holding of 400
shares. These shares were forfeited and 300 of these were subsequently reissued at
rs20 pershare, fully paid up. Make the journal entries (including for cash).

Date particulars Debit Credit

Bank a/c dr 30000
To share application a/c 30000
Share application a/c dr 30000
To share capital a/c 30000
Share allotment a/c dr 80000
To share capital a/c 60000
 To share premium a/c 20000
Bank a/c dr 80000
To share allotment a/c 80000
Share first call a/c dr 60000
To share capital a/c 60000
Bank a/c dr 60000
To share first call a/c 60000
Share final call a/c dr 50000
To share capita a/c 50000
Bank a/c dr 48000
To share final call a/c 48000
Share capital a/c dr 8000
To share forfeited a/c 6000
To share final call a/c 2000
Bank a/c dr 6000
To share capital a/c 6000
Share forfeited a/c dr 4500
To capital reserve a/c 4500
 QUESTION NO: 37
New line Ltd. Issued 20,000 shares of Rs. 10 each at a premium of Rs. 2 payable as
follows:
On Application – Rs. 2
On Allotment - Rs. 5 (including premium)
On First Call - Rs. 2
On Final Call - Rs. 3
Applications for 15,000 shares were received and all these shares were allotted. The
first call was made and the amount due thereon was received except the amount on
500 shares. Hence, these shares were forfeited and reissued at Rs. 7 each, as fully
paid up.
Pass journal entries in the books of the company.
Solution:
S.NO PARTICULARS L.F DEBIT CREDIT

1. Bank A/c Dr 30,000

To. Share Application A/c 30,000

2. Share Application A/c Dr 30,000

To. Share capital A/c 30,000

3. Share Allotment A/c Dr 75,000

To. Share capital A/c 45,000

To. Securities premium A/c 30,000

4. Bank A/c Dr 75,000

 To. Share Allotment A/c 75,000

5. Share First Call A/c Dr 30,000

To. Share capital A/c 30,000

6. Bank A/c Dr 29,000

To. Share First Call A/c 29,000

7. Share capital A/c Dr 3,500

To. Share forfeited A/c 2,500

To. Share First Call A/c 1,000

8. Bank A/c Dr 3,500

Share forfeited A/c Dr 1,500

To. Share Capital A/c 5000

9. Share forfeited A/c Dr 1000

To. Capital Reserve A/c 1000

QUESTION NO: 38
Raj Ltd., issued 10,000 shares of Rs. 100 each at Rs. 120 payable as follows:
Rs. 25 on application
Rs. 45 on allotment (including premium)
 Rs. 20 on first call and
Rs. 30 on final call
9,000 shares were applied for and were allotted. All moneys were received with the
exception of the first and final calls on 200 shares held by Alagar. These shares were
forfeited.
Give journal entries to record the above transactions.
Solution:
S.NO PARTICULARS L.F DEBIT CREDIT

1. Bank A/c Dr 2,25,000

To. Share Application A/c 2,25,000

2. Share Application A/c Dr 2,25,000

To. Share capital A/c 2,25,000

3. Share Allotment A/c Dr 4,05,000

To. Share capital A/c 2,25,000

To. Securities premium A/c 1,80,000

4. Bank A/c Dr 4,05,000

To. Share Allotment A/c 4,05,000

5. Share First Call A/c Dr 1,80,000

To. Share capital A/c 1,80,000

6. Bank A/c Dr 1,76,000

To. Share First Call A/c 1,76,000

 7. Share Second call A/c Dr 2,70,000

To. Share capital A/c 2,70,000

8. Bank A/c Dr 2,64,000

To. Share Second call A/c 2,64,000

9. Share Capital A/c Dr 20,000

To. Share forfeited A/c 10,000

To. Share First Call A/c 4,000

To. Share Second call A/c 6,000

QUESTION NO: 39
Good prospects Ltd. issued 40,000 shares of Rs. 10 each at a premium of Rs. 2 per
share. The shares were payable Rs. 2 on application, Rs. 5 on allotment (including
premium) and Rs. 5 on first & final call.

All the shares were applied for and allotted. All moneys were received with the
exception of the first and final call on 1,000 shares which were forfeited. 400 of these
were reissued as fully paid at Rs. 8 per share.
Give the necessary journal entries and prepare the balance sheet of the company.
Solution:
S.NO PARTICULARS L.F DEBIT CREDIT

1. Bank A/c Dr 80,000

To. Share Application A/c 80,000

2. Share Application A/c Dr 80,000

To. Share capital A/c 80,000

3. Share Allotment A/c Dr 2,00,000

To. Share capital A/c 1,20,000

To. Securities premium A/c 80,000

4. Bank A/c Dr 2,00,000

To. Share Allotment A/c 2,00,000

5. Share First and Final Call A/c 2,00,000

Dr
To. Share capital A/c 2,00,000

6. Bank A/c Dr 1,95,000

To. Share First and Final Call A/c 1,95,000

7. Share Capital A/c Dr 10,000

To. Share forfeited A/c 5,000

To. Share First and Final Call 5,000

A/c

8. Bank A/c Dr 3,200

Share forfeited A/c Dr 800

 To. Share Capital A/c 4,000

9. Share forfeited A/c Dr 1,200

To. Capital Reserve A/c 1,200

EX NO – 40

Kavitha Industries Ltd. Issued 20,000 6% preference shares of Rs.10 each payable
Rs.2 on application, Rs.3 on allotment (including premium), Rs.3 on first call and
Rs.3 on final call. The shares were called upto the first call stage. All the amounts
due were received except the following:
‘A’ holding 300 shares paid only the application money.
‘B’ holding 200 shares paid upto the allotment.
The shares of both A and B were forfeited. Out of the forfeited shares 400 shares
(whole of A’s holding included) were reissued to ‘R’ on payment of Rs.6 per share
and as paid up to the same extent as other shares.
Journalize the transaction in the books of the company.

S no. Particulars Debit amt Credit amt Working

Rs. Rs. Notes
1 Bank A/c Dr. 40,000 20000x2
To Share Application A/c 40,000
[Being application money
received]
2 Share Application A/c Dr. 40,000 20000x2
To Share Capital A/c 40,000
[Being application money
transferred]
3 Share Allotment A/c Dr. 60,000 20000x3
To Share Capital A/c 40,000 20000x2
To Securities Premium Reserve 20,000 20000x1
[Being allotment money due]
4 Bank A/c Dr. 59,100 300x3=900
To Share Allotment A/c 59,100 60000
[Being allotment money received] (-)900
59100
5 Share First Call A/c Dr. 60,000 20000x3
To Share Capital A/c 60,000
[Being first call money due]
6 Bank A/c Dr. 58,500 500x3=1500
To Share First Call A/c 58,500 60000
[Being first call money received] (-)1500
58,500
7 Share Capital A/c Dr. 2,100 300x7
Securities Premium Reserve Dr. 300 300x1
To Share Forfeiture A/c 600 300x2
To Share Allotment A/c 900 300x3
To Share First Call A/c 900 300x3
[Being forfeiture of shares due to
non-payment of calls]
8 Share Capital A/c Dr. 1,400 200x7
To Share Forfeiture A/c 800 200x4
To Share First Call A/c 600 200x6
[Being forfeiture of shares due to
non-payment of calls]
9 Bank A/c Dr. 2,400 400x6
Share Forfeiture A/c Dr. 400 400x1
To Share Capital A/c 2,800 400x7
[Being reissue of forfeited shares]
10 Share Forfeiture A/c Dr. 600
To Capital Reserve 600 ***
[Being transfer of profit on reissue
of forfeited shares]

Working notes ***

Total Forfeited Shares = 300 + 200 = 500
A’s holding 300 shares fully included
B’s holding 200 shares from those only 100 shares are taken
For 300 shares forfeiture 600
200 800
100 800 x 100 = 400
 200
600 + 400 = 1000
1000 – 400 = 600

EX NO – 47
A Limited company issued 10,000 shares of Rs.10 each payable as follows:
Rs. 3 on application
Rs. 3 on allotment
Rs. 4 on first and final call
The company received 13,000 applications from the public. Applications for 1,500
shares were rejected and the excess application money received on the other 1,500
shares was adjusted towards allotment.
All the amounts due on the shares were received except the call money on 500 shares
which were forfeited after due notice. Later 400 of the forfeited shares were received
at Rs.8 per share.
Pass necessary journal entries.
SOLUTION:
Sno. Particulars Debit Credit amt Working
amt Rs. Notes
Rs.
1 Bank A/c Dr. 39,000 13000 x 3
To Share Application A/c 39,000
[Being application money
received]
2 Share Application A/c Dr. 39,000 13000 x 3
To Share Capital A/c 30,000 10000 x 3
To Bank A/c 4,500 1500 x 3
To Share allotment A/c 4,500 1500 x 3
[Being excess application money
adjusted]
3 Share Allotment A/c Dr. 30,000 10000 x 3
To Share Capital A/c 30,000
[Being allotment money due]
4 Bank A/c Dr. 25,500 30,000
To Share Allotment A/c 25,500 (-)4,500
[Being allotment money 25,500
received]
5 Share First call A/c Dr. 40,000 10,000 x 4
To Share Capital A/c 40,000
[Being first call money due]
5 Bank A/c Dr. 38,000 500x4=2000
To Share First Call A/c 38,000 40,000
[Being first call money received] (-)2000
 38,000

6 Share Capital A/c Dr. 5,000 500x10=5000

To Share Forfeiture A/c 3,000 500x6=3000
To Share First & Final call A/c 2,000 500x4=2000
[Being forfeiture of shares for
non-payment of calls]
7 Bank A/c Dr. 3,200 400x8
Share Forfeiture A/c Dr. 800 4000-3200
To Share Capital A/c 4,000 400x10
[Being reissue of forfeited
shares]
8 Share Forfeiture A/c Dr. 1,600 500 3000
To Capital Reserve 1,600 400
[Being transfer of profit on 3000x400
reissue of forfeited ] 500
= 2,400
2,400 – 800
=1600 *

*Entire forfeited shares are not reissued.

EX NO – 48
A Ltd. invited applications for 10,000 equity shares of Rs. 100 each at a premium of
Rs.10 per share. Payment was to be made as follows:
On application – Rs.20
On allotment – Rs.40 (including premium)
On first call – Rs.30
On final call – Rs.20
Application totaled for 13,000 shares. Applications for 2,000 shares were rejected
and allotment of shares was made proportionately to the remaining applicants. The
directors made both the calls and all the money received except the final call on 300
shares which were forfeited after the required notices were served. Later 200 of the
forfeited shares were reissued as fully paid up @ Rs.85 per share.
Journalize the transactions and prepare the balance sheet.

SOLUTION:
Sno. Particulars Debit amt Credit amt Working
Rs. Rs. Notes
1 Bank A/c Dr. 2,60,000 13,000x20
To Share Application A/c 2,60,000
[Being application money received]
2 Share Application A/c Dr. 2,60,000 13,000x20
To Share capital A/c 2,00,000 10,000x20
To Bank A/c 40,000 2000x20
To Share Allotment A/c 20,000 1000x20
[Being excess application money
adjusted]
3 Share Allotment A/c Dr. 4,00,000 10000x40
To Share Capital A/c 3,00,000 10000x30
To Securities Premium reserve 1,00,000 10000x10
[Being allotment money due]
4 Bank A/c Dr. 3,80,000 4,00,000
To Share Allotment A/c 3,80,000 (-)20,000
[Being allotment money received] 3,80,000
5 Share First Call A/c Dr. 3,00,000 10,000x30
To Share Capital A/c 3,00,000
[Being first call money due]
6 Bank A/c Dr. 3,00,000 10,000x30
To Share First Call A/c 3,00,000
[Being first call money received]
7 Share Second Call A/c Dr. 2,00,000 10,000x20
To Share Capital A/c 2,00,000
[Being second call money due]
8 Bank A/c Dr. 1,94,000 300x20=6000
To Share Second Call A/c 1,94,000 2,00,000
[Being second call money received] (-) 6,000
1,94,000
9 Share Capital A/c Dr. 30,000 300x100
To Share Forfeiture A/c 24,000 300x80
To Share Second Call A/c 6,000 300x20
[Being forfeiture of shares due to
non-payment of calls]
10 Bank A/c Dr. 17,000 200x85
Share Forfeiture A/c Dr. 3,000 20000 – 17000
To Share Capital A/c 20,000 200x100
[Being reissue of forfeited shares]
11 Share Forfeiture A/c Dr. 13,000 300 24000
To Capital reserve 13,000 200
[Being transfer of profit on reissue 24000x200
of forfeited shares] 300
= 16,000
16000-3000
= 13,000
Note to Accounts:
Sno. Particulars Rs. Rs.

1. Share capital:
Issued and Paid-up capital
9900 shares of Rs.100 each 9,90,000
Add: Forfeited shares 8,000 9,98,000
2. Reserves and Surplus:
Securities premium 1,00,000
Capital Reserve 13,000 1,13,000

Balance Sheet of A ltd, as on….

Particulars Note no. Rs.
I. Equity & Liabilities:
(i) Shareholder’s funds:
Share Capital 1 9,98,000
Reserves & Surplus 2 1,13,000
(ii) Non-current Liabilities -
(iii) Current Liabilities -
Total (i)+(ii)+(iii) 11,11,000

II. Assets
(i)Non-current Assets -
(ii)Current assets :
Cash at Bank 11,11,000
Total (i)+(ii) 11,11,000

49. X Ltd issued for public subscription 20,000 shares of Rs 10 each at a premium of
Rs 2 per shares payable as under:
Rs 2 per share on application
Rs 5 per share on allotment (including premium)
Rs 2 per share on first call
Rs 3 per share on final call
Application for 30000 shares was received. Allotment was made pro rata to the
applicants for 24000 shares the remaining application were rejected. Money over
paid was used towards allotment.
“Y” to whom the 800 shares were allotted failed to pay the allotment amount, 1 st and
2nd calls And ‘Z’ to whom 1000 shares were allotted failed to pay the last two calls.
These calls were subsequently forfeited after the 2nd call was made. All the forfeited
shares were issued to “w” as fully paid at Rs 8per shares.
Give journal entries to record the above transaction.

Particulars Dr Cr
Bank A/C 60000
To share application A/c 60000
Share application A/c 60000
To Share Capital A/C 40000
To Share allotment A/c 8000
To Bank A/c 12000
Share allotment A/c 100000
To Share capital A/c 60000
To Security premium 40000
Bank A/c 88320
To share allotment 88320
Share first call 40000
To share capital 40000
Bank A/c 36400

To Share first call A/c 36400

Share final call A/c 60000
To Share Capital A/c 60000
Bank A/c 54600
To Share final call A/c 54600
Share capital A/c 8000

Security premium A/c 1600

To forfeited shares 1920

To share allotment 3680
To first call 1600
To share final call 2400
Share capital A/c 10000
To share forfeited a/c 5000
To share first call A/c 2000
 To Share final call A/c 3000
Bank A/c 14400
Forfeiture A/c 3600
To Share capital 18000
Share forfeiture A/c 3320
To capital reserve 3320

50. Aparna Ltd issued 10000 shares of Rs 100 each at Rs 100 each at Rs 110 payable
as Rs 30 on application Rs 50 on allotment (including premium) and the balance on
call
The issue was subscribed to the extent of 2 1/2 times. Application for shares below
20 were rejected. An application for 5000 shares was given 1000 shares. The
remaining shares were issued pro rat
The excuses amount to the full extent of shares value was retained. A shareholder
holding shares failed to pay allotment. Another shareholder holding 450 shares failed
to pay call money. All these 750 shares were forfeited.

Particulars Dr Cr

Bank A/c 750000

To Share capital A/c 750000

Share Capital A/c 750000

To Share Capital A/c 300000

To Bank A/c 190000

To Share allotment a/c 230000

To Share Call A/c 30000

Share Allotment A/c 500000

To Share Capital A/c 400000

To Securities premium 100000

Bank A/c 261000

 To Share allotment A/c 261000

Share 1st call A/c 300000

To Share capital A/c 300000

Bank A/c 247500

To Share 1st call 247500

Share Capital A/c 30000

Securities Premium 3000

To share forfeiture A/c 15000

To Share First Call A/c 9000

To Allotment A/c 9000

Share capital A/c 45000

To Share forfeiture A/c 31500

To Share First call A/c 13500

Working note
Application Allotment Adjusted Rejected
Allotment
5000 5000
5000 1000 4000
15000 9000 6000
25000 10000 10000 5000
 UNDERWRITING OF SHARES AND DEBENTURES
1.Nazar Ltd issued 10000 equity shares of Rs 100 each at par. The whole has
been underwritten by John & Co for a commission of 2%. The company
received applications only for 5000 shares. All the application was accepted.
Give journal entries assuming that all amounts due have been received.
PARTICULARS DR CR
Bank A/c 500000
To Share capital A/c 500000
John & Co A/c 500000
To share capital A/c 500000
Underwriting commission A/c 20000
To John & Co A/c 20000
Bank A/c 480000
To John & Co A/c 480000

2. Good luck Ltd., issued 1,000 Equity Shares of Rs.100 each and 1.0006 %
debentures of Rs. 100 each. Debentures are issued at the discount of 6 %. The
whole of the issue was underwritten by Wisdom and Co. For a commission
of4% on the issue price of share and 2% on the issue price of debentures. The
public applied for 900 shares and 800 debentures, these were immediately paid
for. The underwriters fulfilled their obligations. Pass journal entries.

Particulars L Debit (inRs.) Credit (in Rs.)

R
Bank a/c Dr (900x100) 90,000
To Equity Share Capital a/c 90,000
( being 900 equity share
allotted to public @100 each)
Bank a/c Dr 75,200
Discount a/c Dr 4,800
To debentures a/c 80,000
( being 800 debentures allotted
to public @ 94 each)
Underwriters commission 4,000
(shares)a\c Dr
1,880
Underwriters commission
(debentures)a\c Dr 5,880
To wisdom & co a\c
(being commission due to
underwriters)
Bank a\c Dr 22,920
To wisdom & co a\c 22,920
( being amount due from
underwriters received)

Working Notes to Accounts:

Calculation of underwriters commission:
Shares:
1,00,000(originally issued) – 90,000(subscribed by public) = 10,000
10,000 x 4% (commission percentage) = 4,000
Debentures:
100-6(discount on debentures) = 94; 1000 x 94 = 94,000
94,000 x 2% (commission percentage) = 1,880
Amount received from underwriters:
100 x 100 (shares) + 200 x 94= 10,000+18,800=28,800 – (4,000 – 1,880
commission) = 22,920

3. A company issued 20,000 equity shares of Rs.100 each at par and 1,000
debentures of Rs.1,000 each at Rs.950. the whole of the issue has been
underwritten by Paul and Co. The whole of shares are applied for but
application for 800 only were. All the applications were accepted. Commission
payable to the underwriter is the maximum amount permissible.
Give journal entries to record the above transaction and prepare the balance
sheet at this stage, assuming that all the amount due has been received.
ANS: Journal Entries:
Particulars L Debit (inRs.) Credit (in Rs.)
R
Bank a/c Dr (20,000x100) 20,00,000
To Equity Share Capital a/c 20,00,000
(being 20,000 equity share
allotted to public @100 each)
Bank a/c Dr (800 x 950) 7,60,000
Discount a/c Dr(800x50) 40,000
To debentures a/c 8,00,000
(being 800 debentures allotted to
public @ 950 each)
Paul & Co a\c Dr(200x950) 1,90,000
Discount a\c Dr(200x50) 10,000
To debentures a\c 2,00,000
(Being allotment of 200
debentures not applied for the
public by the underwriters)
Underwriters commission 50,000
(shares)a\c Dr(20,00,000x2.5%)
Underwriters commission 11,400
(debentures)a\c Dr
(7,60,000x1%=7,600 public
1,90,000x2%=3,800 underwriting
7,600+3,800= 11,400)
To Paul & co a\c 61,400
(being commission due to
underwriters)
Bank a\c Dr 1,28,600
To Paul & co a\c 1,28,600
(1,90,000(200x950)-50,000-
11,400(commission)=1,28,000)
(being amount due from
underwriters received)

Notes to Accounts:
Issued & paid-up capital 20,00,000 20,00,000
20,000 shares @ Rs100 each
Long term Borrowings: debentures 10,00,000 10,00,000
Other current assets:
Underwriting commission: shares 50,000
Debentures 11,400
Discount on issue of debentures 50,000 1,11,400
 Balance sheet
LIABILITY ₹ ASSETS ₹
Equity & Liabilities a) CA:
a) Shareholders fund: 20,00,000 Cash at bank 28,88,600
Share Capital
b) NCL: Long term 10,00,000 Other current assets 1,11,400
borrowing

30,00,000 30,00,000

5. Velu Ltd., Issued 1,00,000 equity shares. The whole of the issue was
underwritten as follows;
A-40%; B-30%; & C - 30%.
Applications for 80,000 shares were received in all, out of which applications
for 20,000 shares had the stamp of A dose for 10,000 shares that of B; and
20,000 shares that of C. The remaining application for 30000 Shares did not
bear any stamp.
Show the net liability of the underwriters.
ANS:
Particulars A B C D

Gross Liability 40,000 30,000 30,000 1,00,000

(less) Marked 20,000 10,000 20,000 50,000

application
20,000 20,000 10,000 50,000

(less) Unmarked 12,000 9,000 9,000 30,000

Application
Net Liability 8,000 11,000 1,000 20,000
Working notes:
Unmarked application calculation: ratio is 4:3:3
Total unmarked application= 30,000 shares
A = 30,000 x 4/10= 12,000;
B = 30,000 x 3/10 = 9,000;
C= 30,000 x 3/10 = 9,000.

6. Rajan and Shyam have underwritten the issue of 10,000 equity shares of
Rs.10 each by X Co. Ltd., in the ratio of 6:4. The Company received 8,000
applications of which 4,000 and 2,500 were marked in favour of Rajan and
Shyam respectively. Determine the obligations of the underwriters and give
journal entries in the books of the company.
Solution.
Particulars. Rajan. Shyaam total
Gross liability. 6000. 4000 10000
(-) marked
Application 4000 2500 6500
Total 2000 1500 3500
(-) surplus 900 600 1500(8000-6500)

Net liability 1100 900 2000

7. ABC Ltd., incorporated on 1st January 1985, issued prospectus inviting

applications for 6,00,000 equity shares of Rs.10 each.
The whole issue was fully underwritten by A, B, C and D as follows;
A-2,00,000 shares B- 1,50,000 shares
C-1,50,000 shares D-1,00,000 shares
Applications were received for 6,50,000 shares of which marked applications
were as follows:
A-2,50,000 shares B-1,70,000 shares.
C-1,40,000 shares D-40,000 shares.
Find out the liabilities of individual underwriters.

Solution:
Particulars. A. B. C. D. Total
Gross liability. 2,00,000. 1,50,000. 1,50,000 1,00,000. 6,00,000
(-) marked
Application. 2,50,000. 1,70,000. 70,000. 1,40,000. 6,00,000
Total (50,000). (20,000). 10,000. 60,000. Nil
(-) surplus. Nil. Nil. 42,000. 28,000. Nil
(32,000) 32,000
(-) surplus (32,000)
Net liability. Nil. Nil. Nil. Nil. Nil

8. Arun Ltd…, issued 1,00,000 equity shares. The whole of the issue was
underwritten as follows:
X-40%; Y-40%; Z-20%
Applications for 80,000 shares were received in all out of which applications for
20,000 shares had the stamp of X, those for 10,000 shares that of Y and 20,000
shares that of Z. The remaining applications did not bear any stamp. Show the
liability of the underwriters.
Solution:
Particulars. X Y Z Total
Gross liability. 40,000 40,000 20,000 1,00,000
(-) marked
Application. 20,000 10,000 20,000 50,000
Total 20,000. 30,000 Nil 50,000
 (-) Surplus. 15,000 15,000 Nil 30,000 (80,000-50,000)
Net liability. 5,000 15,000 Nil 20,000

9. Tinkers Ltd., issued a prospectus inventing applications for 40000 equity

shares of Rs: 100 each. The whole issue was fully underwritten by three
underwriters as follows: Mani -20,000 shares, Paul- 14000 shares, Ganesh -
6000 shares. Application were received for 32000 shares of which marked
application were as follows: Mani -15200 shares, Paul-8080 shares, Ganesh -
6720 shares. Show how the liability of the underwriters is completed.
Ans:
PARTICULARS MANI PAUL GANESH TOTAL
Gross liability 20000 14000 6000 40000
(-) marked 15200 8080 6720 30000
application
4800 5920 (720) 10000
(-) unmarked 1000 700 (300) (32000-30000)
applications
10:7:3 (2000)
3800 5220 1020 8000
Excess of (10:7) 600 420 - -
3200 4800 nil 8000

10. Tamil Nadu co. Ltd, was formed with a capital of Rs .10,00,000 in Rs 10
shares, the whole amount being issued to the public. The underwriting of these
shares was done as follows:
A- 30000, B- 35000, C-10000, D-15000, E- 2000, F-8000. All the marked
applications forms were to go in relief of the underwriters whose name they
bore. The application marked by the underwriters were:
A-25000, B-23500, C-6500, D-1000, E-2000, F-7000.
Applications for 20000 shares were received on forms not marked. Draw up a
statement showing the number of shares each underwriters had to take up.
 particulars A B C D E F TOTAL
Gross 30000 35000 10000 15000 2000 8000 100000
liability
(-) marked 25000 23500 6500 1000 2000 7000 65000
application
5000 11500 3500 14000 - 1000 35000
(-) unmarked 6000 7000 2000 3000 400 1600 20000
application
(1000) 4500 1500 11000 (400) (600) 15000
Excess of 1167 333 500
a,e,f
nil 3333 1167 10500 nil nil 15000

11. X Ltd, which was incorporated on 1.1.2005 issued application for 500000
equity shares of Rs.10 each. the entire issue was fully underwritten by A, B, C
and D
A-2,00,000, B-1,50,000, C- 1,10,000; D- 50,000 shares.
Application received for 4,50,000 shares of which marked application were as
follows:
A- 2,20,000 Shares; b- 90,000; c- 1,10,000 shares and D- 10,000 shares
You are required to calculate the net liability of individual underwriters,
by giving credit to unmarked applications in the ratio of gross liability.

Particulars A B C D Total
Total liability 200000 1,50,000 1,00,000 50,000 5,00,000
(-) marked 2,20,000 90,000 1,10,000 10,000 4,30,000
application
(-)20,000 60000 (-)10000 40000 70000
(-) unmarked 8000 6000 4000 2000 20000
application (4:3:2:1)
 (-)28000 54000 (-)14000 38000 50000
Excess of A and C 28000 -31500 14000 -10500 -
3:1
nil 22500 nil 27500 50000
12. H company issued 20,000 shares of Rs.10 each at par which were underwritten as
follows:
X- 10,000; Y- 6,000; Z- 4,000 shares.
Applications were received for 18,000 shares which included marked applications
also as follows:
X- 4,000; Y- 2,000; Z-10,000 shares.
You are required to prepare a statement showing how many shares underwrites will
have to take under the underwriting contracts.
Solution:
Particulars X Y Z Total
Gross Liability (5:3:2) 10,000 6,000 4,000 20,000
Less :Marked Applications 4,000 2,000 10,000 16,000
6,000 4,000 (6,000) 4,000
Less : Unmarked Applications 1,000 600 400 2,000
(18,000-16,000=2,000)
5,000 3,400 (6,400) 2,000
Less: Z’s surplus transferred to 4,000 2,400 6,400
X, Y in 5:3
Net Liability 1,000 1,000 nil

[Ans: Net liability: X-1,000; Y-1,000; Z-Nil]

13. S.P& Co. Ltd, was formed with a capital of Rs.1,00,000 in Rs.10 shares, the whole
amount being issued to the public. The Underwriting of these shares was as follows:
M- 3,500 shares; N-3,000s hares; O-2,000 shares; P-1,000 shares; Q-300 shares; R-
200 shares.
All marked application where to go in relief of the underwriters, whose name they
bear. The applications marked by the underwriters were:
M-1,000 shares; N-2,250 shares; O-2,000 shares; P-750 shares; Q-500 shares; R-Nil.
Application for 2,000 share where received on unmarked forms. Draw up a
statement showing number of shares each underwriter had to take up.
Solution:
Particulars M N O P Q R Total
 Gross Liability 3,500 3,000 2,000 1,000 300 200 10,000
(35:30:20:10:3:
2)
(Less)Marked 1,000 2,250 2,000 750 500 nil 6,500
applications
2,500 750 NIL 250 (200) 200 3,500
(Less)Unmarke 700 600 400 200 60 40 2,000
d applications
in GL ratio
1,800 150 (400) 50 (260) 160 1,500
(Less) Surplus 300 257 400 86 260 17 nil
of O &Q
Transfer
1,500 (107) NIL (36) NIL 143 1,500
(Less) Surplus 135 107 NIL 36 NIL 8 nil
of N & P
Transfer
Net Liability 1,365 NIL NIL NIL NIL 135 1,500

[Ans: M takes 1,365; R takes 135 shares]

PARTIAL UNDERWRITING
14. X Ltd. Issued 10,000 shares of RS.100 each at premium of Rs.15 each. 90% of the
issue was written by M/s Broker &Co. at a commission of 1% on the nominal face
value. Applications were received for 8,000 shares and allotment was fully made. All
the moneys due from allottees were received in one instalment. The accounts with
Broker & Co. were settled. Show the journal entries to record the transactions.
Solution:
Sno Particulars Debit Credit
.
1. Bank a/c . Dr 9,20,000
To share capital a/c 80,000
To security premium a/c 1,20,000

2. Broker & Co. a/c . Dr 2,07,000 1,800*115

To share capital a/c 1,80,000 1,800*100
To security premium a/c 27,000 1,800*15
 3. Underwriting commission a/c. Dr 9,000
To Broker & Co. a/c 9,000

4. Bank a/c .Dr 1,98,000 2,07,000-9,000 =

To Broker & Co. a/c 1,98,000 1,98,000

Working notes:
10,000 shares 90% underwritten
Gross liability 9,000
Company has received 8,000 shares 90% of 8,000 = 7,200
9,000 – 7,200 = 1,800 shares
[Ans: Net Liability of Broker & Co. 1,800 shares;
Cash received from the underwriters- Rs.1,98,000]

15. A Company issued 50,000 equity shares of Rs. 10 each at a premium of 10% and
2,000 debentures of Rs. 100 each at Rs. 95.80% of the issue is underwritten by sing
& Co. At the maximum rate of commission allowed by law. Applications were
received for 40,000 equity shares and 1,500 debentures which were accepted and
payments for these were received in full. Journalise the above transaction and show
the entries in the balance sheet assuming that the amount due from the underwriter
has been received.
Solution:
Particulars Shares Debentures
Gross liability 40000 (50,000*80/100) 1600 (2,000*80/100)
(Less) Marked Applications 32000 (40,000*80/100) 1200 (1,500*80/100)
Net liability 8000 400

S.No Particulars Debit Credit

1. Bank a/c .Dr 440000
To share capital a/c 400000
To securities premium a/c 40000
2. Bank a/c .Dr 142500
Discount a/c .Dr 7500 15000
To debentures a/c

3. Sing& company a/c .Dr 88000

To equity share capital a/c 80000
To securities premium a/c 8000

4. Sing& company a/c .Dr 38000

Discount a/c .Dr 2000 40000
To debentures a/c

5. Underwriting commission on issue of 11000

shares a/c .Dr
Underwriting commission on issue of 2660
debenture a/c . Dr
To sing& company a/c 13660

6. Bank a/c .Dr 112340

To sing& co a/c 112340

BALANCE SHEET AS AT …
I EQUITY & LIABILITIES Note no Rs.
(i)Shareholders funds
1. Share capital 1 480000
2. Reserve &surplus 2 48000
(ii) Non - current liability
1. Long Term Borrowings 3 190000
Total 718000
II ASSETS
(i) Non-current assets -
(ii) Current Assets
1. Cash at Bank 694840
2. Other currents assets 4 23160
Total 718000
 Notes to Accounts:
1. Share capital (48,000 shares of 100 each) 4,80,000
2. Reserves and Surplus
Securities Premium 48,000
3. Long Term Borrowings
(1,900 debentures of 100 each) 1,90,000
4. Other currents assets
Underwriting commission on issue of shares(1,200*95*1.5%) 11,000
Underwriting commission on issue of deb(400*95*2.5%) 2,660
Discount on Issue of Debentures 9,500
23,160
[Ans: Commission on shares- Rs. 11000; on debentures- Rs. 2660(1,710+950); Cash
Recd from Underwriter- Rs. 1,12,340; Total Cash recd in Balance Sheet- Rs.
6,94,840; Balance Sheet total- Rs. 7,18,000]

16. X Ltd. Issued 10,000 equity shares of RS. 10 EACH. The issue was underwritten as
follows:
A - 30%; B - 30%; C – 20%;
However, the company received application for 8,000 shares only. Determine the
liability of the respective underwriters and writ the Journal entries in the company’s
book.
Solution:
Particulars A B C Company
Gross liability (3:3:2:1) 3000 3000 2000 2000
(Less) Unmarked applications - - - 1600
(8,000-6,400=1,600)
3000 3000 2000 400
(Less) Marked applications 2400 2400 1600 -
(8,000 shares in 3:3:1)
Net liability 600 600 400 -

S.No Particulars Debit Credit

1. Bank a/c .Dr 80,000
To share capital a/c 80,000
 2. A’s Capital A/c .Dr 6,000
B’s Capital A/c .Dr 6,000
C’s Capital A/c .Dr 4,000
To equity share capital a/c 16,000

3. Underwriting commission on issue of shares 2,000

a/c . Dr
To A’s Capital A/c 750
To B’s Capital A/c 750
To C’s Capital A/c 500

4. Bank A/c . Dr 14,000

To A’s Capital A/c 5,250
To B’s Capital A/c 5,250
To C’s Capital A/c 3,500

17. Neeraj Ltd. Issued 10,000 shares of Rs 100 each at premium of 10%. These shares
were underwritten by joseph ,jaleel to the extent of 5000 shares and 3000 shares
Respectively. The total application received by the company were 8000 of which the
marked application were; Joseph-1200 shares, jaleel-300 shares. You are required to
determine the liability of the underwriters.
Solution:
[Ans: Net Liability: Joseph- 987 shares; Jaleel- 1,013 shares ]

Particulars Joseph Jaleel Company

Gross liability (5:3:2) 5000 3000 2000
(Less) unmarked applications _ _ 6500
(8000-1500=6500)
5000 3000 (4500)
(Less) Surplus of 4500 transferred to 2813 1687 4500
Joseph, Jaleel in 5:3

2187 1313 nil

(Less) marked applications 1200 300
Net liability 987 1013
18. A company issued 40,000 shares of Rs. 100 each for public subscriptions. The
issue was underwritten as follows: P-25%.; Q- 30% and R-25%
The company received a total number of 28,000 applications of which marked
applications were as follows: P-8,000 shares; Q- 6,000 shares and R- 8,000 shares.
Determine the liability of each of the underwriters.
Solution:
Particulars P Q R Company
Gross liability 10,000 12,000 10,000 8,000
Less : Unmarked Applications - - -
(28,000-22,000= 6,000) 6,000
10,000 12,000 10,000 2,000
Less : Marked Applications 8,000 6,000 8,000 -
Net Liability 2,000 6,000 2,000 2,000

[Ans: Net Liability: P-2,000 shares; Q-6,000 shares; R- 2,000 shares]

FIRM UNDERWRITING
19. The following underwriting took place:
A- 5,000 shares; B- 3,000 shares; C-2,000 shares.
In addition, there was firm underwriting:
A-1,000 shares; B- 500 shares; C-1,500 shares.
The share issue was for 10,000 shares. Total subscription including firm underwriting
was 8,500 shares and the forms included the following marked forms:
A- 2,000 shares; B- 1,000 shares; C- 1,000 shares.
Show the allocation of liability of the underwriters.

Solution:
1. Firm treated as marked:
Particulars A B C
Gross liability (5:3:2) 5,000 3,000 2,000
LESS: Firm underwriting 1,000 500 1,500
4,000 2,500 500
 LESS: Unmarked
2,000 1,000 1,000
application
2,000 1,500 {500}
LESS: Unmarked
750 450 300
application
1,250 1,050 {800}
LESS: C's surplus
500 300
transferred to A, B in 5:3 800
Net Liability 750 750 Nil
ADD: Firm underwriting 1,000 500 1,500
Total Liability 1,750 1,250 1,500

[Ans: Total Liability when firm treated as marked: A-1,750 shares; B-1,250 shares;
C- 1,500 shares]

2. Firm treated as unmarked:

PARTICULARS A B C
Gross Liability (5:3:2) 5,000 3,000 2,000
LESS: Marked applications 2,000 1,000 1,000
3,000 2,000 1,000
LESS: Unmarked applications
2,250 1,350 900
(8,500-4,000=4,500)
Net Liability 750 650 100
ADD: Firm marked 1000 500 1500
Total Liability 1,750 1,150 1,600

[Ans: Total Liability when firm treated as unmarked: A-1,750 shares; B-1,150
shares; C- 1,600 shares]

20) ‘A' Co. Ltd. has an authorized capital of Rs. 50,00,000 divided into 1,00,000 equity
shares of Rs.50 each. The company issued for subscription 50,000 shares at a premium
of Rs.10 each. The entire issue was underwritten as follows:
X-30,000 shares (Firm underwriting 5,000 shares)
Y-15,000 shares (Firm underwriting 2,000 shares)
Z-5,000 shares (Firm underwriting 1,000 shares)
Out of the total issue 45,000 shares including firm underwriting were subscribed. The
following were the marked forms: X-16,000 shares; Y -10,000 shares; Z-4,000 shares;
Calculate the liability of each underwriter.
Solution:
1. Firm treated as marked:
Particulars X Y Z
Gross liability (6:3:1) 30,000 15,000 5,000
LESS: Firm underwriting 5,000 2,000 1,000
25,000 13,000 4,000
LESS: Marked applications 16,000 10,000 4,000
9,000 3,000 Nil
LESS: Unmarked applications
(45,000-8,000-30,000= 7,000) 4,200 2,100 700
4,800 900 {700}
LESS: Z’s Surplus transferred to
X, Y in 6:3 467 233 700
Net Liability 4,333 667 nil
ADD: Firm underwriting 5,000 2,000 1,000
Total Liability 9,333 2,667 1,000

[Ans: Total Liability when firm treated as marked: X-9,333 shares; Y-2,667 shares;
Z- 1,000 shares]
2. Firm treated as unmarked:
PARTICULARS X Y Z
Gross Liability (6:3:1) 30,000 15,000 5,000
LESS: Marked applications 16,000 10,000 4,000
14,000 5,000 1,000
LESS: Unmarked applications
(45,000-30,000=15,000)
9,000 4,500 1,500
5,000 500 {500}
LESS: Z’s surplus transferred to
333 167 500
X, Y in 6:3
Net Liability 4667 333 Nil
ADD: Firm underwriting 5,000 2,000 1,000
Total Liability 9,667 2,333 1,000
 [Ans: Total Liability when firm treated as unmarked: X-9,667 shares; Y-2,333
shares; Z- 1,000 shares]

21. Swiss ltd issued 40000 equity shares of rs10 each at par. The entire issue was
underwritten as follows:
A – 24,000 shares (firm underwriting 32,000 shares)

B – 10,000 shares (firm underwriting 4,000 shares)

C – 6,000 shares (firm underwriting 1,200 shares)

The total applications including firm underwriting were for 28,400 shares. The
marked application were as under:

A – 7,200 shares B – 9,000 shares C – 3,200 shares.

The underwriting contract provides the credit for unmarked applications be given to
the underwriters in proportion to the share underwritten. Determine the liability of
each underwriter and the commission payable to them assuming it is the maximum
allowed by law.

Solution:

1. Firm treated as Marked:

Particulars A B C
Gross Liability (12:5:3) 24000 10000 6000
Less: Firm underwriting 3200 4000 1200
20800 6000 4800
Less : Marked Applications 7200 9000 3200
13600 {3000} 1600
Less: Unmarked Applications 360 150 90
(28400-8400-19400=600)
13240 {3150} 1510
Less: B’s Surplus transferred to 2520 3150 630
A,C in 12:3
Net Liability 10720 nil 880
Add : Firm Underwriting 3200 4000 1200
Total Liability 13920 4000 2080
 [Ans: Total Liability when firm treated as marked: A-13,920 shares; B-4,000
shares; C- 2,080shares]

2. Firm treated as Unmarked:

Particulars A B C
Gross Liability (12:5:3) 24000 10000 6000
(Less) Marked Applications 7200 9000 3200
16800 1000 2800
(Less)Unmarked Applications(28400- 5400 2250 1350
19400=9000)
11400 (1250) 1450
(Less) B’s Surplus transferred to A,C 1000 1250 250
in 12:3
Net Liability 10400 nil 1200
(Add) Firm Underwriting 3200 4000 1200
Total Liability 13600 4000 2400

Commission payable:

A : 24000x10x2.5/100=6000

B : 10000x10x2.5/100=2500

C : 6000x10X2.5/100=1500

[Ans: Total Liability when firm treated as unmarked: A-13,600 shares; B-4,000
shares; C- 2,400shares]

22. R. Ltd issued 10000 shares of Rs.100 each at a premium of Rs.20 per share the
entire issue was underwritten as follows:

A- 5000 shares (firm underwriting 1000 shares)

B- 3000 shares (firm underwriting 500 shares)

C- 2000 shares (firm underwriting 500 shares)

The number of shares applied for were 9000 shares. The following were marked
applications:
 A- 3500 shares B- 1400 shares C -1600 shares including firm underwriting.
Prepare a statement showing their net liability.

Solution:

1. Firm treated as Marked:

Particulars A B C
Gross Liability (5:3:2) 5000 3000 2000
(Less) Firm underwriting 1000 500 500
4000 2500 1500
(Less) Marked Applications 3500 1400 1600
500 1100 (100)
(Less) Unmarked Applications 250 150 100
(9000-6500-2000=500)
250 950 (200)
(Less) C’s Surplus transferred 125 75 200
to A,B in 5:3
Net Liability 125 875 nil
(Add) Firm Underwriting 1000 500 500
Total Liability 1125 1375 500

[Ans: Total Liability when firm treated as marked: A-1,125 shares; B-1,375 shares;
C- 500 shares]

2. Firm treated as Unmarked:

Particulars A B C
Gross Liability (5:3:2) 5000 3000 2000
(Less) Marked Applications 3500 1400 1600
1500 1600 400
(Less) Unmarked Applications 1250 750 500
(9000-6500=2500)
250 850 (100)
(Less) C’s Surplus transferred 62 38 100
to A, B in 5:3
Net Liability 188 812 nil
(Add) Firm Underwriting 1000 500 500
Total Liability 1188 1312 500
 [Ans: Total Liability when firm treated as unmarked: A-1,188 shares; B-1,312
shares; C- 500 shares]

23. The following underwriting takes place:

A -6000 Shares B -2500 Shares C- 1500 Shares

In addition, there is firm underwriting A- 800 shares B – 300 shares C- 1000 shares

The issue is for 10000 shares. Total subscription including firm underwriting is for
7100 shares and the application include the following marked forms: A- 1000 shares
B – 2000 shares C- 500 shares. Show the allocation of liability of the underwriters if
the firm underwritten shares are treated as unmarked applications.

Solution:

Firm treated as Unmarked:

PARTICULARS A B C
Gross Liability (12:5:3) 6000 2500 1500
(Less) Marked Applications 1000 2000 500
5000 500 1000
(Less) Unmarked Applications 2160 900 540
(7100-3500=3600)
2840 (400) 460
(Less) B’s Surplus transferred 320 400 80
to A, C in 12:3
Net Liability 2520 nil 380
(Add) Firm Underwriting 800 300 1000
Total liability 3320 300 1380

[Ans: Total Liability when firm treated as unmarked: A-3,320 shares; B-300 shares;
C- 1,380 shares]

24. A company made a public issue of 125000 equity shares of Rs.100 each, Rs.50
payable on payable on applications. The entire issues was underwritten by four
parties, A,B,C & D in proportion of 30%, 25%, 25% and 20% respectively. Under the
terms agreed upon, a commission of 2% was payable on the amounts underwritten.
A, B, C and D has agreed on ’firm’ underwriting of 4000,6000, Nil and 15000 shares
respectively.
The total subscriptions excluding firm underwriting, but including marked
applications were for 90000 shares. Marked applications received were as under; A-
24000; B-20000; C-12000; D-24000.
Ascertain the liability of the liability of the liability underwriters.

Solution :
1. Firm treated as Marked:

Particulars A B C D
Gross liability (6:5:5:4)
37,500 31,250 31,250 25,000

LESS: Firm underwriting 4,000 6,000 Nil 15,000

33,500 25,250 31,250 10,000

LESS: Marked applications 24,000 20,000 12,000 24,000

9,500 5,250 19,250 (14,000)

LESS: Unmarked applications

(90,000-80,000=10,000) 3,000 2,500 2,500 2,000

6,500 2,750 16,750 (16,000)

LESS: D’s surplus transferred to A,

6,000 5,000 5,000 16,000
B, C in 6:5:5

500 (2,250) 11,750 nil

LESS: B’s surplus transferred to A,

1,227 2,250 1,023 nil
C in 6:5

(727) nil 10,727 nil

LESS: A’s surplus transferred to C 727 nil 727 nil

Net liability
nil nil 10,000 nil

ADD: Firm underwriting

4,000 6,000 nil 15,000
 [Ans: Total Liability when firm treated as marked: A-4,000 shares; B-6,000 shares;
C- 10,000 shares; D- 15,000 shares]
2. Firm treated as Unmarked:

Particulars A B C D
Gross liability (6:5:5:4)
37,500 31,250 31,250 25,000

LESS: Marked applications 24,000 20,000 12,000 24,000

13,500 11,250 19,250 1,000

LESS: Unmarked applications

(90,000+25,000-80,000=
10,500 8,750 8,750 7,000
35,000)

3,000 2,500 10,500 (6,000)

LESS: D’s Surplus transferred

to A,B,C in 6:5:5 2,250 1,875 1,875 Nil

Net liability
750 625 8,625 nil

ADD: Firm underwriting

4,000 6,000 nil 15,000

Total liability
4,750 6,625 8,625 15,000

[Ans: Total Liability when firm treated as Unmarked: A-4,750 shares; B-6,625
shares; C- 8,625 shares; D- 15,000 shares]

PARTIAL AND FIRM UNDERWRITING

26. Raja Ltd. Issued 50,000 equity shares of Rs. 10 each. 70% of the issue was
underwritten by Sarvan. In addition, there is a firm underwriting of 4,500 shares by
Sarvan. Applications for 42,000 shares by marked applications totalled for 22,000
shares.
Determine the liability of Sarvan.
Solution:
Particulars
Sarvan Company

Gross liability (7:3)

35,000 15,000

LESS: Unmarked applications (42,000-

22,000=20,000) nil 20,000

35,000 (5,000)

LESS: Surplus transferred to Sarvan

5,000 5,000

30,000 nil

LESS: Marked applications

22,000

Net liability
8,000

ADD: Firm underwriting

4,500

Total liability
12,500

[Ans: Total Liability: 12,500 shares]

27. Lekha Ltd made a public issue of 60,000 6% Preference shares of Rs. 10 each, 80%
of the issue underwritten by Mohan. In addition, there was a firm underwriting of
6,000 shares by Mohan. Applications including Firm were received for 48,000 shares.
The marked applications totalled for 28,000 shares. Show the liability of the
underwriters.
Solution:
Particulars
Mohan Company

Gross liability (4:1)

48,000 12,000

LESS: Unmarked applications

(48,000 -28,000 =20,000) nil 20,000

48,000 (8,000)
LESS: Surplus transferred to
Mohan 8,000 8,000

40,000 Nil

LESS: Marked applications

28,000

Net liability
12,000

ADD: Firm underwriting

6,000

Total liability
18,000

[Ans: Total Liability: 18,000 shares]

28. United India Co., Ltd, issued 1,00,000 shares which were underwritten as follows:
A – 40%; B – 30%; C – 20%
The under writes made firm underwriting as follows:
A – 7,500 shares; B – 5,000 shares; C – 12,500 shares
The total subscription excluding firm underwriting, but including marked applications
were for 50,000 shares. The marked applications were as under:
A – 20,000; B – 12,500 shares; C – 5,000 shares. Prepare a statement showing the
liability of underwriters.
Solution:
1. Firm treated as Marked:

Particulars A B C Company

Gross liability 40,000 30,000 20,000 10,000

(4:3:2:1)
Less: Firm 7,500 5,000 12,500 nil
underwriting
32,500 25,000 7,500 10,000
Less: Marked 20,000 12,500 5,000 nil
applications
12,500 12,500 2,500 10,000
Less: Unmarked nil nil nil 12,500
applications
(50,000-
37,500=12,500)
12,500 12,500 2,500 (2,500)
Surplus transferred 1,111 833 556 2,500
to A,B,C in 4:3:2
Net liability 11,389 11,667 1,944 nil
Add: Firm 7,500 5,000 12,500
underwriting
Total liability 18,889 16,667 14,444

[Ans: Total Liability when firm treated as marked: A-18,889 shares; B-16,667
shares; C- 14,444 shares]

2. Firm treated as Unmarked:

Particulars A B C Company
Gross liability (4:3:2:1) 40,000 30,000 20,000 10,000
Less: Marked applications 20,000 12,500 5,000 nil
20,000 17,500 15,000 10,000
Less: Unmarked nil nil nil 37,500
applications
(50,000+25,000-
37,500=37,500)
20,000 17,500 15,000 (27,500)
Less: Surplus transferred 12,222 9,167 6,111 27,500
to A,B,C in 4:3:2
Net Liability 7,778 8,333 8,889 nil
Add: Firm undertaking 7,500 5,000 12,500
Total Liability 15,278 13,333 21,389

[Ans: Total Liability when firm treated as Unmarked: A-15,278 shares; B-13,333
shares; C- 21,389 shares]
29. A, B and C underwrite 75% of an issue of 40,000 equity shares of Rs.10 each in the
ratio of 2:2:1. The ‘firm’ and ‘marked’ applications of the underwriters are as follows:
FIRM MARKED
A 4,800 8,000
B 4,000 6,000
C 3,200 2,000

Applications for 35,000 shares were received in all. Prepare a statement showing the
total liability of the underwriters.
Solution:
1. Firm treated as Marked:
Particulars A B C Company
Gross liability (2:2:1) 12,000 12,000 6,000 10,000
Less: Firm Underwritten 4,800 4,000 3,200 nil
7,200 8,000 2,800 10,000
Less: Marked application 8,000 6,000 2,000 nil
(800) 2,000 800 10,000
Less: Unmarked nil nil nil 7,000
applications(35,000-
12,000-16,000=7,000)
(800) 2,000 800 3,000
Less: A’s Surplus 800 533 267 nil
transferred to B,C in 2:1
Net liability nil 1,467 533 3,000

Add: Firm underwritten 4,800 4,000 3,200 nil

Total liability 4,800 5,467 3,733 3000

[Ans: Total Liability when firm treated as marked: A-4,800 shares; B-5,467 shares;
C- 3,733 shares]
 2. Firm treated as Unmarked:
Particulars A B C Company
Gross liability (2:2:1) 12,000 12,000 6,000 10,000
Less: Marked 8,000 6,000 2,000 nil
applications
4,000 6,000 4,000 10,000
Less: Unmarked nil nil nil
applications (35,000- 19,000
16,000=19,000)
4,000 6,000 4,000 (9,000)
Surplus transferred to 3,600 3,600 1,800 9,000
A,B,C in 2:2:1
Net Liability 400 2,400 2,200 nil
Firm underwriting 4,800 4,000 3,200
Total liability 5,200 6,400 5,400

[Ans: Total Liability when firm treated as Unmarked: A-5,200 shares; B-6,400
shares; C- 5,400 shares]
 UNIT 2

1. REDEMPTION OF PREFERENCE SHARES

2. ISSUE AND REDEMPTION OF DEBENTURES

3. PROFITS PRIOR TO INCORPORATION

 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

Sum no.5.
B Ltd. Had issued 50,000 redeemable preference shares of Rs.10 each,
Rs.8 paid. In order to redeem these shares, the company issues for
cash 30,000 equity shares of Rs. 10 each at a premium of Rs. 2 per
share. Out of the cash proceeds the redeemable preference shares
were paid and the balance was met out of the reserve fund which
stood at Rs. 2,50,000. Give journal entries in the books of the
company.

Sol.
s.no Particulars Dr. (rs) Cr.(rs)
1. Redeemable preference share first call 1,00,000
A/c Dr
To redeemable preference share 1,00,000
capital A/c
(Being amount due on first call)
2. Bank A/c Dr 1,00,000
To preference share first call A/c 1,00,000
(Being calls in arrears received on
redeemable preference shares)
3. Redeemable preference share capital A/c 5,00,000
To Redeemable preference shareholder 5,00,000
A/c
(Being amount payable on redemption of
preference shares)
4. Bank A/c Dr 3,60,000
To equity share capital A/c 3,00,000
 To securities premium A/c 60,000
(Being issue of 30,000 equity shares of
Rs.10 each at premium of Rs. 2 per
shares)
5. Reserve fund A/c Dr 2,00,000
To Capital redemption reserve A/c 2,00,000
(Being amount transferred to CRR on
redemption of preference shares)
6. Redeemable Preference shareholders 5,00,000
A/c Dr
To Bank A/c 5,00,000
(Being amount due on preference shares
repaid)

Sum no.6.
A company had, as part of its share capital, 1,000 redeemed
preference shares of Rs. 100 each fully paid up. When the shares
became due for redemption, the company had Rs. 60,000 in its
reserve fund. The company made minimum new issue of equity shares
of Rs. 25 each necessary for the purpose of redemption and received
cash in full. Make the necessary journal entries recording the above
transactions.

Sol.
s.no Particulars Dr. (rs) Cr.(rs)
1. Redeemable preference share capital A/c 1,00,000
Dr
To Redeemable preference shareholders 1,00,000
A/c
 (Being amount payable on redemption of
preference shares)
2. Bank A/c Dr 40,000
To equity share capital A/c 40,000
(Being issue of 1,600 equity shares of
Rs.25 each for redeeming preference
shares vide board resolution)
3. Reserve fund A/c Dr 60,000
To Capital redemption reserve A/c 60,000
(Being the transfer of reserve fund used
for redemption to CRR as per companies
act)
4. Redeemable preference shareholder A/c 1,00,000
Dr
To Bank A/c 1,00,000
(Being the transfer of reserve fund used
for redemption to CRR as per companies
act)

Sum no.7.
X Co. Ltd. had 2,00,000 6% redeemable preference shares of Rs.100
each. Under the terms of issue of shares, redemption was to take
place on 1st April 1994. A General reserve of Rs. 1,25,000 had already
been built up out of past profits. For the purpose of the redemption
75,000 new 5% preference shares of Rs. 100 each were issued to the
public. On the due date, the shares were duly redeemed. Show journal
entries to record the above transactions.

Sol.
s.no Particulars Dr. (rs) Cr.(rs)
1. Redeemable preference share 2,00,00,000
capital A/c Dr
To Redeemable preference 2,00,00,000
shareholders A/c
(Being amount payable on
redemption of preference shares)
2. Bank A/c Dr 75,00,000
To Preference share capital A/c 75,00,000
(Being Issue of 2,000 preference
shares of Rs.100 each)
3. General reserve A/c Dr 1,25,00,000
To Capital redemption reserve 1,25,00,000
(Being the transfer of reserve fund
used for redemption to CRR as per
company act)
4. Redeemable preference 2,00,00,000
shareholders A/c Dr
To Bank A/c 2,00,00,000
(Being the amount due on
preference shares repaid)
 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

Sum no.8
The following is the summarized balance sheet of the company as on
30th April 2001:
LIABILITY ASSETS
Issued, Subscribed and paid up capital: Sundry Assets 18,00,000
4000 8% preference shares of Cash at Bank 6,60,000
Rs. 100 each fully called and
paid up 4,00,000

3000 9%preference shares

of Rs. 100 each, Rs.80 paid up 240,000

1,00,000 equity shares of

Rs.10 each fully called up
and paid up 10,00,000

Securities premium A/c 50,000

Revenue Reserve 5,00,000
Current liabilities 2,70,000
24,60,000 24,60,000

It was decided to redeem both the classes of preference shares on

30th June at a premium of 5%. In May 2001, the company issued for
cash so many equity shares of Rs.10 each as were necessary to provide
for redemption of both classes of preference shares which could not
otherwise be redeemed. The issue was fully subscribed and all moneys
were received. Give journal entries in the books of the company.

Sol.
S.no PARTICULARS Dr Cr
1. Redeemable preferance share final call 60,000
A/c Dr
To Redeemable Preferance share cap A/c 60,000
(Being amount payable on redemption)

2. Bank A/c Dr 60,000

To Share final call A/c 60,000
(Being receipt received on final call
money)

3. 8% preference share capital A/c Dr 4,00,000

9% preference share capital A/c Dr 3,00,000
Premium on redemption A/c Dr 35,000
To preference share holder A/c 7,35,000
(Being amount payable to preference
shareholders on redemption)

4. Bank A/c Dr 2,00,000

To equity share capital 2,00,000
(Being application money received)

5. Revenue Reserve A/c Dr 5,00,000

To CRR A/c 5,00,000
(Being amount transferred to CRR)

6. SPR A/c Dr 35,000

To premium on redemption 35,000
(Being premium on redemption written
off)

7. Preference share holder A/c Dr 7,35,000

To Bank 7,35,000
 (Being amount paid to preference
shareholders)

Sum no.9
A company in a series of operation
(a) issues at par 45,000 redeemable preference shares of Rs.10 each
redeemable at a premium of 5%
(b)Redeems 15,000 of the redeemable preference shares out of the
profit of the company
(c) issues for cash 30,000 equity shares of rupees 10 each at a
premium of Rs. 1 per share and out of the proceeds, redeems the
balance of the redeemable preference shares.
Journalise these transactions.

Sol.
S.no PARTICULARS Dr Cr
1. Bank A/c Dr 3,30,000
To Equity share capital 3,00,000
To SPR 30,000
(Being equity shares issued at a
premium of 5%)

2. General Reserve A/c Dr 1,50,000

To CRR 1,50,000
(Being amount transferred to CRR)

3. Redeemable preference share 4,50,000

capital A/c Dr
 Premium on redemption A/c 22,500
Dr
To Redeemable preference 4,72,500
shareholder
(Being amount payable to
preference shareholders on
redemption)

4. P&l A/c Dr 22,500

To premium on redemption 22,500
(Being the adjustment of premium
on redemption against P&L a/c)

5. Redeemable preference 4,72,500

shareholder A/c Dr
To Bank 4,72,500
(Being amount paid to preference
shareholders)

Sum no.10
A Company has 4000 7% redeemable preference of Rs. 100 each fully
paid. The company decides to redeem the shares on December 31st,
2004 at a premium of 5%. The company has sufficient profits but in
order to augment liquid funds and redeem the shares, it makes the
following issues:
(I) 1,000 equity shares of Rs. 100 each at a premium of 10%
(ii) 1,000 5% debentures of Rs. 100 each
The issue was fully subscribed and all the amounts were received. The
redemption was duly carried out.
Give journals to record the above:
Sol.
S.no PARTICULARS Dr Cr
1. Bank A/c Dr 2,10,000
To Equity share capital 1,00,000
To SPR 10,000
To 5% Debenture 1,00,000
(Being equity shares issued at a premium of
5%, 1000 debentures of Rs.100 each)

2. Redeemable preference share capital A/c 4,00,000

Dr
Premium on redemption A/c Dr 20,000
To Redeemable preference shareholder 4,20,000
(Being amount payable to preference
shareholders on redemption)

3. P&L A/c Dr 3,00,000

To CRR 3,00,000
(Being amount transferred to CRR)

4. SPR A/c Dr 20,000

To Premium on redemption 20,000
(Being premium on redemption written off)

5. Redeemable preference shareholder A/c 4,20,000

Dr
To Bank 4,20,000
(Being amount paid to preference
shareholders)
 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

Sum no.11.
A COMPANY HAS 8000 REDEEMABLE PREFERENCE SHARES OF RS
100EACH FULLY PAID. THE COMPANY DECIDE TO REDEEM THE SHARE ON
SEPTEMBER 30th, 2006 AT A PREMIUM OF 7%. THE COMPANY HAS
SUFFCIENT PROFITS BUT IN ORDER TO AUGMENT LIQUID FUNDS THE
FOLLOWING ISSUES ARE MADE:
(A) 3000 6%DEBENTURES OF RS 100 EACH AT 110.
(B) 2000 EQUITY SHARESOF RS 100 EACH RS 111
THESE ISSUES WERE FULLLY SUBSCRIBED AND ALL THE AMOUNT WERE
RECEIVED. THE REDEMPTION WAS DULY CARRIED OUT. GIVE JOURNAL
ENTRIES.
Sol.
PARTICULARS DR CR
BANK A/C DR 2,22,000
TO EQUITY SHARE CAPITAL A/C 2,00,000
TO SECUIRTY PREMIUM A/C 22,000
(BEING ISSUES OF EQUITY SHARES EACH AT A
PREMIUM)
BANK A/C DR 3,30,000
TO 6% DEBENTURES A/C 3,00,000
TO SECUIRTY PREMIUM A/C 30,000
(BEING ISSUE OF DEBENTURES EACH AT A
PREMIUM)
REDEEMBLE PREFERENCE SHARE CAPITAL A/C DR 8,00,000
PREMIUM A/C DR 56,000
TO REDEEMABLE PREFERENCE SHAREHOLDER A/C 8,56,000
(BEING THE AMOUNT DUE TO PREFERENCE SHAES)
PROFIT AND LOSS A/C DR 6,00,000
TO CRR A/C 6,00,000
(BEING AMOUNT SHARE TO CRR)

SECUIRTY PREMIUM A/C DR 22,000

PROFIT AND LOSS A/C DR 34,000
TO PREMIUM ON REDEMPTION A/C 56,000
(BEING THE TRANSFER OF THE REQUISITE AMOUNT
FROM SECUIRITY PREMIUM)

REDEEMABLE PREFERENCE SHAREHOLDER A/C DR 8,56,000

TO BANK A/C 8,56,000
(BEING AMOUNT PAYABLE TO PREF.SH.HOLDER)

Sum no.12.
XYZ LTD HAD TO REDEEM THE 5000 6% REDEEMABLE PREFERENCE
SHARES OF RS 100 EACH AT A PREMIUM OF 4% ON DECEMBER 31 1990.
THE COMPANY MADE THE FOLLOWING ISSUES IN THE LATER HALF OF
DECEMBER.
(A) 2,000 EQUITY SHARES OF RS 100 EACH @130 PER SHARE.
(B) 6% DEBENTURES OF RS 2,00,000 AT A DISCOUNT OF 5%. THE
WHOLE ISSUE WAS SUBSCRIBED AND ALL THE CASH AGAINST THEM WAS
RECEIVED. THE COMPANY CARRIED OUT THE REDEMPTION SATISFYING
THE LEGAL REQUIREMENT. EXPENSES IN THIS RESPECT CAME TO 5,000.
SHOW THE JOURNAL ENTRIES COVERING THE ISSUE OF SHARE AND
DEBENTURE AND THE REDEMPTION OF PREFERENCE SHARE.
Sol.
PARTICULARS DR CR
6% REDEEMABLE PREFERENCE SHARE A/C DR 5,00,000
PREMIUM ON REDEMPTION OF
PREF.SHAREHOLDER A/C DR 20,000
TO REDEEMABLE PREFERNCE SHAREHOLDER A/C 5,20,000
(BEING AMOUNT PAYABLE ON REDEMPTION OF
PREF.SHARES TRANSFER TO PREF SH.HOLDER)
BANK A/C DR 2,60,000
TO EQUITY SHARE CAPITAL A/C 2,00,000
TO SECUIRTY PREMIUM A/C 60,000
(BEING AMOUNT SHARE TO EQUITY SH.CAPITAL)

BANK A/C DR 1,90,000

DISCOUNT A/C DR 10,000
TO 6%DEBENTURES A/C 2,00,000
(BEING AMOUNT SHARE TO DEBENTURES)
SECUIRTY PREMIUM A/C DR 20,000
TO PREMIUM ON REDEMPTION A/C 20,000
(BEING PREMIUM PAYABLEON PREMIUM ON
REDEMPTION)
ISSUE EXPENSE A/C DR 5,000
TO BANK A/C 5,000
(BEING AMOUNT IS PAYABLE TO ISSUE EXPENSE)

PROFIT AND LOSS A/C DR 3,00,000

TO CRR A/C 3,00,000
(BEING AMOUNT TRANSFER TO CRR)
REDEEMABLE PREFERNCE SHAREHOLDER A/C DR 5,20,000
TO BANK A/C 5,20,000
(BEING AMOUNT IS PAYABLE TO SHAREHOLDER)

Sum no.13.
MEENAKSHI CO.LTD HAS AN AUTHORISED CAPITAL OF RS 8,00,000
DIVIDED INTO 10,000 6% REDEEMBLE PREFERNCE SHARES OF RS 10
EACH 20,000 7% REDEEMBLE PREFERNCE SHARES OF RS 10 EACH AND
50,000 EQUITY SHARES OF RS 10 EACH AND 50,000 EQUITY SHARES OF
RS 10 EACH. ON 1.1.75 THE WHOLE OF THE TWO CLASSES OF PREFERNCE
SHARES AN D15,000 OF THE EQUITY SHARES STOOD IN THE BOOK AS
FULLY PAID.THE SECUIRTY PREMIUM ACCOUNT AS ON THE DATE
SHOWED A BALNCE OF RS 20,000 AND THE BALANCE OF PROFIT AND
LOSS ACCOUNT WAS OF RS 32,000. ON 1.7.75 IT WAS DECIDE TO
REDEEM THE WHOLE OF 6%PREFERNCE SHARES AT A PREMIUM MOF RE
1 PER SHARES, FOR THIS SPECIFIC PURPOSE, THE COMPANY ISSUED FOR
CASH 8,000 EQUITY SHARES OF RS 10 EACH AT A PREMIUM OF RS 2 PER
SHARES , PAYABLE IN FULL IN TOO .ALL THE ABOVE SHARES WERE TAKEN
UP . THE COST OF ISSUE OF SHARES AMOUNTED TO RS 3,000.
GIVE JOURNAL ENTRIES IN RESPECT OF THE ABOVE TRANSACTION.

Sol.
PARTICULARS DR CR
EQUITY SHARE FINAL CALL A/C DR 3,50,000
TO EQUITY SHARE CAPITAL A/C 3,50,000
(BEING MONEY RECEIVED TO FINAL CALL)
BANK A/C DR 3,50,000
TO EQUITY SHARE FINAL CALL A/C 3,50,000
(BEING AMOUNT IS RECEIVE FROM FINALCALL)
6% REDEEMABLE PREF. SHAREHOLDER A/C DR 1,00,000
PREMIUM ON REDEMPTION A/C DR 10,0000
TO 6%REDEEMBLE PREFERNCE SHARE A/C 1,10,000
(BEING AMONT IS PAYABLE ON REDEMPTION OF
PREF SHARE)
BANK A/C DR 96,000
TO EQUITYSHARE CAPITAL A/C 80,000
TO SECUIRTY PREMIUM A/C 16,000
(BEING AMOUNT IS RECEIVE ON EQUITY SHARE
CAPITAL)
EXPENSE ON SHARE A/C DR 30,000
TO BANK A/C 30,000
(BEING AMOUNT IS PAYABLE TO EXPENSE ON
SHARE)
SECUIRTY PREMIUM A/C DR 10,000
TO PREMIUM ON REDEMPTION A/C 10,000
(BEING PREMIUM IS PAID)
PROFIT AND LOSS A/C DR 20,000
TO CRR A/C 20,000
(BEING AMOUNT IS TRANSFER TO CRR)
6% REDEEMABLE PREFERNCE SHARE A/C DR 1,10,000
TO BANK A/C 1,10,000
(BEING AMOUNT IS PAID PREF SHARE HOLDER)
 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

Sum no.14.
The following is the summarized balance sheet of a company
Liabilities Rs Assets Rs
10% Redeemable 1,00,000 Sundry assets 8,10,000
Preference shares
1,000 shares of Rs.
100 each
50,000 Equity shares 5,00,000 Cash at Bank 90,000
of Rs. 10 each fully
paid up
General Reserve 1,00,000
Capital Reserve 50,000
Creditors 1,50,000
9,00,000 9,00,000

For the purpose of redemption of preference shares, the company

made a fresh issue of 4,500 equity shares of Rs. 10 each at a premium
of 10%. The preference shares were redeemed at a premium of 10 %.
Show journal entries and prepare the balance sheet after redemption.

Sol.
Particulars Debit Credit
1. Redeemable preference shares a/c Dr 1,00,000
Premium on Redemption a/c Dr 10,000
To Redeemable Preference Shareholders
a/c 1,10,000
(Being the preference shares redeemed)
 2. Bank a/c Dr 49,500
To equity share capital a/c 45,000
To Securities premium a/c 4,500
(Being 4,500 shares issued)

3. General Reserve a/c Dr 65,000

To Capital Redemption Reserve a/c 55,000
To Premium on Redemption a/c 10,000
(Being transferred to CRR)

4. Redeemable Preference shares a/c Dr 1,10,000

To Bank a/c 1,10,000
(Being the payment made)

Notes To Accounts Rs

1. Share capital
Equity share capital 5,45,000

2. Reserves and Surplus

General Reserve 35,000
Securities premium 4,500
Capital Reserve 50,000
Capital Redemption Reserve 55,000
1,45,500
3. Trade payables
Creditors 1,50,000

4. Tangible assets 8,10,000

Fixed assets

Balance Sheet
Particulars Rs
 1. Equity and Liabilities
I. Shareholder fund
Share Capital 5,45,000
Reserve and Surplus 1,44,500

II. Non current liabilities _

III. Current liabilities

Trade Payables 1,50,000
8,39,500

2. Assets
I. Non current assets
Tangible Assets 8,10,000
II. Current Assets
Cash at bank 29,500
8,39,500

Sum no.15.
Sri Ram Ltd had the following balance sheet as on 1.4.2007
Liabilities Rs Assets Rs
10,000 6% Preference 1,00,000 Buildings 2,00,000
shares of Rs. 10 each
30,000 Equity shares 3,00,000 Plant 2,00,000
of Rs. 10 each
General reserve 1,00,000 Stock 1,00,000
P and L 80,000 Debtors 1,00,000
Creditors 1,20,000 Cash at bank 1,00,000
7,00,000 7,00,000
The company decided to redeem its preference shares at 10 %
preference shares at 10% premium. For this purpose, it issued new
5,000 equity shares of Rs. 10 each at 10% premium. Show necessary
journal entries and balance sheet.

Sol.
Particulars Debit Credit

1. Redeemable Preference share capital a/c

Dr 1,00,000
Premium on Redemption a/c Dr 10,000
To Redeemable Preference shareholders a/c 1,10,000
(Being the preference shares redeemed)

2. Bank a/c Dr 55,000

To Equity share capital a/c 50,000
To Securities premium a/c 5,000
(Being 5,000 equity shares issued)

3. General Reserve a/c Dr 50,000

To Capital Redemption Reserve a/c 50,000
(Being transferred to Capital Redemption
Reserve)

4. Securities Premium a/c Dr 5,000

General Reserve a/c Dr 5,000
To Premium on Redemption 10,000
(Being premium written of)

5. Redeemable Preference share holder a/c

Dr 1,10,000
To Bank a/c 1,10,000
(Being the payment made)
Notes to Accounts Rs
1. Share capital
Issued and paid up capital
35,000 shares of Rs 10 each 3,50,000

2. Reserves and Surplus

General Reserve 45,000
Profit and Loss 80,000
Capital Redemption Reserve 50,000
1,75,000
3. Trade payables
Creditors 1,20,000

4. Tangible Assets
Building 2,00,000
Plant 2,00,000
4,00,000

5. Inventories 1,00,000
Stock

6. Trade Receivables 1,00,000

Debtors
Balance Sheet
Particulars Rs
1. Equity and Liabilities
I. Shareholder fund
Share Capital 3,50,000
Reserves and Surplus 1,75,000

II. Non current liabilities

III. Current liabilities

Trade payables 1,20,000

6,45,000

2. Assets
I. Non current assets -
Fixed assets
Tangible Assets 4,00,000

II. Current Assets

Inventories 1,00,000
Trade Receivables 1,00,000
Cash at Bank 45,000
6,45,000
_____________________
Sum no.16.
On 31st December 1993 the balance sheet of Sundaram Ltd, stood as
follows
Liabilities Rs Assets Rs
Equity share capital 5,00,000 Sundry assets 7,60,000
Redeemable 2,00,000 Bank 1,90,000
Preference Share
capital
General Reserve 1,50,000
Sundry Creditors 1,00,000
9,50,000 9,50,000

On the above date, the preference shares had to eb redeemed. For

this purpose, 1,000 equity shares of Rs. 100 each were issued at Rs.
110. The shares were immediately subscribed and paid for. The
preference shares were duly redeemed. Give journal entries and
balance sheet after redemption.
Sol.
Particulars Debit Credit

1. Bank a/c Dr 1,10,000

To Equity share capital a/c 1,00,000
To Securities Premium a/c 10,000
( Being 1,000 equity shares issued)

2. Redeemable Preference share capital a/c

Dr 2,00,000
To Redeemable Preference shareholder
a/c 2,00,000
( Being the preference shares redeemed)

3. General Reserve a/c Dr 1,00,000

To Capital Redemption Reserve a/c 1,00,000
(Being general reserve transferred to
CRR)

4. Redeemable Preference Shareholder a/c

Dr 2,00,000
To Bank a/c 2,00,000
(Being the payment made)

Notes to Accounts Rs

1. Share Capital
Equity share capital 6,00,000

2. Reserves and Surplus

General Reserve 50,000
Capital Redemption reserve 1,00,000
 Securities Premium 10,000
1,60,000

3. Trade Payables
Creditors 1,00,000

4. Tangible Assets
Fixed Assets 7,60,000

Balance Sheet
Particulars Rs

1. Equity and Liabilities

I. Shareholders’ Fund
Share capital 6,00,000
Reserves and Surplus 1,60,000

II. Current Liabilities

Trade Payables 1,00,000
8,60,000

2. Assets
I. Non-Current assets
Fixed Assets 7,60,000

II. Current Assets

Bank 1,00,000
8,60,000
 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

Sum.no.17
The following was the balance sheet of A Ltd. At March 31 st 2003.
Liabilities Rs. Assets Rs.
Share capital: Fixed assets
10,000 equity shares of 1,10,000
Rs. 10 each 1,00,000 Less: Depreciation
10,000 6% Preference 50,000 60,000
shares (Redeemable) of
Rs. 10 each 1,00,000
Stocks 1,40,000
P&L a/c 45,000
Debtors 1,40,000
General reserve 80,000
Cash at bank 1,00,000
Taxation reserve 30,000

Current liabilities 85,000

4,40,000 4,40,000
It was decided to issue a further 3,000 equity shares at a premium of
Rs.5 per share and to redeem the preference shares. Pass the necessary
journal entries for redeeming the preference shares and prepare the
balance sheet after the redemption is completed.
Solution
PARTICULAR Dr. (₹) Cr. (₹)

6% Redeemable Preference share capital a/c Dr 1,00,000

To Redeemable Preference shareholder a/c 1,00,000
(Being transfer of amount due to preference
shareholders)
Bank a/c Dr 45,000
To Equity share capital a/c 30,000
To Securities premium a/c 15,000
(Being issue of 3000 equity shares of rs.10 each
at premium of rs.5)
General reserve a/c Dr 70,000
To capital redemption reserve a/c 70,000
(Being amount transferred to capital
redemption reserve out of profits)
6% Redeemable Preference share holder a/c Dr 1,00,000
To Bank a/c 1,00,000
(Being payment to preference shareholders)

BANK A/C
PARTICULARS RS. PARTICULARS RS.
To balance b/d 1,00,000 By 6% Redeemable 1,00,000
Preference share
holder a/c
To Equity share capital 30,000 By balance c/d 45,000
To securities premium 15,000
1,45,000 1,45,000
BALANCE SHEET OF A LTD. AS ON 31.3.2003
I) EQUITY AND LIABILITIES
1.Shareholders fund
Share capital 1,30,00
Reserve and surplus 1,70,000

2. Non- current liabilities -

3.Current liabilities 85000

TOTAL 1+2+3 3,85,000

II) ASSETS
1. Non- current assets
Tangible assets
Fixed assets 60,000

2. Current assets
Trade receivables 1,40,000
Inventories 1,40,000
Bank 45000

TOTAL 1+2 3,85,000

Note to accounts

1. Share capital
10,000 Equity shares of Rs.10 each 1,00,000
3,000Equity shares of Rs.10 each 30,000
1,30,00
 2. Reserves and Surplus
P&L 45,000
General reserve 10,000
Capital redemption reserve 70,000
Securities premium 15,000
Taxation reserve 30,000
1,70,000

3. Tangible assets
Fixed assets 60,000

4. Trade receivables
Debtor 1,40,000

5. Inventories
Stocks 1,40,000

Sum.no.18
The balance sheet of ABC & co, Ltd. On 31.3.2009 stood as follows:
Liabilities Rs. Assets Rs.
Equity shares of Rs. 100 5,00,000 Fixed assets 8,00,000
each
Investments 1,00,000
9% Redeemable preference
shares of Rs. 100 each 3,00,000 Bank balance 2,00,000

Securities premium 50,000 Other current 5,00,000

assets
Capital reserve 1,00,000

P&L a/c 2,00,000

10% debentures 3,00,000

Creditors 1,50,000

16,00,000 16,00,000
Both the redeemable preference shares and debentures were due for
redemption on 1.4.2009. The company arranged for the following:
1. It issued 2000 equity shares of Rs. 100 at premium of 10%.
2. It sold the investments for Rs. 90,000
3. It arranged a bank overdraft to the extent necessary.
The redemptions were carried out. Give entries for redemption of
preference shares and debentures and balance sheet after
redemption.

Solution
PARTICULARS Dr. (Rs.) Cr. (Rs.)
Redeemable Preference share capital a/c Dr 3,00,000
To Redeemable Preference shareholder a/c 3,00,000
(Being the amount payable to preference
shareholders)

10% Debentures a/c Dr 3,00,000

To 10% Debentures share holder a/c 3,00,000
(Being the amount payable to 10% debenture
shareholder)

Bank a/c Dr 2,20,000

To Equity share capital a/c 2,00,000
To Securities premium a/c 20,000
(Being the issue of 2000 equity shares of rs.100
at premium of 10%)

Bank a/c Dr 90,000

To Investments 90,000
(Being sale of investments for Rs.90,000)

P&L a/c Dr 10,000

To Investments 10,000
(Being loss debited to P&L a/c)

P&L a/c Dr 1,00,000

To Capital redemption reserve a/c 1,00,000
(Being amount transferred to CRR on
redemption of preference shares out of
profits)

Redeemable Preference share holder a/c Dr 3,00,000

To bank a/c 3,00,000
(Being payment done to preference
shareholder)

10% Debenture share holder a/c Dr 3,00,000

To bank a/c 3,00,000
(Being payment done to debenture
shareholder)
 BANK A/C
Particular Rs. Particular Rs.
To balance b/d 2,00,000 By Redeemable
Preference
To Equity share capital shareholder a/c 3,00,000
a/c 2,00,000
By 10% Debenture
To Securities premium share holder 3,00,000
a/c 20,000
By balance c/d 90,000
To Investments 90,000
6,90,000 6,90,000

BALANCE SHEET OF ABC LTD. AS ON 31.3.2009

Particulars Note.No. Rs.

l) EQUITY AND LIABILITIES

1. Shareholders funds
Share Capital 1 7,00,000
Reserves and Surplus 2 3,60,000

2. Non- Current Liabilities --

3. Current Liabilities
Creditors 3 1,50,00
Bank Overdraft 4 90,000
 TOTAL 1+2+3 13,00,000

II) ASSESTS

1. Non-Current Assets
Fixed Assets
Tangible Assets 5 8,00,000

2. Current Assets
Other Current Assets 5,00,000
TOTAL 1+2 13,00,000

NOTES TO ACCOUNTS:
1. SHARE CAPITAL
Equity shares of Rs.100 each 7,00,000

2. RESERVES AND SURPLUS

Capital reserve 1,00,000
Securities Premium 70,000
P&L a/c 90,000
Capital redemption reserve 1,00,000
3,60,000
3. TRADE PAYABLES
Creditors 1,50,000

4. TANGIBLE ASSETS
Fixed assets 8,00,000
Sum.no.19
The following is the balance sheet of Sundari Ltd. As on 31.12.2006
Liabilities Rs. Assets Rs.
Share capital: Fixed assets:
500 Redeemable Land and building 1,00,000
preference shares of
Rs.100 each fully paid 50,000 Plant 30,000

9000 equity shares of Furniture 2,000

Rs.10 each fully paid 90,000
Current assets:
Reserves and Surplus: Stock 30,000
Securities premium 10,000
Debtors 15,000
General reserve 20,000
Investments 28,000
P&L a/c 25,000
Bank 20,000
Current liabilities 30,000
2,25,000 2,25,000

The company decided to redeem it’s preference shares at premium of

5% on 31st Jan 2009. A fresh issue of 1,000 equity shares of Rs.10 each
was made at Rs.12 per share payable in full on 31st Jan 2007. These
were fully subscribed and paid for. All investments were sold for Rs.
27,000. The directors wish that only a minimum reduction should be
made in the revenue reserves. You are required to give the journal
entries to record the above transactions and draw up the balance sheet
after the redemption of preference shares.

Solution
PARTICULARS DR. CR.

Redeemable Preference share capital a/c 50,000

Premium on redemption of preference shares a/c 2,500
To Redeemable Preference shareholder a/c 52,500
(Being the amount payable on redemption of
preference shares transferred to preference
shareholders)

Bank a/c 12,000

To Equity share capital a/c 10,000
To Securities premium a/c 2,000
(Being issue of 1000 shares at Rs.10 each and rs,2
premium)

Securities premium a/c 2,500

To Premium on redemption a/c 2,500
(Being premium payable on redemption of
preference shares charged to securities premium
a/c)

Bank a/c 27,000

P&L a/c 1,000
To Investments 28,000
(Being sale of investments for Rs.27,000 the loss
debited to P&L a/c)
General reserve a/c 20,000
P&L a/c 20,000
To capital redemption reserve 40,000
(Being amount transferred to capital redemption
reserve on redemption of preference shares out
of profits)

Redeemable Preference share holder a/c 52,500

To Bank a/c 52,500
(Being payment done to shareholder)

BANK A/C
PARTICULAR RS. PARTICULAR RS.
To balance b/d 20,000 By Redeemable 52,500
Preference share holder
a/c
To Equity share 10,000 By balance c/d 16500
capital a/c
To Securities 12,000
premium a/c
To Investments 27,000
69,000 69,000

BALANCE SHEET OF SUNDARI LTD. AS ON 31.12.2006

NOTE NO. Rs.

I ) EQUITY AND LIABILITIES

1. Shareholders funds
 Share capital 1 1,00,000
Reserve and surplus 2 53,500

2. Non- current liabilities --

3. Current liabilities
Creditors 3 30,000

TOTAL 1+2+3 1,83,500

II) ASSETS
1. Non current assets
Tangible assets 4 1,32,000

2. Current assets
Stock 30,000
Trade receivable 15,000
Bank 6500

TOTAL 1+2+3 1,83,500

NOTE TO ACCOUNTS

1. Shareholders fund
9000 Equity shares of rs.10each 90,000
1000 Equity shares of rs.10 each 10,000
1,00,000
2. Reserves and Surplus
Capital redemption reserve
 P&L a/c 40,000
Securities premium a/c 4,000
9,500
3. Current Liabilities 53,500
Creditors
30,000
4. Non -current assets
Land and building
Plant 1,00,000
Furniture 30,000
2,000
1,32,000
 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

Sum.no.20
Following is the balance sheet of raja Ltd as on 31-12-98
Liabilities rs Assets rs

Share capital Sundry assets 6,10,000

5000 equity share
of Rs 100 each fully
paid 5,00,000

2000 6% pref.
Shares of Rs. Rs100
each fully Called up
Rs 2,00,000
Less.
Calls in arrears
On 100 shares 2,000

1,98,000
1000 7% pref. Shares Cash 4,40,000
Of rs. 100 each rs. 60
Paid 60,000
Profit & loss account 2,40,000
Creditors 52,000
10,50,000 10,50,000

On the above data, preference shares are redeemed to the extent

possible at a premium of 5%. Journalise and give the amended balance
sheet.
Hint :
1) partly paid 7% pref shares cannot be redeemed
2) 100 shares with calls in arrears can be redeemed later when arrears
is collected sufficient amount is available in p&l a/c to provide for
their Redemption.
Sol.
Particulars Dr Cr
Pref share capital a/c Dr 1,90,000
Premium on redemption a/c Dr 9,500
To pref shareholders a/c 1,99,500
(200000- 10000=190000) since ₹100 is arrears
(Being transfer of amount due to pref shares)
P&l a/c Dr 1,90,000
To CRR 1,90,000
(Being p&l transferred to crr)

P&l a/c Dr 9,500

To premium on redemption 9,500
(Being premium provided)

Pref shareholders a/c Dr 1,99,500

To bank 1,99,500
(Being the payment made )

Notes to Accounts:
1. Share Capital:
Equity share 5,00,000
7% Preference share 60,000
6% Preference share 8,000
5,68,000
2. Reserves & Surplus
Profit & Loss (240000-190000-9500) 40,500
 CRR 1,90,000
2,30,500
3. Trade payables
Creditor 52,000

4. Tangible assets 6,10,000

Sundry Assets

Balance sheet
Particulars Rs.
1. Equity & liability
I. Shareholders funds
Share Capital 5,68,000
Reserves & Surplus 2,30,500
II. Current Liabilities
Trade payables 52,000
8,50,500
2. Assets
I. Non-current assets
Tangible assets 6,10,000
II. Current assets
Bank (440000- 199500) 2,40,500
8,50,500
Sum.no.21
Balance sheet of X Ltd as on march 31 2007
Liabilities rs Assets rs

Share capital Fixed assets 22,00,000

Issued 10,00,000
subscribed and
fully
Paid up 10000
ordinary shares
of rs 100 each
5000 pref. Shares of rs. 5,00,000 Current 8,00,000
100 each Assets
Capital Reserve 1,00,000
Securities Premium 1,00,000
General Reserve 2,00,000
Profit & loss account 1,00,000
Current Liabilities 10,00,000
30,00,000 30,00,000
The preference shares are to be redeemed at 10% premium. Fresh
issue of equity shares is to be made to the extend required under the
companies act for the purpose of this redemption. The Short fall in
funds for the purpose of redemption after utilising the proceeds of the
fresh issue are to be met by taking a bank loan. Show the journal
entries.

Sol.
WN. : Minimum new issue = [Face value of Redeemable Preference
Share Capital + Premium on Redemption - Securities Premium in
Balance Sheet(up to premium payable) - Revenue Profits in Balance
Sheet] x 100/100
Fresh issue = (500000 + 50000 – 50000 – 300000) x 100/100 = 200000
Rs. 2,00,000 is the fresh issue of equity

Particulars Dr Cr
Pref share capital a/c Dr 5,00,000
Premium on redemption a/c Dr 50,000
To pref shareholders a/c 5,50,000
(Being transfer of amount due To pref shares)

Bank a/c Dr 2,00,000

To equity share capital 2,00,000
(Being share issued)
Security prem a/c Dr 50,000
To prem on red a/c 50,000
(Being prem payable)
Bank a/c Dr 3,50,000
To bank loan a/c 3,50,000
(Being bank loan payable)
Red pref shareholders Dr 5,50,000
To bank 5,50,000
(Being amount payable)
General reserve a/c Dr 2,00,000
P&l a/c Dr 1,00,000
To CRR 3,00,000
(Being general res and p&l Transferred to
CRR)

Bank a/c
Particulars Rs Particulars Rs
To equity share 2,00,000 By red pref 5,50,000
To bank loan 3,50,000 shareholder
550000 550000
Sum.no.22
The following is the summarised balance sheet of company
Liabilities rs Assets rs

Paid up Capital Sundry assets 25,60,000

6000 8% preference 6,00,000

shares
of rs 100 each fully paid
up
3000 9% preference 2,25,000 Cash at bank 285000
shares
of rs 100 each rs 75 paid
up
150000 equity share 15,00,000
of rs 10 each
Capital Reserve 1,00,000
Securities Premium 60,000
Current Liabilities 3,60,000
28,45,000 28,45,000
It was decided to redeem both the classes of preference shares at
premium of 5%. The company issued equity shares of rs 10 each at a
premium of 10% as went necessary to provide cash for redemption.
The issue was fully subscribed and all the money were received.
Provide journal entries and balance sheet.
Sol.
WN: New issue = 9,00,000 + 45,000 – 45,000
= Rs. 9,00,000 or 90,000 shares (9,00,000/10)
225000+75000 = 300000
30000+15000 = 45000
Particulars Dr Cr
Bank a/c Dr 75,000
To 9% pref capital a/c 75,000
(Being 9% pref payable)
Redemption 8% pref Share capital a/c Dr 6,00,000
Redemption 9% pref Share capital a/c Dr 3,00,000
Premium on red a/c Dr 45,000
To pref shareholders a/c 9,45,000
(Being pref share capital and premium on red
payable to pref shareholders)
Bank a/c Dr 9,90,000
To equity cap a/c 9,00,000
To SPR a/c 90,000
(Being equity share issue and premium)
SPR a/c Dr 4,50,000
To prem on redemption 4,50,000
(Being premium payable )

Red pref shareholders Dr 9,45,000

To bank 9,45,000
(Being amount paid)

Bank a/c
Particulars Rs Particulars Rs
To 9% preference By pref.
capital 15,000 Shareholders 9,45,000
To equity share capital 9,00,000 By bal c/d 4,05,000
To SPR 90,000
To bal b/d 2,85,000
13,50,000 13,50,000
 Notes to Accounts:
1. Share Capital:
Equity share
1,50,000 equity shares of Rs. 10 each 15,00,000
90,000 equity shares of Rs. 10 each 9,00,000
24,00,000
2. Reserves & Surplus
Securities premium (60000+90000-45000) 1,05,000
Capital reserve 1,00,000
2,05,000
3. Tangible assets
Sundry Assets 25,60,000
25,60,000

Balance sheet
Particulars Rs.
1. Equity & liability
I. Shareholders funds
Share Capital 24,00,000
Reserves & Surplus 2,05,000

II. Current Liabilities 3,60,000

29,65,000

2. Assets
I. Non-current assets
Tangible assets 25,60,000
II. Current assets
Bank 4,05,000
29,65,000
 CORPORATE ACCOUNTING
REDEMPTION OF PREFERENCE SHARE

23. A company wants to redeem its 10,000 6% preference shares of

Rs.10 each, fully paid at 10% premium. The ledger shows the following
balances:
Securities premium – Rs.2,000
Profit and loss a/c – Rs. 10,000
The directors redeemed the shares by making minimum fresh issue of
equity shares of Rs.10 each at a premium of 5%. Give journal entries.

Sol.
WN1: no. of shares to be issued for redemption:
Minimum subscription= 1,00,000 + 10,000 - 2000 – 10,000 x 100/105
= 93333 shares
Premium on fresh issue= 93333 x 5% = 4667
WN2: calculation of amt to be transferred to CRR
CRR = 1,00,000 – 93,333 = 6,667
JOURNAL
PARTICULARS DR CR
Redeemable preference share capital a/c Dr. 1,00,000
Premium on redemption a/c Dr. 10,000
To preference share holders a/c 1,10,000
(Being amount payable on redemption of
preference shares)
Bank a/c Dr. 98,000
 To equity share capital a/c 93,333
To securities premium a/c 4,667
(Being issue of equity shares of Rs.10 each at a
premium of 5%)
Profit and loss a/c Dr. 6,667
To CRR 6,667
(Being amount transferred to CRR on
redemption of preference shares )
Profit and loss a/c Dr. 3,333
Securities premium a/c Dr. 6,667
To Premium on redemption a/c 10,000
(Being premium on redemption written off)
Preference share holders a/c Dr. 1,10,000
To bank a/c 1,10,000
(Being amount paid to preference
shareholders)

24. The following balances were extracted from the books of S ltd. As
on 31-12-92.
2,000 redeemable preference shares of Rs.100 each fully called
up-Rs.2,00,000
Calls In arrears at Rs.20 per share on 300 shares – Rs.6000
General reserve – Rs.50,000
Capital reserve – Rs.10,000
The preference shares were redeemed on 1-1-93 at a premium of Rs.5
per share. The company issued such further equity shares of Rs.10
each as were necessary for the purpose of redeeming the preference
shares which were fully subscribed and duly allotted. You are required
to show journal entries in the books of S ltd.

Sol.
 WN1: no. of shares to be issued for redemption:
Minimum subscription= 1,70,000 + 10,000 – 50,000 x 100/100
= 1,30,000 shares
WN2: calculation of amt to be transferred to CRR
CRR = 1,70,000 – 1,30,000 = 40,000
JOURNAL
PARTICULARS DR(Rs.) CR(Rs)
Redeemable preference share capital a/c Dr. 1,70,000
Premium on redemption a/c Dr. 8,500
To preference share holders a/c 1,78,500
(Being amount payable on redemption of
preference shares)
Bank a/c Dr. 1,30,000
To equity share capital a/c 1,30,000
(Being issue of equity shares of Rs.10)

General reserve a/c Dr. 40,000

To CRR 40,000
(Being amount transferred to CRR on
redemption of preference shares )
General reserve a/c Dr. 8,500
To Premium on redemption a/c 8,500
(Being premium on redemption written off)
Preference share holders a/c Dr. 1,78,500
To bank a/c 1,78,500
(Being amount paid to preference
shareholders)
25. the following balances were extracted from the books of Susee
ltd.:
8% redeemable preference shares, 1000 shares of Rs.100 each fully
called up- Rs. 1,00,000
Calls unpaid at Rs.25 per share – Rs.500
Securities premium a/c – Rs.14,000
General reserve – Rs.34,000
Cash at back – Rs.55,000
Proposed dividend on cumulative preference shares – Rs.7,840
The directors redeemed the preference shares at a premium of 10%
and for that purpose made a fresh issue of equity shares for such
amount that was necessary for the purpose after utilizing the available
resources to the maximum extent and satisfied the amount of
preference dividend.
You are required to show the journal entries including those relating
to cash for recording the above transactions. Ignore taxation.

Sol.
WN1: no. of shares to be issued for redemption:
Minimum subscription= 1,00,000 + 10,000 - 10,000 – 34,000 x
100/100
= 66,000 shares
WN2: calculation of amt to be transferred to CRR
CRR = 98,000 – 66,000 = 32,000
JOURNAL
PARTICULARS DR(Rs.) CR(Rs)
Redeemable preference share capital a/c Dr. 98,000
Premium on redemption a/c Dr. 9,800
To preference share holders a/c 1,07,800
(Being amount payable on redemption of
preference shares)
Bank a/c Dr. 66,000
To equity share capital a/c 66,000
(Being issue of equity shares of Rs.10)
General reserve a/c Dr. 32,000
To CRR 32,000
(Being amount transferred to CRR on
redemption of preference shares )
Securities premium a/c Dr. 9,800
To Premium on redemption a/c 9,800
(Being premium on redemption written off)
Preference share holders a/c Dr. 1,07,800
To bank a/c 1,07,800
(Being amount paid to preference
shareholders)
26. The balance sheet of redemption Ltd as at 31 st march 1987 is as follows

Liabilities Rs Assets Rs
10000 Equity shares of 100000 Fixed assets 262000
Rs 10 each fully paid up
11% Redeemable 100000 Debtors 90000
Preference share of Rs
100 each fully called up 6000
Less: Calls in arrears
@20 per share 94000
10% Preference share of 100000 Stock 30000
Rs 10 each fully paid up
General reserve 40000 Investments 30000
Profit and loss A/c 20000 Bank 4000
Securities Premium 5000
Capital reserve 30000
Creditors 27000
416000 416000

Redeemable preference shares were due for payment on 1st April 1987 at a premium of
10%. The company sent reminders for the final call the remaining 300 redeemable
preference shares and could collect money from shareholders holding 200 shares @ Rs.
20 per share and forfeited the defaulting 100 shares. The company sold all investments
and could recover 90% of the cost of such investments. The company issued adequate
number of new equity shares at par, to the extent available profits were insufficient to
backup the redemption.

Draft journal entries and prepare balance sheet

SOLUTION

Particulars Debit Credit

Bank A/c Dr 4000
To Preference share capital A/c 4000
(Being amount received for arrear preference share )
Redeemable Preference share A/c Dr 10000
To forfeited share A/c 8000
To Preference share final call A/c 2000
(Being shares are forfeited on the defaulting 100
shares)

Redeemable preference share A/c Dr 190000

Premium on redemption A/c Dr 19000
To Redeemable preference shareholders A/c 209000
(Being preference shares redeemed and transfer of
amount due to preference shareholders)
Bank A/c Dr 27000
To investment A/c 27000
(Being investing sold for cash)
Profit and loss A/c Dr 3000
To investment A/c 3000
(Being loss in sale of investment)

Bank A/c Dr 147000

To equity shares A/c 147000
(Being issue of equity shares)
General Reserve A/c Dr 40000
Profit and loss A/c Dr 3000
To Capital Redemption Reserve A/c 43000
(Being the transfer of revenue reserves used for
redemption to capital redemption reserve)
Securities premium A/c Dr 50000
Profit and loss Dr 14000
To premium on redemption A/c 19000
(Being amount transferred from securities premium
and profit and loss to premium redemption)
Redeemable preference shareholders A/c Dr 209000
To Bank A/c 209000
(Being amount due to preference shareholders paid
off , except to a holder of 200 shares)

Bank account

Particulars Amount Particulars Amount

To Balance b/d 4000 By preference share 209000
To Preference share capital 4000
To investment 27000
To equity share 147000
To balance c/d 27000
209000 209000
TOTAL

NOTES TO ACCOUNTS

Particulars amount
1. Shareholder’s funds
Equity share 247000
Forfeited share 8000
Total 255000
2. Reserve and surplus
Capital Redemption Reserve 43000
Capital Reserve 30000 73000
 3.Trade payable
Sundry creditors 27000
4.Short term borrowing
Bank overdraft 27000
5.Non current asset
Fixed asset 262000
6.Other current asset
Debtors 90,000
Stock 30000 120,000

Balance sheet

Particulars Note no: Rs.

I. Equity and liabilities
Shareholders Fund 1 255000
Reserves and surplus 2 73000
Creditors 3 27000
Balance overdraft 4 27000
Total 3,82,000
II. Assets
Fixed assets 5 262000
Other current asset 6 120000
Total 3,82,000

27. Rebex limited has an authorized capital of Rs. 2, 50, 000 comprising of 50, 000 6%
redeemable cumulative preference shares of Re.1 each and 2, 00, 000 ordinary shares of
Re.1 each. The preference shares are redeemable on 1st July 1983 at rs.1.05 per share.
The summarized balance sheet is given below:

Liabilities Rs. Assets Rs.

Share capital Sundry assets 1, 96, 700
Preference shares 50, 000 Investments 14, 000
Ordinary 1, 00, 000 Bank balance 28, 000
Capital reserve 9, 500
General reserve 20, 000
Profit and loss 42, 500
Creditors 16, 700
2, 38, 700 2, 38, 700
The necessary resolutions were duly passed and the following transactions carried
through on the dates stated:
On 31st May 1983, in order to provide cash towards the redemption of the preference
shares: (a) All the investments were sold for Rs. 18, 000 and
(b) 20,000 ordinary shares of Re. 1 each were issued to existing shareholders at Rs. 1.25
per share payable in full forthwith and duly paid.
On July 1st 1983, the preference shares were duly redeemed and on 30th September
1983, a bonus issue of ordinary shares was made at the rate of one new share for every
ten shares held. You are required to give necessary journal entries and prepare balance
sheet.

Solution:

S. No Particulars Debit Credit

01. Preference share capital A/c Dr. 50, 000
Premium on redemption A/c Dr. 2, 500
To Redeemable shareholders a/c 52, 500
(Being the preference share due for
payment)
02. Bank A/C Dr. 25, 000
To Equity share capital A/c 20, 000
To Securities Premium A/c 5, 000
(Being issue 20,000 shares each 1Rs)
03. Bank A/c Dr. 18, 000
To Investment A/c 14, 000
To Profit and loss A/c 4, 000
(Being the sale of investment at profit)
04. General reserve A/c Dr. 20, 000
Profit and loss A/c Dr. 10, 000
To Capital Redemption Reserve A/c 30, 000
(Being amount transferred to CRR for
redemption purpose)
05. Securities premium A/c Dr. 2, 500
To Premium on redemption A/c 2, 500
(Being the transfer of the requisite amount
for premium on redemption)
06. Redeemable preference shareholders Dr. 52, 500
To Bank A/c 52, 500
(Being payment made to Redeemable
Preference shareholders on redemption)
07. Capital Redemption Reserve A/c Dr. 12, 000
To Bonus to shareholders A/c 12, 000
(Being amount transferred for issuing
bonus shares)
08. Bonus to shareholder A/c Dr. 12, 000
To Equity share capital A/c 12, 000
(Being issue of bonus share of Rs.10 each)
 Bank A/C

Particulars Rs. Particulars Rs.

To Balance b/d 28, 000 By Redeemable 52, 500
Preference share holder
A/C
To Equity shares 20, 000 By Balance c/d 18, 500
To Securities premium 5, 000
To Investments 18, 000

71, 000 71, 000

Notes to Accounts

Particulars Amount
1.Shareholders funds
Ordinary shares 132000
2.Reserve and surplus
Profit and loss 36500
Capital reserve 9500
Capital redemption reserve 18000
Securities premium 2500 66500
3.Trade payable
Sundry creditors 16700
4.Tangiable assets
Sundry assets 196700

Balance Sheet

Particulars Note No. Rs.

Equity and liabilities
Share capital 1 1, 32, 000
Reserves and surplus 2 66, 500
Current liabilities
Creditors 3 16, 700
Total 2, 15, 200
Assets
Sundry assets 4 196700
Current assets 18500
Cash and cash equivalents
Total 2, 15, 200
28. The following was the balance sheet of Brite Ltd as on 31.3.1996

Liabilities Rs Assets Rs
7500 Equity shares of Rs 7,50,000 Fixed assets 7,80,000
100 each
2000 15% Preference 2,00,000 Debtors 2,60,000
share of Rs 100 each

General reserve 6,30,000 Stock 6,00,000

Profit and loss A/c 50,000 Debenture redemption 88,500
fund investments
Debenture Redemption 88,480 Cash at Bank 3,00,000
fund
12% debentures 1,00,000
Creditors 2,11,520
TOTAL 20,30,000 20,30,000
On this date the company redeemed at a premium of 5% all of its preference shares and
debentures. For the purpose it sold all the investments for Rs 90000 and allotted to its
equity shareholders 1500 equity shares of Rs 100 each at par the entire amount being
received immediately.

After redemption of preference share and debentures the company issued one fully paid
bonus share of Rs 100 for every share held

Show journal entries and prepare balance sheet

SOLUTION

Particulars Debit Credit

15% Preference share A/c Dr 200000
Premium on redemption A/c Dr 10000
To preference shareholder A/C 210000
(Being amount payable 2000 redeemable
preference shares Rs.100)

12%Debentures A/c Dr 10000

Premium in Redemption A/c Dr 5000
To Debenture holder A/c 105000
(Being amount due on redemption)

Bank A/c Dr 90000

To investment A/c 88500
To profit and loss A/c 1500
(Being investment sold at profit)
Bank A/c Dr 150000

To Equity share capital A/c 150000

(Being issue of 1500 Equity shares of Rs.100 each)

Profit and loss A/c Dr 50000

To Capital Redemption Reserve 50000
(Being transfer of requisite amount from profit and
loss to Capital redemption reserve for redemption
of preference share)

Profit and loss A/c Dr 1500

General reserve A/c Dr 13500
To Premium on Redemption A/c 15000
(Being transfer out of general reserve and profit
and loss a/c for redemption of preference share as
required)

General reserve A/c Dr 250000

Capital Redemption Reserve A/c Dr 50000
To bonus to share A/c 300000
(Being amount transferred for bonus shares)
300000
Bonus to shareholders A/c Dr 300000
To Equity Share A/c
(Being issue equity shares as bonus shares)
Preference shareholders A/c Dr 210000
To Bank A/c 210000
(Being amount due to shareholders paid off)
12% Debentures holder A/c Dr 100000
To bank A/c 100000
(Being payment made to debenture shareholders)

BANK ACCOUNT

Particulars Rs Particulars Rs
To Balance b/d 3000000 By debentures A/c 105000
To investment A/c 88500 By preference share A/c 210000
To profit and loss A/c 1500 By balance b/d A/c 225000
To equity share A/c 150000
Total 540000 540000
 Notes to Accounts

Share Capital Amount

1.Issued and Paid up capital
12000 shares of Rs 100 each 1200000
2.Reserves and surplus
General reserve 315000
Profit and loss A/c 51500
Total 454980

3.Current Liabilities 211520

4.Non-Current Assets 780000
Fixed assets
5. Other current assets
Stock 600800
Debtors 260700

861500

Balance sheet

Particulars Note No. Rs.

Equity and liabilities
Shareholders Fund
Share capital 1 1200000
Reserves and surplus 2 454980

Current liabilities 3 211520

Total 1866500
Assets
Non – current Assets 4 780000
Current assets 5
Cash at bank 225000
Other current assets 861500
Total 1866500
 29) the following is the Balance sheet of Food Fault LTD. As on 31.3.2012.

LIABILITIES ASSETS
2000 equity shares of Rs 100 each 2,00,000 Sundry Assets 3,78,000
1000 11% preference of Rs. 100 each 1,00,000 Investments 40,000

General reserve 40,000 Cash at bank 80,000

Profit & Loss 50,000
Securities Premium 8000

Current liabilities 1,00,000

The directors decided to redeem the shares on 1.1.90 at a premium of 10%. It was decided
to sell the investments at the market value of Rs. 50,000. For the purpose of redemption,
the Board decided to issue 500 rights equity shares at a premium of 20%. After redemption,
the board decided to issue bonus shares to the equity shareholders in the ratio of 2 for 5
holders of 100 preference shares were not traceable. Show the necessary journal entries
and the balance sheet after the issue of bonus
SOLUTION: JOURNAL ENTRIES

Sno. Particulars L.f Debit Credit

1. Redeemable preference share capital A/c Dr 100,000

Premium on Redemption A/c Dr 10,000
To redeemable preference share capital A/c 110,000
(Being the amount payable on redemption of
preference shares transferred to preference
shareholders)
2. Bank A/c 50000
To Investments 40000
To Profit & loss A/c 10000
(Being investments sold)
3. Bank A/c 60000
To Equity Share Capital A/c 50000
To securities premium 10000
(Being shares issued)
4. Securities premium A/c Dr 10000
To premium on Redemption A/c 10000
(Being shares redeemed at premium)
5. General reserve A/c Dr 40000
P&L A/c Dr 10000
TO Capital redemption reserve A/c 50000
(Being profits transferred from general reserve and
profit and loss to capital redemption reserve)
6. Redeemable preference shareholders A/c 99000
To bank A/c 99000
(Being amount paid to shareholders)
W.N: For 5 shares – 2 shares
2500 shares -? 2500*2/5=1000 shares

7. Capital Redemption Reserve A/c Dr 50000

P&L A/c 50000
To Bonus to equity shareholders 100000
(Being provision made for bonus issue of one
share for every four shares held)

8. Bonus to equity shareholders A/c Dr 100000

To Equity share capital A/c 100000
(Being profit capitalized)
Notes to accounts:

Sno. Particulars Amt

1. Share capital
2000 Eq share of Rs. 100 each 200000
1000 Eq share of Rs. 100 each 100000
500 Eq share of Rs.100 each 50000
350000
Amount due to preference shares (untraceable calls) 11000
2. Reserves & surplus
Securities & premium 8000
3. Current liability
creditors 100000
4. Tangible Assets
Sundry Assets 378000

Balance sheet:

I Equity and Liabilities

1) Shareholder’s fund (share capital) (untraceable call) 361000
Reserves and surplus 8000
2) Non-current liabilities ---------
3) Current liabilities 100000
TOTAL 469000
II Assets
1) Non-current assets 378000
2) Current assets 91000
TOTAL 469000
30) The balance sheet of PQ Ltd. On 31st Dec. 1985 is as under.

Liabilities Rs. Assets Rs.

9000, 8% redeemable preference 900000 Fixed Assets 2000000
shares of rs.100 each fully paid
Equity shares of.10 each fully paid 900000 Current Assets 380000
General reserve 360000 Investments 270000
Securities premium 27000 Bank 200000
Profit & Loss 540000
Creditors 123000
28,50,000 28,50,000

The preference shares are to be redeemed at 10% premium along with dividend due for
1985. The company issued 45,000 equity shares of Rs. 10 each at a premium of Rs. 5 per
share. All shares were subscribed and cash duly received. The investments were sold for
Rs.3,50,000. Payment was made to the preference shareholders and thereafter the
directors decided to issue bonus shares in the ratio of one share for every four-share held.
For this purpose, the free reserves were utilized to the minimum extent necessary.
Give journal entries with narration and the balance sheet after redemption.
Journal entries

s.no Particulars Debit Credit

1. Redeemable preference shares capital A/c Dr. 900000
Premium on Redemption A/c 90000
To preference share holders 990000
(Being the amount payable on redemption of preference
shares transferred to preference shareholders)
2. Bank A/c 675000
To equity share capital 450000
To securities premium 225000
(Being shares issued)
3. Bank a/c 350000
To investment 270000
To P&L 80000
(Being investment sold at profit)
4. General Reserve A/c 360000
P&L A/c 90000
To capital redemption reserve A/c 450000
(Being profits and general reserve transferred to capital
redemption reserve)
5. Security premium a/c 90000
To premium on Redemption 90000
(Being security premium amount transferred to premium on
redemption)
6. Preference shareholder a/c 990000
To bank a/c 990000
(Being preference share redeemed)
7. P&L a/c 72000
To preference share dividend 72000
(Being amount transferred from p&l for preference share
divided)
8. Preference shares dividend a/c 72000
To bank 72000
(Being preference share paid)
9. Capital Redemption Reserve A/c Dr 337500
To Bonus to equity shareholders 337500
(Being provision made for bonus issue of one share for every
four shares held)

10. Bonus to equity shareholders A/c Dr 337500

To Equity share capital A/c 337500
(Being profit capitalized)

BANK ACC

PARTICULARS AMOUNT PARTICULARS AMOUNT

To bal b/d 200000 By preference shares 990000
To equity shares 450000 By dividend 72000
To security premium 225000 By bal c/d 163000
To investments 270000
To P&L 80000
1225000 1225000

Balance sheet:

I Equity and Liabilities

1)Shareholder’s fund (share capital) 1687500
Reserves and surplus
Security premium 162000
P&L 458000
CRR 112500
2) Non-current liabilities
3) Current liabilities (Creditors) 123000
TOTAL 2543000
II Assets
1) Fixed assets 2000000
2) Current assets 380000
3) Bank 163000
TOTAL 2543000
31) On January 1,1975, Madras Motors Ltd. issued 3000 7% redeemable preference shares
of rs.10 each all of which were taken up and fully paid. On 30th June 1982, the company
decided to redeem these shares at a premium of Rs. 4 per share. for the purpose, it issued
1800 6% preference shares of Rs.10 each at premium of Rs. 1 per share on July 15, 1982.
The shares were redeemed on the same date. The company had a balance of Rs.28000 in its
Profit & Loss account. On 1st sept 1982, the company decided to issue 5000 fully paid bonus
shares of Rs. 10 each for allotment to equity shareholders in the ratio of one equity share
for four shares held. It had also a reserve of Rs. 1,10,000.
Give journal entries in the books of the company.
Journal entries

s.no Particulars Debit Credit

1. Redeemable preference shares capital A/c Dr 30000

Premium on Redemption A/c 12000
To redeemable preference share holders 42000
(Being the amount payable on redemption of preference
shares transferred to preference shareholders)
2. Bank A/c 19800
To 6% preference share capital 18000
To securities premium 1800
(Being shares issued)
3. Securities premium A/c 1800
Profit & Loss a/c 10200
To premium on redemption A/c 12000
(Being shares redeemed at premium)
4. Profit & loss A/c 12000
To capital redemption reserve A/c 12000
(Being profits transferred from general reserve to capital
redemption reserve)
5. Redeemable preference shareholders A/c 42000
To Bank A/c 42000
(Being amount paid to shareholders)
6. General reserve A/c 38000
Capital Redemption Reserve A/c 12000
To Bonus to equity shareholders A/c 50000
(Being provision made for bonus issue of one share for every
four shares held)
7. Bonus to equity shareholder A/c 50000
To equity share capital A/c 50000
(Being profit capitalized)
 CORPORATE ACCOUNTING
Q 32.
The balance sheet of Suraj Ltd as on 31.12.2011 was as under:

Liabilities Assets
Share capital: Fixed assets 1,00,000
Issued & fully paid: Investments 20,000
5,000 6% redeemable Cash at bank 18,000
Preference shares of Rs.10 each Other current assets 62,000
fully paid 50,000
6,000 equity shares of Rs.10each
fully paid 60,000
securities premium 20,000
general reserves 40,000
profit & loss a/c 5,000
sundry creditors 25,000
2,00,000 2,00,000

The company passed the following resolutions on 1st Jan 2012.

i. To redeem the entire preference shares capital at a premium of 10%.
ii. To issue 2,000 equity shares of Rs.10 each at a premium of Rs.2 per share, which has
been fully subscribed.
iii. To sell the investment at Rs.15,000.
iv. To issue bonus shares as fully paid in the ratio of 2:1 to the existing shareholders
including the fresh issues.
Draft the journal entries and prepare the balance sheet as on 1st Jan 2012.
SOLUTION: Journal entries of Suraj Ltd as on 31.12.2012

DATE PARTICULARS L.F DEBIT CREDIT

1.1.2012 Preference share capital a/c Dr 50,000
Premium on redemption a/c Dr 5,000
To redeemable preference 55,000
shareholders a/c
(Being preference shares redeemed
and transfer of amount due to
preference shareholders)

1.1.2012 Bank a/c Dr 24,000

To equity share capital a/c 20,000
To securities premium reserve a/c 4,000
(Being equity share issued at premium)
1.1.2012 Bank a/c Dr 15,000
Profit & loss a/c Dr 5,000
To investment 20,000
(Being investment sold at loss)

1.1.2012 General reserve a/c Dr 30,000

To capital redemption reserve a/c 30,000
(Being transfer of amount due to
preference shareholders a/c)

1.1.2012 Securities premium reserve a/c Dr 5,000

To premium on redemption a/c 5,000
(Being providing for premium on
redemption out of profit & loss a/c)

1.1.2012 Redeemable preference shareholder 55,000

a/c Dr 55,000
To bank a/c
(Being payment made to redeemable
preference shareholder)
1.1.2012 General reserve a/c Dr 10,000
Capital redemption reserve a/c Dr 30,000
To bonus to shareholders a/c 40,000
(Being declaring bonus shares to equity
shareholders)
1.1.2012 Bonus to shareholders a/c Dr 40,000
To equity share capital a/c 40,000
(Being issue equity shares as bonus
shares)

Dr BANK A/C Cr
PARTICULARS Rs PARTICULARS Rs
To balance b/d 18,000 By redemption preference 55,000
To equity share capital 20,000 share
To securities premium 4,000 2,000
reserve 15,000 By balance c/d
To investment

57,000 57,000
NOTES TO ACCOUNTS:

S.No PARTICULARS Rs Rs
1 Share capital
Issued & fully paid:
6,000 equity shares of Rs.10
each fully paid 60,000
Fresh issue of 2,000 equity
shares of Rs.10 each and fully 20,000
paid up
Bonus issue of equity shares 40,000
2 1,20,000
Reserve and surplus
Securities premium reserve 19,000
19,000
3 Trade payables
Sundry creditors 25,000

4 Tangible assets
Fixed assets 1,00,000

5 Other current assets

Current assets
Cash and equivalents 62,000
2,000
64,000
BALANCE SHEET of Suraj Ltd as on 31.12.2012

PARTICULARS NOTE Rs
NO.
I.Equity and liabilities
(i) shareholder’s fund
Share capital 1 1,20,000
Reserve and surplus 2 19,000

(ii)Current liabilities
Trade payables 3 25,000

TOTAL 1,64,000
II.Assets
(i)Non-current assets
Tangible assets 4 1,00,000

(ii)Other Current assets 5 64,000

TOTAL 1,64,000
 Q33.
The following is the balance sheet of Manish Ltd.as on 31.12.2011

Liabilities Assets
Share capital: Fixed assets 5,20,000
Authorized: Current assets 3,22,000
20,000 6% redeemable preference
shares of Rs.10 each 2,00,000
70,000 equity shares of Rs.10 each 7,00,000
9,00,000

Issued & subscribed:

16,000 6% redeemable preference
shares of Rs.10 each 1,60,000
39,000 equity shares of Rs.10 each
fully paid 3,90,000

Reserves & surplus:

Profit & loss a/c 2,00,000
Sundry creditors 92,000

8,42,000 8,42,000

The preference shares were redeemed on 1.1.2012 at a premium of Rs.2 per shares, the
whereabouts of the holders of 1,200 such shares not being not being known. At the same
time, a bonus issue of equity shares was made at par one share being issued for every
shares held out of the capital redemption reserves account.
Draw up the journal entries to record the above transactions and show the balance sheet
after redemption.
SOLUTION:
Journal entries of Manish Ltd as on 31.12.2012

DATE PARTICULARS L.F DEBIT (Rs) CREDIT (Rs)

1.1.12 6% Redeemable preference shares capital a/c Dr 1,60,000
Premium on redemption a/c Dr 32,000
To Redeemable preference shareholders a/c 1,92,000
(Being transfer of amount due to preference
shareholders a/c)

1.1.12 Profit & loss a/c Dr 1,60,000

To Capital redemption reserve a/c 1,60,000
(Being transfer of profits to capital redemption
reserve a/c)
1.1.12 Profits & loss a/c Dr 32,000
To premium on redemption 32,000
(Being providing for premium on redemption
out of profit & loss a/c)

1.1.12 Redeemable preference shares a/c Dr 1,77,600

To bank a/c 1,77,600
(Being payment made to redeemable
preference shareholder holding 14,800 shares
i.e the holders of 1,200 shares could not be
traced)
1.1.12 Capital redemption reserve a/c Dr 1,30,000
To bonus to shareholders 1,30,000
(Being declaring bonus shares to equity
shareholders)

1.1.12 Bonus to shareholders a/c Dr 1,30,000

To equity share capital a/c 1,30,000
(Being issue of 39,000 equity shares of Rs.10
each as bonus shares)

NOTES TO ACCOUNTS

S.No Particulars Rs Rs
1. Share capital
Authorized capital
70,000 equity shares of Rs.10 each 7,00,000
20,000 6% redeemable preference 2,00,000
shares 9,00,000

Issued and subscribed capital

52,000 equity shares (including 5,20,000
bonus shares) of Rs.10 each
1,200 6% redeemable preference
shareholders were untraceable 14,400
5,34,400

2. Reserves and surplus 8,000

Profit and loss 30,000
Capital redemption reserve 38,000

3. Trade payable
Sundry creditors
92,000
4. Tangible assets
Fixed assets 5,20,000
Balance sheet of Manish Ltd as on 31.3.2012

Particulars Note Rs
no
I.EQUITY AND LIABILITIES:
(i) Shareholder’s fund
Share capital 1 5,34,400
Reserves and surplus 2 38,000

(ii) Non-current liabilities

Long term borrowing - -

(iii)Current liabilities
Trade payables 3 92,000
Other current liabilities 14,000

Total [(i)+(ii)+(iii)] 6,64,400

II.ASSETS:
(i)Non-current assets 4 5,20,000
Tangible assets
(ii)Current assets
(3,22,000 – 1,77,600) 1,44,400

Total [(i)+(ii)] 6,64,400

Q34.
The following is the summarised balance sheet of Nash Ltd as on 31.12.2011

Liabilities Assets
Share capital: Fixed assets
10,000 8% Redeemable Preference 4,00,000
shares of Rs.10 each filly paid Investments
1,00,000 1,00,000
20,000 7% Redeemable Preference
shares of Rs.10 each, Rs.5 per Current assets:
share paid up Stock 40,000
1,00,000 Debtors 60,000
20,000 equity shares of Rs.10 each Bank 2,00,000
fully paid
2,00,000 3,00,000

Reserves & Surplus:

Securities Premium
80,000
 General Reserve
60,000
Capital Reserve
70,000
Profit & Loss a/c
90,000
Current Liabilities
1,00,000
8,00,000 8,00,000

On 1.1.2012 the company redeemed the preference shares at a premium of 10%. In order to
pay off the preference shareholders, it sold investments realising Rs.95,000. All payments
were except to shareholders of 60 shares who could not be traced.
On 1.5.2012, the company issued fully paid bonus shares in the ratio of one for every share
held on that date.
Give the necessary journal entries and prepare the balance sheet after redemption.
SOLUTION:
Journal entries of Nash Ltd as on 31.12.2012

DATE PARTICULARS L.F DEBIT (Rs) CREDIT (Rs)

1.1.2012 8%Redeemable preference share a/c 1,00,000
Premium on redemption a/c Dr 10,000
To preference shares 1,10,000
(Being preference share redeemed at
premium)
1.1.2012 Bank a/c Dr 95,000
Profit & loss a/c Dr 5,000
To investment a/c 1,00,000
(Being investment sold at loss)
1.1.2012 General reserve a/c Dr 60,000
Profit & loss a/c Dr 40,000
To Capital redemption reserve a/c 1,00,000
(Being transfer of profits to capital
redemption reserve a/c)
1.1.2012 Security premium reserve a/c Dr 10,000
To premium on redemption a/c 10,000
(Being premium on redemption
transferred to security premium
reserve)
1.1.2012 Preference shareholder a/c Dr 1,09,340
To bank a/c 1,09,340
(1,10,000-660 untraceable)
(Being amount transferred to
preference shareholder)
1.5.2012 Capital redemption reserve a/c Dr 1,00,000
Securities premium reserve a/c Dr 70,000
Profit & Loss a/c Dr 30,000
To bonus shares a/c 2,00,000
(Being declaring bonus shares to
equity shareholders)

1.5.2012 Bonus shares a/c Dr 2,00,000

To equity shares 2,00,000
(Being bonus shares issued)

Dr BANK A/C Cr
Particulars Rs Particulars Rs
To Balance b/d 2,00,000 By Preference 1,09,340
To Investment a/c 95,000 shares
1,85,660
By Balance c/d
2,95,000 2,95,000

NOTES TO ACCOUNTS

S.No Particulars Rs Rs
1 Share capital
Authorized capital
7% redeemable shares 1,00,000
Equity share 4,00,000
5,00,000
Issued and subscribed capital
8% preference share untraceable 660
5,00,660

2 Reserves and surplus 15,000

Profit and loss 70,000
Capital redemption reserve 85,000

3 Tangible assets
Fixed asset 4,00,000

4 Other current assets

Stock 40,000
Debtors 1,85,660
Bank 1,85,660
2,11,320
 Balance sheet of Nash Ltd as on 31.12.2012

Particulars Note No. Rs

Equity & liability
(i) Shareholders fund
Share capital 1 5,00,660
Reserves and surplus 2 85,000

(ii)Current liability 1,00,000

Total 6,85,660
Assets
(i)Non-current assets
Tangible assets 3 4,00,000

(ii)Other current assets 4 2,11,320

Total 6,85,660
 CH-4 ISSUE AND REDEMPTION OF DEBENTURES
1. Good will Ltd. Issues 1,000 6% debentures of Rs. 100 each. Give journal entries in
each of the following cases:
a) The debentures are issued and redeemable at par.
b) They are issued at a discount of 6%, but redeemable at par.
c) They are issued at a premium of 5%, but redeemable at par.
d) They are issued at a discount of 4%, but are redeemable at a premium of 5%.

Particulars Rs. Rs.

a) Bank a/c Dr` 1,00,000

To 6% debentures a/c 1,00,000

[Being debentures are issued]

b) Bank a/c Dr 94,000

Discount on issue of debentures a/c Dr 6,000

To 6% debentures a/c 1,00,000

[ being debentures are issued @ a

discount of 6%]

c) Bank a/c Dr 1,05,000

To 6% debentures a/c 1,00,000

To securities premium a/c 5,000

[ being debentures are issued @ a

premium of 5%]
 d) Bank a/c Dr 96,000

Discount on issue a/c Dr 4,000

Loss on issue a/c Dr 5,000

To 6% debentures a/c 1,00,000

To premium on redeemable a/c 5,000
[ being debentures are issued @ a discount
of 4% but redeemable at a premium of 5%]

2. P.K. Ltd., issues 980, 12% debentures of Rs. 100 each, which were issued as follows:
a. To sundry persons for cash at 90% Rs. 50,000 nominal
b. To a creditor for Rs. 20,000 is satisfaction for
his claim for the supply of machinery Rs. 23,000 nominal
c. To the bankers as collateral security for
Loan of Rs. 20,000 Rs. 25,000 nominal
d. The issue (a) and (b) above are redeemable at the end of 10 years at par.
Pass journal entries to record the above transactions and show how the debentures etc. be deal
with, in preparing the balance sheet of the company.

Particulars Rs. Rs.

a. Bank a/c Dr 45,000

Discount on issue a/c Dr 5,000

To 12% debentures a/c 50,000

b. Machinery a/c Dr 20,000

To vendors a/c 20,000

c. Vendor a/c Dr 23,000

To 12% debentures a/c 20,000
To discount a/c 3,000

d. Debentures suspense a/ Dr 25,000

To 12% debentures 25,000

3. You are required to set out the journal entries to the issue of the following debentures in
the books of X Ltd:
a) 8%, 120 Rs. 1000 debent5ures are issued at 5% discount are repayable at par
b) Another 7% 150 Rs 1,000 debentures are issued at 5% discount and repayable at 10%
Premium.
c) Further 80, 9% Rs1,000 debentures are issued at 5% premium.
d) In addition, another 400, 8% Rs 100 debenture are issued as collateral securities against a
loan of Rs 40,000

Particulars Dr Cr
Bank A/c Dr 114000
a Discount on issue of debentures A/c Dr 6000
To 8% Debentures A/c 120000
(Debentures being issued @ discount and repayable par)
Bank A/c Dr 142500
Discount on issue of Debentures A/c Dr 7500
Loss on issue of debentures A/c Dr 15000
b To 7% Debentures A/c 150000
To premium on redemption of debentures A/c 15000
(Debentures being issued at discount and repayable at premium)
Bank A/c Dr 80000
c To 9% debentures A/c 76000
To premium on issue of debentures 4000
(Debentures issued at premium)
Debenture suspense A/c Dr 40000
To 8% debentures A/c 40000
d (Being debentures issued as a collateral security against a loan of
Rs 40000)

4) A limited company issued 2,000 debentures bonds on Rs.100 each at a premium of 10%
repayable at par at the end of the 10 year. The debenture bonds were payable 25% on
th

application, 25% on allotment (including the premium) and the balance on first and final call.
All the money received by the company in due course.
You are asked to journalise the above transactions in the books of the company.

ANSWER

PARTICULARS L.F DEBIT ₹ CREDIT ₹

Bank a/c DR 50,000

To debenture application a/c 50,000
(Being debenture application money received)
Debenture application a/c DR 50,000
To debenture a/c 50,000
(Being application money due)
Debenture allotment a/c DR 50,000
To Debenture a/c 30,000
To securities premium 20,000
(Being allotment money due)
 Bank a/c DR 50,000
To Debenture allotment a/c 50,000
(Being allotment money received)
Debenture first and final call a/c DR 1,20,000
To Debenture a/c 1,20,000
(Being first and final call money due)
Bank a/c DR 1,20,000
To Debenture first and final call a/c 1,20,000
(Being first and final call money received)

5. Zed Ltd. Issued 1000 9% debentures of Rs.100 each payable, Rs.20 on application and the
balance on allotment. Applications were received for 1500 debentures out of which applicants
for 900 were allotted fully. Applicants for 400 debentures were allotted 100 debentures and the
remaining were rejected. All sums due were received.
Give journal entries and also show how these transactions will be reflected in the balance sheet
of the company.

PARTICULARS L.F DEBIT CREDIT

Bank a/c Dr. 30,000

To debenture application a/c 30,000

( Being debenture application made)

Debenture Application a/c Dr. 30,000

To 9% debentures a/c 20,000

To debenture allotment a/c 6,000

To bank a/c 4,000

(Being transfer and return of debenture application money)

Debenture Allotment a/c Dr. 80,000

To 9% debentures a/c 80,000

(Being allotment money receivable)
 Bank a/c Dr. 74,000

To debenture allotment a/c 74,000

(Being allotment amount received)

Balance Sheet of Zed Ltd. as on

I) LIABILITIES Rs.

a) Non-Current Liabilities
Long Term Borrowings 1,00,000
1,00,000
II) ASSETS

a) Current Assets
Cash and Cash Equivalents 1,00,000

1,00,000

Notes to Accounts:
1. Long Term Borrowings
9% Debentures 1,00,000

2. Cash and Cash Equivalents

Bank 1,00,000

6. Narayanan & Co. Ltd., purchased assets worth Rs. 28,80,000. It issued
debentures in satisfaction of the purchase price. Calculate how many
debentures will be issued:
(a) In case the debentures are of Rs. 100 each and are issued at a discount of
4% and
(b) In case the debentures are of Rs. 80 each and are issued at a premium of
Rs. 10 per debenture. Also, pass the journal entries required for the issue of
debentures.

Sno. Particulars Lf Debit Credit

Assets a/c Dr 28,80,000
To vendor a/c 28,80,000
[Being assets purchased]
Vendor a/c Dr 28,80,000
Discount on debtors a/c Dr 1,20,000
30,00,000
To debentures a/c
[Being issue of discount of debentures 4%]
Asset a/c Dr 28,80,000
To vendor a/c 28,80,000
[Being debentures Rs.80 each allotted to
vendor]
Vendor a/c Dr 28,80,000
To Securities premium a/c 3,20,000
To debentures a/c 25,60,000
[Being debentures of Rs.80 each issued at a
premium of Rs.10 per debentures]

Q.7 A company issued debentures of the face value of Rs.1,00,000 at a discount of 6%. The
debentures were repayable by annual drawings of Rs.20,000. How would you deal with the
discount on debentures? Show the discount account in the company’s ledger for the period of
duration of debentures.
Ans. Debentures – 1,00,000 @ 6% = 6,000
Year Amount used Ratio Discount to be written off Rs.
1 20,000 5 6,000*5/15 2,000
2 20,000 4 6,000*4/15 1,600
3 20,000 3 6,000*3/15 1,200
4 20,000 2 6,000*2/15 800
5 20,000 1 6,000*1/15 400
15 6,000

Dr. Discount on own debentures A/c Cr.

Particulars Rs. Particulars Rs.
To balance b/d 6,000 By profit and loss 2,000
By balance c/d 4,000
6,000 6,000
 To balance b/d 4,000 By profit and loss 1,600
By balance c/d 2,400
4,000 4,000
To balance b/d 2,400 By profit and loss 1,200
By balance c/d 1,200
2,400 2,400
To balance b/d 1,200 By profit and loss 800
By balance c/d 400
1,200 1,200
To balance b/d 400 By profit and loss 400

400 400

8) Breeze ltd. issued 5,000 12% debentures of Rs.100 each at a discount of 10%. You are
required to calculate the discount to be written off each year if
a. The debentures are repayable at the end of 5 years.
b.The debentures are to be repaid in five equal installments at the end of each year,
commencing from the very first year.

Solution:

FIXED INSTALLMENTS:

Discount => 5000 x 100 = 5,00,000 x 10%= 50,000

a. 50,000 = 10,000
5

b. STATEMENT SHOWING DISCOUNT TO BE WRITTEN OFF

YEARS AMOUNT RATIO DISCOUNT TO BE WRITTEN OFF

1 5,00,000 5 50,000 x 5/15 = 16667
2 4,00,000 4 50,000 x 4/15 = 13333
3 3,00,000 3 50,000 x 3/15 = 10000
4 2,00,000 2 50,000 x 2/15 = 6667
5 1,00,000 1 50,000 x 1/15 = 3333
15 50,000

9) Suman Ltd. Issued 40,000 debentures of Rs. 100 each at a discount of 10%. The expenses
of issue amounted 4to Rs. 1,00,000. The debentures were agreed to be redeemed at the rate of
Rs. 8,00,000 each year commencing from the end of the third year.
Ascertain the amount of discount and expenses to be written off each year.

Sol)
Discount to be written off = 4,00,000 (4,00,000 × 10/100)
 Expenses to be written off = 1,00,000
______________
Total amount to be written off = 5,00,000
Year Amount remaining Ratio Amount written off
1 40,00,000 5 1,00,000
(5,00,000 ×5/25)
2 40,00,000 5 1,00,000
3 40,00,000 5 1,00,000
4 32,00,000 4 80,000
(5,00,000 ×4/25)
5 24,00,000 3 60,000
(5,00,000 ×3/25)
6 16,00,000 2 40,000
(5,00,000 ×2/25)
7 8,00,000 1 20,000
(5,00,000 ×1/25)
25 5,00,000

10. On 1-4-95, KASA Ltd., issued 10% debentures of the face value of Rs.
6,00,000 at a discount of 5% repayable at par in equal proportions at the end of
5, 10 and 15 years. Show the amount of discount to be written off at the end of
each year.
SOLUTION:
DATE AMOUNT (₹) RATIO DISCOUNT (₹)
1 6,00,000 3 30,000*3/30=3,000
2 6,00,000 3 30,000*3/30=3,000
3 6,00,000 3 30,000*3/30=3,000
4 6,00,000 3 30,000*3/30=3,000
5 6,00,000 3 30,000*3/30=3,000
6 4,00,000 2 30,000*2/30=2000
7 4,00,000 2 30,000*2/30=2000
8 4,00,000 2 30,000*2/30=2000
9 4,00,000 2 30,000*2/30=2000
10 4,00,000 2 30,000*2/30=2000
11 2,00,000 1 30,000*1/30=1000
12 2,00,000 1 30,000*1/30=1000
13 2,00,000 1 30,000*1/30=1000
14 2,00,000 1 30,000*1/30=1000
15 2,00,000 1 30,000*1/30=1000

DISCOUNT: ₹6,00,000*5% = ₹30,000

11. Z ltd issued 2000 6% debentures of RS 100 each on 1-1-2001 at a discount of 10%
redeemable at a premium of 5 % . Give journals entries relating to issue of debentures and
debentures interest for the period ended 31-12-2001, assuming that the interest was payable
half yearly on 30 June and 31 debentures and TDS is 10%. Accounts are closed on 31 dec.
th st st

every year

DATE PARTICULARS L.F CREDIT DEBIT

2001
JAN 1 Bank a/c dr 1,80,000
Discount on issue of debentures a/c dr 20,000
Loss on issue of debentures a/c dr 10,000
To 12% debentures a/c
To premium on redemption of debentures a/c 2,00,000
10,000
(being the issue of debentures at a discount and
premium at 10%)
June Debentures interest a/c dr 6,000
30 To income tax payable a/c 600
To debentures holders a/c 5400
(being the interest due for 6 months and IT deducted
at source thereon @10%)
June Debentures holders a/c dr 5400
30 To bank a/c 5400
(being the payment of interest )
June Income tax payable a/c dr 600
30 To bank a/c 600
(being the deposit of iy deducted at the source from
the debenture interest with the govt)
Dec 31 Debentures interest a/c dr 6000
To income tax payable a/c 600
To debentures holders a/c 5400
( being the intrest due for 6 months and it deducted
at sources thereon @10 %
Dec Debentures holders a/c dr 5400
31 To bank a/c 5400
(being the payment of interest)

Dec 31 Income tax payable a/c dr 600

To bank a/c 600
(being the deposit of income tax interest with the govt )
Dec 31 Profit and loss a/c dr 12,000
To debentures interest a/c 12,000
(being the transfer of debentures interest to p&l a/c
12. Journalize the following transactions at the time of issue of Debenture and
Redemption of Debenture:

a) Debenture issue at Rs. 95, repayable at Rs. 100

b) Debenture issue at Rs. 95, repayable at Rs. 105

c) Debenture issue at Rs.100, repayable at Rs.105

d) Debenture issue at Rs. 95, repayable at Rs. 100

The face value of each debenture: Rs.100

Date Particulars
Debit Credit

a) Bank a/c Dr 95
Discount on issue of debentures a/c Dr 5
To debentures a/c 100
(Being issue of debentures @discount and repayable @par)

b) Bank a/c Dr 95
Discount on issue of debentures a/c Dr 5
Loss on issue of debentures a/c Dr To debentures a/c Dr 5
To debentures a/c 100
To Premium on Redemption of debentures a/c 5
(Being issue of debentures issued @ discount and repayable @
premium)

c) Bank a/c Dr 100

Loss on issue of debentures a/c Dr 5
To debentures a/c 100
To Premium on Redemption of debentures a/c 5
(Being issue of debentures repayable @par and
repayable @premium)

d) Bank a/c Dr 95
Discount on issue of debentures a/c Dr 5
To debentures a/c 100
(Being issue of debentures @discount and repayable @par)

13) X limited issue 5000 8% debentures of ₹100 each at par on 1/4/2000 which are repayable at 10%
premium at the end of 4 years. Give journal entries for issue and redemption if
1. The redemption is out of Profits.
2. The redemption is out of Capital.

Solution:
Particulars L.F. Dr. Cr.
(Rs.) (Rs.)
 8% Debentures a/c dr 5,00,000
Premium on redemption of debentures a/c dr 50,000
To bank a/c 5,50,000
(Being repayment of debentures)

Profit and Loss appropriation a/c dr 5,00,000

To Debenture redemption reserve a/c 5,00,000
(Being the transfer of profit equal to the value of debenture
redeemed)

Debenture redemption reserve a/c dr 5,00,000

To general reserve a/c 5,00,000
(Being the transfer of balance of DRR to general reserve)

8% debentures a/c dr 5,00,000

Premium on redemption of debentures a/c dr 50,000
To bank a/c 5,50,000
(Being the redemption out of capital)

14. eastern plastics ltd. issued fully convertible 10 % debentures of rs.100 each for rs.
10,00,000
The following were the terms of issue.
a. Date of issue January 1, 1993
b. 60% of the debentures issued will be converted into equality shares of rs.10
each at a
Premium of 20% on 31.12.95
c. Balance of 40% of the debentures will be converted into equity shares of rs 10
each at a premium of rs 6 per share on 31.12.96
Pass journal entries in the books of the company for conversion of the debentures.
Solution :
Journal
Date Particulars Rs. Rs.

1.01.1993 Bank a/c dr 1000000

To 10% debentures a/c 1000000
(being issue of 1000 of rs 100 each)
31.12.1995 10% debentures a/c dr 600000
To equity shareholders a/c 500000
To securities premium a/c 100000
(being conversion of 60% debentures into equity shares
of rs 10 each at premium of 20%)
31.12.1996 10% debentures a/c dr 400000
To equity shareholder a/c 250000
To securities premium a/c 150000
 (being conversion of 40% debentures into equity shares
of rs 10 each at premium of 6 per share)

15. New Ventures Ltd had to redeem its 5% debentures of Rs.10,00,000 on 31 December
st

1997 at a premium of 5%. The company convened a meeting of the debenture holders and
offered the following options to them.
a. 8% cumulative preference shares of Rs.50 each at 20% premium
b. 6% debentures of Rs.100 each at par
c. Full payment as per terms in cash.
Holders of Rs.3,00,000 debentures accepted option (a) those of Rs.2,00,000 opted for (b) and
the others preferred (c).
Pass journal entries to record the above transactions as on 31.12.97.

Sol:
JOURNAL IN THE BOOKS OF NEW VENTURES LTD.
PARTICULARS Dr (Rs.) Cr. (Rs.)
5% debentures a/c 10,00,000
Premium on redemption of debentures a/c 50,000
To debenture holder a/c 10,50,000
(being amount due to debenture holders)
Debenture holder a/c 3,15,000
To 8% preference share capital a/c 2,62,500
To securities premium a/c 52,500
(being issue of preference shares to debenture holders for their
claim)
WN: no. of shares to be issued:
= amt. due to debenture holders/ price of shares
=3,15,000/(50+20%)
=3,15,000/60
=5,250 shares
Debenture holder a/c 2,10,000
To 6% debentures a/c 2,10,000
(being debentures issued to debenture holder against their claim)
WN: no. of debentures to be issued:
= amt. due to debenture holders/ price of debentures
= 2,10,000/100
= 2100 debentures
Debenture holder a/c 5,25,000
To bank a/c 5,25,000
(being amount due to debenture holders for their claim)
16. On Dec 31, 1996, a company had outstanding Rs.50,000 6% debentures redeemable at
10%.
On January 1, 1997 it was decided that
1. The debentureholders be should be given option to convert their holdings at par
into new 7% debentures,
2. To redeem any unconverted debentures by cash payment,
3. To issue corresponding nominal amount of 7% debentures to the public at 102%.
Holders of Rs.30,000 debentures opted for conversion and the rest were paid cash.
Draft necessary journal entries to record these transactions and show the extracts
from the balance sheet, just after the above transaction are completed.

SOLUTION:

Particulars Debit Credit

6% debentures A/c Dr 30,000
Premium on redemption of debentures A/c Dr 300
To 7% debentures A/c 30,300
(Being amount due on redemption of debentures)
6% debentures A/c Dr 20,000
Premium on redemption A/c Dr 200
To Bank A/c 20,200
(Being amount due on redemption of debentures)
Bank A/c Dr 20,400
To debentures A/c 20,000
To securities premium A/c 400
(Being issue of debentures at premium and repayable at par)

BALANCE SHEET

Equity & Liabilities Rs

1. Reserve & surplus
400
Securities premium on debentures
2. Long term borrowings 20,000
7% debentures
Premium on redemption
500
Assets
Bank 20400

17)Balaji limited issued 5000 12% debentures of ₹100 each at discount of 10% holders being given
the right to exercise the option of converting the debentures into 15% preference shares of ₹100
each at a premium of 10% before the redemption date.
Holders of 1650 debentures express their willingness to exercise the option to convert their
debentures into preference shares.
Ascertain the number and amount of preference shares to be issued and give necessary journal
entries for the issue and conversion of the debentures.

Solution:

Date Particulars L.F. Dr Cr

(Rs.) (Rs.)
Bank a/c dr 4,50,000
Discount on issue of debentures a/c dr 50,000
To 12% debentures a/c 5,00,000
( Being issue of debentures of rs.100 each at discount 10%)

12% debentures a/c dr 1,65,000

To Discount on issue of debentures 1,35,000
To 15% Preference share capital a/c 13,500
To securities premium a/c 16,500
(Being conversion of 1650 debentures of Rs.100 each issued
at 10% discount into 15% preference shares of rs.100 each at
a premium of 10%)

Working note:
1650× 100= 165000
(-) 1650×10= 16500
_________
148500
148500/110= 1350shares

18. On 1.1.92, ‘A’ Ltd., issued 200 5% debentures of Rs.1000 at Rs 950 each. Debenture
holders had an option to convert their holdings into 6% preference shares of Rs.100 each at a
premium of Rs25 per share. On 31.12.92 one year’s interest had accrued on these debentures
which was not paid. A holder of 20 debentures notified his intention to convert his holdings
into 6% preference shares.
Journalise the above transaction and draw the company’s balance sheet at 31.12.92 assuming
no other transactions took place.
Solution:
DATE PARTICULARS L.F DEBIT(Rs) CREDIT(Rs)
1.1.92 Bank a/c Dr 1,90,000
Discount a/c Dr 10,000
To 5% debenture a/c 2,00,000
(Being issue of 200 debentures of Rs1000
each at Rs.950)
 31.12.92 5% Debenture a/c Dr 20,000
To Discount a/c 1,000
To 6% redemption of 15,200
preference share a/c
To Securities premium a/c 3,800
(Being conversion of 20 debenture of
Rs.1000 each at a discount of Rs.50 into
152 preference shares of Rs.100 each at a
premium of Rs.25 per share)
31.12.92 Profits & loss a/c Dr 10,000
To debenture interest 10,000
(Being interest accrued on debentures)

Balance sheet of A Ltd as on 31.12.92

Liabilities Rs
Shareholders fund:
Share capital:
152 preference shares of Rs 100 each 15,200
Reserves and surplus:
Securities premium 3,800
Profit & loss 10,000
Non – current liabilities:
Long term borrowings:
180 5% Debenture of Rs.1,000 each 1,80,000

Assets Rs
Other current assets:
Discount on issue of debentures 9,000
(10,000 – 1,000)

19. On 1.7.91, Solvents Ltd. issued, 400 7% debentures of Rs.1000 each at Rs.950. The
debenture holders were given option to convert their holdings into 8% preference shares of
Rs.100 each at a premium of Rs.20 per share any time after 2 years. On 1.7.93, holders of 60
debentures exercised their option of conversion. Show the journal entries for issue and
conversion of the debentures, ignoring interest. Also give relevant extracts from the
company's balance sheet, after the conversion.

Solution:
Books of Solvents Ltd.
Journal

Date Particulars L.F Dr Cr.

 1.7.91 Bank a/c dr. 3,80,0
Discount on issue of debentures 00
a/c dr. To 7% Debentures 20,00 4,00,0
a/c 0 00
(Being issue of 400 debentures
of Rs.1,000 each at Rs.950)
1.7.93 7% Debentures 60,00
a/c dr. To 0 3,000
Discount on issue of debentures 47,50
a/c To 0
Preference Share Capital 9,500
a/c T
o Securities Premium
a/c

(Being conversion of 60 debentures of

Rs.1,000each at a discount of 5% x
475 preference share of Rs.100 at a
premium of 20 per share)

Balance Sheet of Solvents Ltd.

Liabilities Rs.
Shareholder’s Funds:
Share Capital
475 preference shares of Rs.100 each 47,500
Reserves & Surplus:
Securities Premium 9,500
Non-Current liabilities:
Long term borrowings
400 7% debentures of Rs.1,000 each 4,00,000

Assets Rs.
Other current assets:
Discount on issue of debentures (20,000-3,000) 17,000

Notes:
60 x 1000 = 60,000
60 x 50 = (-) 3,000
57,000

57,000
120 = 475 shares

Q.20 On 1st January, XYZ LTD. has 1,00,000 10% debentures. In accordance with the power
under the deed, the directors have the power to acquire the debentures in the open market for
immediate cancellation.
The following purchases, of own debentures were made by the company.
March 1, Rs. 20,000 debentures at Rs. 98 cum interest.
August 1, Rs.40,000 debentures at Rs. 99 ex-interest.
Debenture interest is payable half- yearly 30 June and 31 December every year. Show
th st

journal entries for purchase and cancellation of debentures.

Solution:
Journal Debit Credit
10% debentures A/c Dr. 20,000

Debentures interest A/c Dr.

333
To Bank A/c

To Profit on cancellation A/c ( B.f ) 19600

( Being paid cum - interest )
733
10%debentures A/c Dr. 40,000

Debentures interest A/c Dr.

333
To Bank A/c

To Profit on cancellation A/c 39,933

( Being ex – interest paid )
400

Notes :
Calculation of interest
1. Take the closing date ( I.e) in 1 case since the date is March 1, the closing date in
st

December ( preceding closing date)

1. 20,000× 10÷100 × 2÷12 = 333.3 ( 333 approx.)
 ( calculate interest only on the face value of Rs. 20,000, 200 ×98 = 19600

II. 40,000 ×10÷100 × 1÷12 = 333

400×99 =19600
Since, it is Ex-interest, add the interest that is 39600+ 333= 39,933

21) On 1 January, ‘X’ Ltd has Rs.1,00,000 6% debentures. In accordance with the power
st

under the deed the directors acquire the debentures as follows in the open market for
immediate cancellation.
March 1 – Rs 20,000 at Rs. 98 cum- interest
Aug 1 – Rs. 40,000 at Rs.100.25 cum-interest
December 15 – Rs 10,000 at Rs. 98.5 ex-interest.
Debenture interest is payable half yearly on 30 June and 31 December every year. Show
th st

journal entries for purchase and cancellation of debentures.

Solution:

DATE PARTICULARS LF DEBIT CREDIT

1 March
st
6% Debentures a/c Dr 20000
(200x6%x2/12) Debenture Interest a/c Dr 200
(200x98) To Bank a/c 19600
To profit on cancellation of debentures 600
a/c
(being purchase and cancellation of 200
debentures of Rs.100 each and at Rs.98
cum-interest and the profit thereon)
1 August
st
6% Debentures a/c Dr 40000
(40000x6%x1/12) Debenture Interest a/c Dr 200
(400x100.25) To Bank a/c 40100
To profit on cancellation of debentures 100
a/c
(being purchase and cancellation of 400
debentures of Rs100 each and at
Rs.100.25 cum-interest and the profit
thereon)
15 December
th
6% Debentures a/c Dr 10000
(10000x6%x5.5/12) Debenture Interest a/c Dr 275
(100x98.5)+(275) To Bank a/c 10125
To profit on cancellation of debentures 100
a/c
 (being purchase and cancellation of 100
debentures of Rs 100 each and at Rs 98.5
ex-interest and the profit thereon)

Q22. Swastik Ltd. Issued 500 8% debentures of Rs. 100 each on 1.1.92. Interest is payable on
30 June and 31 December each year.
th st

On 1.4.93 the company purchased 100 of its own debentures at Rs. 98 ex-interests as
investment. On Oct 1.1.93 the company purchased another 100 of its own debentures at Rs.
98 cum interest. The company cancelled all the 200 debentures on 31 December 1993.
st

Show the journal entries required (including entries for interest) for the year 1993.
Ans:
Date Particulars Debit Credit
(Rs.) (Rs.)
Bank a/c dr. 5,00,000
500*100
To debentures a/c 5,00,000
(Being issue of 500 debentures @Rs.
100 each)
1.4.93 Own debenture a/c dr. 9800

Debenture interest a/c dr. 200 10000*8%*3/12=

200
To Bank a/c 10,000
(Being purchase of 500 own
debentures as investment @Rs. 98 ex
interest)
Debenture interest a/c dr. 9800

To bank a/c 9600

To interest on 200
own debentures a/c
(Being payment of interest to
outsiders and credited interest on
own debentures)
1.10.93 Own debenture a/c dr. 9600

Debenture interest a/c dr. 200 10000*8%*3/12

To bank a/c 9800

(Being purchase of 500 own
debentures as investment @Rs. 98
cum interest)
 31.12.93 Debenture interest a/c dr. 1800 500-200
300*100
To bank a/c 1200 30000*6/12*8%

To interest on own debentures 600 400+200

a/c
(Being payment of interest to
outsiders and credited interest on
own debentures
8% debenture a/c dr. 20,000 200*100

To own debentures a/c 19400 9800+9600

To profit on cancellation a/c 600

(Being purchase and cancellation of
200 own debentures, expense
incurred and profit on cancellation)

23.) On 1.1.1980, a company issued 1,000 6% debentures of Rs. 1,000 each at Rs.950 . The
terms of the issue provided that beginning with 1982, Rs 50,000 of debentures should be
redeemed, either by drawings at par or by purchase in the market every year. The expenses of
the issue amounted to Rs 3,000 which were written off in 1980. The company writes off Rs
10,000 from the discount on debentures every year.
In 1982 the debentures to be redeemed were repaid at the end of the year by drawings. In
1983, the company purchased for cancelation 50 debentures at the ruling price of Rs 980 on
31 December, the expenses being Rs 100
st

Interest is payable yearly on 31 December. Ignore income tax.

st

Give journal entries.

Journal entries
Books of company ltd..,
Date Particular Debit ₹ Credit ₹
Bank a/c Dr 9,50,000
Discount a/c Dr 50,000
To 6% debentures 10,00,000
( being the issue of debentures at a discount)
31/12/80 Profit/loss a/c Dr 3,000
To issue expenses a/c 3,000
( being the transfer of debentures)
31/12/80 Debentures interest a/c Dr 60,000
To bank a/c 60,000
( being the payment made)
31/12/80 Profit/loss a/c Dr 10,000
To discount on issue a/c 10,000
( being the transfer of discount)
31/12/80 Profit/loss a/c Dr 60,000
To debentures interest a/c 60,000
 ( being the transfer of debentures)
31/12/81 Debentures interest a/c Dr 60,000
To bank a/c 60,000
( being the payment made)
31/12/81 Profit/loss a/c Dr 70,000
To debentures interest a/c 60,000
To discount a/c 10,000
( being the transfer of debentures)
31/12/82 Debentures interest a/c Dr 60,000
To bank a/c 60,000
( being the payment made)
31/12/82 Profit/loss a/c Dr 70,000
To debentures interest a/c 60,000
To discount a/c 10,000
( being the transfer of debentures)
31/12/83 6% debentures a/c Dr 50,000
To bank a/c 49,100
To profit on cancellation a/c 900
( being purchase and cancellation of debentures)
31/13/83 Debentures interest a/c Dr 57,000
To bank a/c 57,000
( being the payment made)
31/12/83 Profit/loss a/c Dr 67,000
To debentures interest a/c 57,000
To discount a/c 10,000
( being transfer of debentures)
31/12/83 Profit on cancellation a/c Dr 900
To capital Reserve a/c 900
( being profit on cancellation transfers to capital
Reserve)

24. Somesh ltd. has 5000 10% debentures of Rs. 100 outstanding in its books on 31 march
st

1997. Interest is payable on 31 march and 30 September each year. On 1 July 97 the
st th st

company purchased 200 of its own debentures at Rs. 98 ex-interests. Pass journal entries for
purchase, interest and sale or cancellation on each of the following cases:
(a) The debentures are cancelled on 31.3.98
(b) The debentures are resold on 1.1.98 at Rs. 97 ex-interests.

Solution:

Date Particulars Rs. Rs.

 Own debentures a/c (200*98) Dr 19600
01.07.97 Debenture Interest a/c (20000*10%*3/12) Dr 500
To Bank a/c 20100
(Being ow debentures at rs.98 ex-interest)

30.09.97 Debenture interest a/c Dr 24500

To Bank A/c (4800*100*10*6/12) 24000
To Interest on Own debentures 500
(200*100*10*3/12)
(Being interest payable on debenture on September)

01.03.98 Debenture interest a/c Dr 25000

To bank a/c (4800*100*10*6/12) 24000
To Interest on Own debentures 1000
(20000*10%*6/12)
(Being interest payable on debenture on march)

10% Debentures a/c Dr 20000

To Own debentures a/c 19600
To Profit on cancellation a/c 400
(Being debentures re-sold at Rs.97 ex-interest_)

25) On 1.2.89, a company purchased 20 of it's own debentures of Rs. 1,000 each as
investment at Rs. 970 and cancelled them on 30.6.90. Rate of interest is 10% and the
interest is payable on 30th June and 31st December each year.
Give journal entries for purchase and cancellation of debentures if
(a) The purchase price was ex-interest
(b) The purchase price was cum-interest
SOLUTION:

PARTICULARS J.F AMOUNT AMOUNT

EX INTEREST
Own debentures A/C Dr 19400
Debenture Interest A/C Dr 167
To Bank 19567
(Being purchase of 20 own debentures @ Rs.970 ex-
interest)
10% Debenture A/C Dr 20000
To own debentures A/c 19400
To profit on cancellation of debentures 600
(Being cancellation of 20 debentures and profit
thereon)
 CUM INTEREST
Own debentures A/C Dr 19233
Debenture Interest A/C Dr 167
To Bank 19400
(Being purchase of 20 own Deb at 970 cum interest)
10% Debenture A/C Dr 20000
To own debentures A/c 19233
To profit on cancellation of debentures 767
(Being cancellation of 20 debentures and profit
thereon)

28. Muthu Co. Ltd. Issues 10,000 10% debentures of Rs. 100 each on 1.7.93. They were
redeemable on 1.7.96 at 5% premium. Interest was payable annually on 31 December.
st

The following transactions took place on the dates mentioned below:

1. On 1.10.94, the company buys 800 own debentures in the open market at Rs. 98
ex – interest. These debentures were resold at Rs. 97 each on 31 December 94,
st

after receiving interest.

2. On, 1.7.95 the company buys 600 own debentures at Rs. 102 cum – interest.
These were cancelled on 31.12.1995
3. On 1.10.05 the company buys 500 own debentures at Rs. 104 cum – interest.

These were cancelled along with the remaining debentures when they were redeemed
on 1.7.96.

Give necessary journal entries for the years 1993 to 1996.

JOURNAL ENTRIES:

S DATE PARTICULARS AMOUNT AMOUNT

NO
1. 1/7/93 Bank 10,00,000
10,00,000
a/c Dr
To 10% Debentures
(10% debentures issued)
2. 31/12/93 Debenture interest 1,00,000
1,00,000
a/c Dr
To bank a/c
 (Debenture interest received)
3. 31/12/93 P&L 1,00,000
1,00,000
a/c Dr
To debenture interest
(interest transferred to p and l
account)
4. 1/10/94 Own debentures a/c Dr 78400
Debenture interest 6000 84400
a/c Dr
To bank
(800 own debenture purchased by the
company)
5. 31/12/94 Bank 78800
a/c Dr 800 77600
Loss on issue a/c Dr 2000
To own debentures
To interest on debentures
(Own debentures were resold at Rs. 97)
6. 1/7/95 Own debentures 58200
a/c Dr 3000 61200
Debenture interest
a/c Dr
To bank a/c
(600 own debentures were bought by the
company at cum interest)
7. 1/10/95 Own debentures 48250
a/c Dr 3750 52000
Debenture interest
a/c Dr
To bank a/c
(500 own debentures were bought by the
company at cum interest)
 8. 31/12/95 10% debentures 60000
48250
a/c Dr
1800
To own debentures
To profit on cancellation
(600 own debentures were cancelled by
the company)
9. 31/12/95 Debenture interest 4250
4250
a/c Dr
To bank a/c
(debenture interest payable for the year)
10. 31/12/95 P&L 4250
4250
a/c Dr
To debenture interest
(interest transferred to p and l account)
11. 1/7/96 10% debenture a/c Dr 50000
48250
To own debentures
1750
To profit on cancellation
(500 own debentures were cancelled by
the company)
12. 1/7/96 Debenture 890000
a/c Dr 44500 934500
Premium on redemption
a/c Dr
To debenture holders
(debentures were redeemed at premium)
13. 1/7/96 Debenture holder a/c Dr 934500
934500
To bank
(Debentures were paid to debenture
holders)

29. X Lad has an authorised capital of Rs. 15,00,000 divided into equity shares of Rs.10 each
and its balance sheet as on 31.12.94 was as follows:
Liabilities Amount (Rs) Assets Amount (Rs)
Share capital: Fixed Assets 12,00,000
 Issued and fully paid 5,00,000
Capital reserve 1,20,000 Current assets 4,20,000
General reserve 2,00,000 Investment in own debentures 85,000
(Nominal value Rs. 1,00,000)
Profit & Loss A/c 3,50,000 Cash at bank 75,000
6% Debentures 4,00,000
Creditors 2,10,000
17,80,000 17,80,000

The 6% debentures are due for payment on 30.6.95 at a premium of 5%. The company
decided
(a) To issue to the public 25,000 equity shares of Rs. 10 each at Rs. 15 per share. The money
was duly received
(b) To redeem the debentures on 30.6.95 together with interest for 6 months.
(c) The debenture holders accept 6% debentures at par for Rs. 1 lakh and the balance in cash.
(d) The debentures which the company held as investment were cancelled.

You are required to pass journal entries to record the above transactions.

S. Date Particulars L.F Debit Credit

No (RS) (Rs)
1. 30/06/95 Bank a/c Dr 3,75,000
To Equity Share Capital 2,50,000
To Securities Premium Reserve 1,25000
(Being shares issued at premium &
payment received)
2 30/06/95 Interest on debenture Dr 12,000
To Bank 9,000
To Interest on own debenture 3,000

Premium a/c Dr 10,000

6% Debenture a/c Dr 2,00,000
To Bank 2,10,000
(Being debenture redeemed along with
interest)
3 30/06/95 Premium a/c Dr 5,000
6% Debenture a/c Dr 1,00,000
To Own debenture a/c 1,05,000
(Being payment made to debenture
holders)
4 30/06/95 6% Debenture a/c Dr 1,00,000
To Own debenture a/c 85,000
To Profit on cancellation 15,000
(Being debenture held by company
cancelled)
31. A company issued 6% debentures of Rs 1000000 with a condition that they should be
redeemed after 3 years at 10% premium. The amount allocated for redemption is invested in
5% State government securities. The sinking fund table shows that Rs 0.317209 @ 5%
compound interest in 3 years will become Rs 1. Pass journal entries and prepare ledger
accounts for all the three years.

Journal in the books of

Date PARTICULARS Debit Credit
(Rs) (Rs)
1st
Bank A/c Dr 10,00,000
year
Loss on issue of debentures A/c Dr 1,00,000
To 6% Debentures A/c 10,00,000
To premium on redemption A/c 1,00,000
(Being the issue of debentures )
Profit and loss Appropriation A/c Dr 348929.9
To Sinking fund A/c 348929.9
(being the loss transferred to sinking fund)
Sinking fund investment A/c Dr 348929.9
To Bank A/c 348929.9
(Being the investment made)
2nd
Bank A/c Dr 17446.4
year
To Interest on sinking fund A/c 17446.4
(Being the interest on sinking fund being received)
Interest on sinking fund A/c Dr 17446.4
To Sinking fund A/c 17446.4
(Being the interest received transferred to sinking fund)
Profit and loss Appropriation A/c Dr 348929.9
To Sinking fund A/c 348929.9
(Being the annual sum set aside for redemption)
Sinking fund investment A/c Dr 366376.3
To Bank A/c 366376.3
(Being the sum invested)
3rd
Bank A/c Dr 35765.3
year
To Interest on sinking fund A/c 35765.3
(Being interest received on SFI transferred )
Profit and loss Appropriation A/c Dr 348929.9
To Sinking fund A/c 348929.9
(Being the annual sum set aside for redemption)
Interest on sinking fund A/c Dr 35765.3
To Sinking fund A/c 35765.3
(Being interest received on SFI transferred )
Bank A/c Dr 715306.2
To Sinking fund A/c 715306.2
(Being the Sinking fund sold off)
 Debentures A/c Dr 10,00,000
Premium on redemption A/c Dr 1,00,000
To Debenture holdersA/c 11,00,000
(Being the amount due to debenture holders)
Debenture holders A/c Dr 11,00,000
To bank A/c 11,00,000
(Being the amount paid to debenture holder)
Sinking fund A/c Dr 1,00,000
To loss on issue of debentures A/c 1,00,000
(Being the loss on issue of debentures written off from
sinking fund)
Sinking Fund A/c Dr 11,00,000
To General Reserve A/c 11,00,000
(Being the sinking fund a/c balance transferred to general
reserve)

LEDGER ACCOUNTS

Sinking fund A/c

DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To balance c/d 348929.9 By profit and loss 348929.9
appropriation A/c
348929.9 348929.9
To balance c/d 715306.29 By balance b/d 348929.9
By interest on sinking 17446.4
fund investment
By profit and loss 348929.9
appropriation A/c
715306.29 715306.29
To general 11,00,001.5 By balance b/d 715306.29
reserve
By interest on sinking 35765.3
fund investment
By profit and loss 348929.9
appropriation A/c
11,00,001.5 11,00,001.5

SINKING FUND INVESTMENT A/c

DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To bank A/c 348929.9 By balance c/d 348929.9
348929.9 348929.9
To balance b/d 348929.9 By balance c/d 715306.29
To bank A/c 366376.3
715306.29 715306.29
To balance b/d 715306.2 By bank A/c 715306.29
 Interest on sinking fund investment Account
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
2 year To sinking fund A/c 17446.4
nd
2 year By bank A/c
nd
17446.4
17446.4 17446.4
3 year To sinking fund A/c 35765.3
rd
3 year By bank A/c
rd
35765.3
35765.3 35765.3

6% debenture A/c
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To balance c/d 10,00,000 By bank 10,00,000
To balance c/d 10,00,000 By balance b/d 10,00,000
To debenture holders A/c 10,00,000 By balance b/d 10,00,000

Debentureholder A/c
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT
To bank A/c 11,00,000 By 6% debentures A/c 10,00,000
By premium on 100000
redemption A/c
11,00,000 11,00,000

.
32. A company issued 5,000 debentures of Rs.100 each at par on 1.1.81, redeemable at par on
31.12.85. A sinking fund was established. Investments would earn 5% interest. Tables show
that Re.180975 amounts to Re.1 at the end of 5 years at 5%. On 31.12.85, investments were
realized at Rs.3,90,000. The debentures were redeemed.
Give ledger accounts in the books of the company.

SINKING FUND ACCOUNT

DATE PARTICULARS RS. DATE PARTICULARS RS.
31.12.81 To balance c/d 90,488 1.1.81 By Profit & loss 90,488
appropriation

To balance c/d By balance b/d

31.12.82 1,85,500 1.1.82 By interest on SFI 90488
By Profit & loss
appropriation
4524
By balance b/d
By interest on SFI
To balance c/d By profit & loss appropriation 98488
1,85,500 1,85,500
31.12.83 2,85,263 1.1.83
 By balance b/d 1,85,500
By interest on SFI
By profit & loss 9275
appropriation
To balance c/d
By balance b/d 90488
2,85,263 By SFI 2,85,263
31.12.84 390414 1.1.84 By profit & loss
appropriation 2,85.263

14,265
To SFI
To Reserve (bf)
90,488
390414 390414
14 1.1.85
499,989 390414
19501

90488
500403 500403

JOURNAL ENTRIES:

DATE PARTICULARS DEBIT CREDIT

1.1.81 Profit & loss appropriation A/c Dr
To sinking fund 90488
(Being the sinking fund appropriated)
90488
Interest on SFI A/c Dr
To SFI
( Being the interest calculated on SFI)
1..1.82 4524.4

4524.4

SINKING FUND INVESTMENT ACCOUNT

DATE PARTICULARS RS. DATE PARTICULARS RS.
1.12.81 To bank 90488 31.12.81 By balance c/d 90488

By balance c/d
1.1.82 To balance b/d 90488 31.12.82 1,85,500
To bank
95012
1,85,500 By balance c/d 1,85,500
To balance b/d
1.1.83 To bank 1,85,500 31.12.83 2,85,263
99763 By balance c/d
 To balance b/d 2,85,263
To bank
2,85,263 2,85,263
1.1.84 104751 31.12.84 By bank
To balance b/d 390,014 By SF 390,014

390,014 390,014

1.1.85 390,014 31.12.85 390,000

14
390,014

33. On 1.1.74, debentures of the face value of Rs.75, 000 were issued at par, repayable
at par at the end of 5 years. In terms of the trust deed, sinking fund was to be created for
the purpose of accumulating sufficient funds. Investments were made yielding 5%
interest at the end of each year. All investments, including reinvestment of interest
received, made at the end of the year. It is ascertained that Rs.2.71462 invested at the
end of each year at 5% compound interest will be amounted to Rs.15 at the end of 5
years. You are required to show all the 5 years (a) Sinking fund account; (b) Sinking
fund investment account.
Solution:
Annual contribution to sinking fund = Amount to be repaid X
sinking fund factor / 15 = 75,000 X 2.71462/15
= 2, 03,596.5 /15 = 13,573.1 Rs.
Dr Sinking fund A/c Cr
Date Particulars Amount Date Particulars Amount
Rs. Rs.

31.12.74 To Balance 13,573.1 31.12.74 By Profit & Loss 13,573.1

c/d appropriation A/c

13,573.1 13,573.1

31.12.75 To Balance 27,824.85 1.1.75 By Balance b/d 13,573.1

c/d

31.12.75 By Profit & Loss 13,573.1

appropriation A/c

31.12.75 By interest on 678.65

sinking
fund investment
A/c
(13,573.1 X 5/100)
 27,824.85 27,824.85

31.12.76 To Balance 42,789.19 1.1.76 By Balance b/d 27,824.85

c/d

31.12.76 By Profit & Loss 13,573.1

appropriation A/c

31.12.76 By interest on 1,391.24

sinking
fund investment
A/c
(27,824.85 X 5/100 )

42,789.19 42,789.19

31.12.77 To Balance 58,501.75 1.1.77 By Balance b/d 42,789.19

c/d

31.12.77 By Profit & Loss 13,573.1

appropriation A/c

31.12.77 By interest on 2,139.46

sinking
fund investment
A/c
(42,789.19 X 5/100 )

58,501.75 58,501.75

31.12.78 To Sinking 75,000 1.1.78 By Balance b/d 58,501.75

fund
investment
A/c
( General
reserve)

31.12.78 By Profit & Loss 13,573.1

appropriation A/c

31.12.78 By interest on 2,925.09

sinking
fund investment
A/c
(58,501.75 X 5/100)

75,000 75,000
 Dr Sinking fund investment A/c Cr
Date Particulars Amount Date Particulars Amount
Rs. Rs.

31.12.74 To Bank 13,573.1 31.12.74 By Balance c/d 13,573.1

A/c

13,573.1 13,573.1

1.1.75 To Balance 13,573.1 31.12.75 By Balance c/d 27,824.85

b/d

31.12.75 To Bank 14,251.75

A/c

27,824.85 27,824.85

1.1.76 To Balance 27,824.85 31.12.76 By Balance c/d 42,789.19

b/d

31.12.76 To Bank 14,964.34

A/c

42,789.19 42,789.19

1.1.77 To Balance 42,789.19 31.12.77 By Balance c/d 58,501.75

b/d

31.12.77 To Bank 15,712.56

A/c

58,501.75 58,501.75

1.1.78 To Balance 58,501.75 31.12.78 By Sinking 75,000

b/d fund investment A/c

31.12.78 To Bank 16,498.19

A/c

75,000 75,000
34) A company issued Rs. 2,00,000 in 5% Debentures of Rs. 100 each at Par, repayable at the
end of 5 years at a premium of 6%. A Sinking Fund at 4% compound interest is created for
redemption of debentures.
You are required to prepare Sinking Fund Account and Sinking Fund Investment Account for
5 years (Re. 1 per year at 4% compound interest amounts to Rs. 5.4163 in 5 years).

Solution:
SINKING FUND A/C
DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT

1st To Balance c/d 39,141.11 1st By P/L 39,141.11

year year Appropriation a/c

2nd To Balance c/d 79,847.86 2nd By Balance b/d 39,141.11

year year

By Interest on 1,565.64
sinking fund

By P/L 39,414.11
Appropriation a/c

79,847.86 79,847.86

3rd To balance c/d 1,22,182.88 3rd By Balance b/d 79,847.86

year year

By Interest on 3,193.91
sinking fund

By P/L 39,141.11
Appropriation a/c

1,22,182.88 1,22,182.88

4th To balance c/d 1,66,211.305 4th By Balance b/d 1,22,182.88

year year

By Interest on 4,887.315
sinking fund

By P/L 39,141.11
Appropriation a/c

1,66,211.305 1,66,211.305

5th To general reserve 2,12,000.87 5th By Balance b/d 1,66,211.305

year (trans) year

By Interest on 6,648.45
sinking fund
 By P/L 39,141.11
Appropriation a/c

2,12,000.87 2,12,000.87

Shinjini Vasudevan(2013721042055)

SINKING FUND INVESTMENT A/C

DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT

1st year To Bank a/c 39,141.11 1st year By Balance c/d 39,141.11

2nd year To balance b/d 39,141.11 2nd year By Balance c/d 79,847.86

To Bank a/c 40,706.75

79,847.86 79,847.86

3rd year To balance b/d 79,847.86 3rd year By Balance c/d 1,22,182.88

To Bank a/c 42,335.02

1,22,182.88 1,22,182.88

4th year To balance b/d 1,22,182.88 4th year By Balance c/d 1,66,211.305

To Bank a/c 44,335.42

1,66,211.305 1,66,211.305

5th year To Balance b/d 1,66,211.305 5th year To Bank a/c 1,66,211.305

1,66,211.305 1,66,211.305

Working note:
Premium = 2,00,000 x 6% = 12,000
Therefore, investment each year = 2,12,000 = 39,141.11
5.4163

35. On 1.1.86, plastic products Ltd., issued debentures for Rs. 1,00,000 redeemable at par at
the end of 5 years and it was resolved that a sinking fund should be created and invested in
tax free securities.
Give journal entries and draw up the necessary ledger accounts for 5 years assuming that the
interest received on the investments was 5% on cost, yearly, which was immediately
invested. The investments were realized at a loss of Rs. 300 at the end of 5 years.
Reference to the sinking fund tables shows that Re. 0.180975 invested at the end of each year
at 5% compound interest will produce Re. 1 at the end of 5 years

DATE PARTICULARS L.F DEBIT CREDIT

1 year
st
Profit & Loss Appropriation A/c ... Dr 18097.5
31.12.86 To Sinking Fund A/c 18097.5
[Being annual transfer to sinking fund for
redemption of debentures]

Sinking Fund Investment A/c ... Dr 18097.5

To Bank A/c 18097.5
[Being investment made]

2 year
nd
Profit & Loss Appropriation A/c ... Dr 18097.5
31.12.87 To Sinking Fund A/c 18097.5
[Being annual transfer made]

RECEIPT OF INTEREST:

Bank A/c ...Dr 904.875

To Interest on Sinking Fund Investment A/c 904.875
[Being interest received]

Interest on Sinking Fund Investment A/c ...Dr 904.875

To Sinking Fund A/c 904.875
[Being transfer of interest to fund]
19022.375
Sinking Fund Investment A/c ...Dr
19022.375
To Bank A/c
[Being investment made]

18097.5
3 year
rd
Profit & Loss Appropriation A/c ...Dr
18097.5
31.12.88 To Sinking Fund A/c
[Being annual transfer made]
1854.99
Bank A/c ...Dr 1854.99
To Interest on Sinking Fund Investment A/c
[Being interest received]
1854.99
Interest on Sinking Fund Investment A/c ...Dr 1854.99
To sinking fund A/c
[Being transfer of interest to fund]
 19952.49
Sinking Fund Investment A/c ...Dr
To Bank A/c
[Being investment made] 19952.49
18097.5
4 year
th
Profit & Loss Appropriation A/c ...Dr
31.12.89 To Sinking Fund A/c
[Being annual transfer made] 18097.5
2852.63
Bank A/c ...Dr
To Interest on Sinking fund Investment
A/c 2852.63
[Being interest received]
2852.63
Interest on sinking fund investment A/c ...Dr
To sinking fund A/c
2852.63
[Being transfer of interest to fund]
18097.5
5 year
th
Profit and loss appropriation A/c ...Dr
31.12.90 To Sinking fund A/c 18097.5
[Being annual transfer made] 3900.12
Bank A/c ...Dr
To Interest on Sinking fund Investment 3900.12
A/c
[Being interest received] 3900.12

Interest on Sinking Fund Investment A/c ...Dr

To Sinking Fund A/c 3900.12
[Being transfer of interest to fund] 1,00,000

Debenture A/c ...Dr

To Debenture holders A/c 1,00,000
[Being the amount due to debenture holders] 1,00,000

Debenture holders A/c ...Dr

To Bank A/c 1,00,000
[being the payment made to debenture holders] 99,700

Sinking Fund A/c ...Dr

To General Reserve A/c 99,700
[Being the sinking fund A/c balance transferred
to General Reserve]
 LEDGER

SINKING FUND A/C

PARTICULARS AMOUNT PARTICULARS AMOUNT

To Sinking Fund 300 By P&L A/c 18,097.5
Investment A/c 99,700 By P&L Appropriation A/c 18,097.5
To General Reserve A/c By Interest on Sinking Fund 904.875
(Transferred to sinking Investment A/c
fund a/c) By P&L A/c 18,097.5
By Interest on Sinking Fund 1,854.99
Investment A/c
By P&L 18,097.5
By P&L 18,097.5
By Interest on Sinking Fund 2,852.62
Investment A/c
By P&L Appropriation 18,097.5
By Interest on Sinking Fund
Investment A/c 3,900.12

1,00,000 1,00,000

SINKING FUND INVESTMENT A/C

PARTICULARS AMOUNT PARTICULARS AMOUNT
To Bank A/c 18,097.5 By Bank A/c 78,002.48
To Bank A/c 19,002.375
To Bank A/c 19,952.49
To Balance c/d 20,950.115
78,002.48 78,002.48
To Balance b/d 20950.115

INTEREST ON SINKING FUND INVESTMENT A/C

PARTICULARS AMOUNT PARTICULARS AMOUNT

To Balance c/d 904.875 By Bank A/c 904.875
904.875 904.875
 904.875
By Balance b/d
1854.99 1854.99
1854.99 By Bank A/c 1854.99
To Balance c/d

1854.99

By Balance b/d
2852.63 2852.63

To Balance c/d By Bank A/c

2852.63 2852.63

2852.63

3900.12 3900.12
By Balance b/d

3900.12 3900.12
To Balance c/d By Bank A/c
3900.12

By Balance b/d

DEBENTURES A/C

PARTICULARS AMOUNT PARTICULARS AMOUNT

To Debenture holders A/c 1,00,000 By Balance c/d 1,00,000
1,00,000 1,00,000
To Balance b/d 1,00,000

44. Ramesh Ltd.., has made an issue of Rs.100000 5% debentures on 1.1.83, the terms of which
include that the company must provide for a sinking fund for the redemption on 31st December
each year from 1985 for 3 years. The directors decide to take out an insurance policy to provide the
necessary cash, the annual premium being Rs. 31410.80 on which the return is at 3% p.a at
compound intrest.

Show the ledger accounts.

Debenture Redemption Fund

DATE PARTICULARS RS DATE PARTICULARS RS

To balance C/D 32353.12 By P/L app 31410.8

 By int on DRP 942.3

32353.1 32353.1

To bal c/d 65676.8 By bal b/d 32353.1

By p/l app 31410.8

By DRP 1912.9

65676.8 65676.8

To gen reserve 100000 By bal b/d 65676.8

By p/l app 31410.8

By DRP 2912.6

100000 100000

Debenture Redemption Policy

DATE PARTICULARS RS DATE PARTICULARS RS

To bank 31410.8 By bal c/d 32353.124

To DRF 942.324

32353.124 32353.124

To bal b/d 32353.124 By bal c/d 65676.8

To bank 31410.80

To DRF 1912.9

65676.8 65676.8

To bal b/d 65676.8 By bal c/d 100000

31410.8

2912.62
 100000 100000

45) DEBENTURE REDEMPTION FUND

DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT

To balance c/d 157050 By P&L appropriation a/c 157050

157050 157050
To balance c/d 314100 By balance b/d 157050

By P&L Appropriation 157050

314100 314100
To general reserve 500000 By balance b/d 314100

By P&L appropriation 157050

By DRP 28850
500000 500000

DEBENTURE REDEMPTION POLICY

DATE PARTICULARS AMOUNT DATE PARTICULARS AMOUNT

To bank 157050 By balance c/d 157050
To balance b/d 157050 By balance c/d 314100
To bank 157050
314100 314100

To balance b/d 314100 By bank 500000

To bank 157050
To DRF (B.F) 28850
500000 500000
 PROFITS PRIOR TO INCORPORATION
Q1. Raja LTD., was incorporated on 1-7-94, which took over a running concern with effect
from 1-1-94. The sales for the period up to 1-7-94 was Rs,2,70,000 and the sales from 1-7-94
to 31-12-94 amounted to Rs.3,30,000.
The expenses debited to Profit & Loss account included: Rs
a) Director’s Fees 15,000
b) Bad Debts 1,800
c) Advertisement (Rs.500 per month) 6,000
d) Salaries and General Expenses 32,000
e) Preliminary expenses written off 3,000
The gross profit was (1-1-94 to 31-12-94) 2,40,000
Ascertain the profit prior to incorporation.

Solution:
Time Ratio: 1-1-94 to 30-6-94: 1-7-94 to 31-12-94 6:6 = 1:1
Sales Ratio: 2,70,000 : 3,30,000 9:11
Notes To Accounts:
1. Revenue from Operations
Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Gross Profit Sales Ratio 2,40,000 1,08,000 1,32,000
9:11

2. Other Expenses
Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Director’s Fees Post 15,000 - 15,000

Bad Debts Sales Ratio 1,800 810 990

9:11
Advertisement Sales Ratio 6,000 3,000 3,000
9:11
Salaries and Time Ratio 32,000 16,000 16,000
General 1:1
Expenses
Preliminary Post 3,000 - 3,000
Expenses
Total 57,800 19,810 37,990
 Statement of P&L account of Raja LTD. as on 31-12-94
Particulars Note Total Pre- Post-
No. incorporation incorporation
Revenue from 1 2,40,000 1,08,000 1,32,000
Operations
a)
Other Expenses 2 57,800 19,810 37,990
b)
Profit for the period 1,82,200 88,190 94,010
(a-b)

Q2. A company was incorporated on 1st May 1984 to take over a business as a going concern
from 1st January of the same year. The turnover for the year ended 31t December was
Rs.2,00,000 , namely Rs.60,000 for the first period up to 1st May and Rs.1,40,000 for the
following period . From the Profit and Loss account given below for the year ended 31 st
December 1984, you are required to ascertain profits prior to incorporation.
Profit & Loss account for the year ended 31-12-84
Particulars Rs. Particulars Rs.
To Rent & Rates 3,240 By Gross profit 70,000
To Insurance 720
To Lightening 2,040
To Salaries 7,800
To Director’s Fees 2,000
To Sales Discount 5,000
To Sales Commission 10,000
To General Expenses 2,400
To Carriage Outwards 3,000
To Bank Charges 420
To Repairs 1,380
To Bad Debts 600
To Loan Interest 1,200
To Net Profit 30,200
70,000 70,000
Solution:
Time Ratio: 1-1-84 to 1-5-84 : 1-5-84 to 31-12-84
4:8 = 1:2
Sales Ratio:
60,000 : 1,40,000
16:14 = 3:7

Notes To Accounts:
1. Revenue from Operations
Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Gross Profit Sales Ratio 70,000 21,000 49,000
3:7

2. Employee Benefit Expenses

Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Salaries Time Ratio: 7,800 2,600 5,200
1:2

3. Finance Cost
Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Loan Interest Time Ratio: 1,200 400 800
1:2

4. Other Expenses
Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Rent Time Ratio: 3,240 1,080 2,160
1:2
Insurance Time Ratio: 720 240 480
1:2
Lightening Time Ratio: 2,040 680 1,360
1:2
Director’s Fees Post 2,000 - 2,000
Sales Discount Sales Ratio 5,000 1,500 3,500
3:7
Sales Sales Ratio 10,000 3,000 7,000
Commission 3:7
 General Time Ratio: 2,400 800 1,600
Expenses 1:2
Carriage Sales Ratio 3,000 900 2,100
Outwards 3:7
Bank Charges Time Ratio: 420 140 280
1:2
Bad Debts Sales Ratio 600 180 420
3:7
Repairs Time Ratio: 1,380 460 920
1:2
Total - 8,980 21,820

Statement of P&L account of XYZ LTD. as on 31-12-84

Particulars Note Total Pre- Post-
No. incorporation incorporation
Revenue from 1 70,000 21,000 49,000
Operations
a)
Less: Employee Benefit 2 7,800 2,600 5,200
Expenses
Finance Cost 3 1,200 400 800
Other Expenses 4 30,800 8,980 21,820

Total Expenses 39,800 11,980 27,820

b)
Profit for the period 30,200 9,020 21,180
(a-b)

Q3. From the following particulars, ascertain profit prior to and after incorporation.
(a) Time Ratio - 3:5
(b) Sales Ratio - 4:6
(c) Gross profit – Rs 10,00,000
(d) Expenses debited to Profit and Loss A/c were Rs.
Salaries 96,000
General Expenses 12,000
Discount on sales 40,000
Advertisement 50,000
Preliminary expenses 70,000
Rent and Rates 15,000
Printing and stationary 65,000

(e) Incomes credited to Profit and Loss A/c were

Rent received 18000
Interest received 50000
Solution:
Notes To Accounts:
1. Revenue from Operations
Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Gross Profit Sales Ratio 10,00,000 4,00,000 6,00,000
4:6
Rent Received Time Ratio 18,000 6,750 11,250
3:5
Interest Time Ratio 50,000 18,750 31,250
Received 3:5

2. Employee Benefit Expenses

Particulars Basis of Total Pre- Post-
Apportionment incorporation incorporation
Salaries Time Ratio: 96,000 36,000 60,000
3:5

3. Other Expenses
Particulars Basis of Pre- Post-
Apportionment incorporation incorporation
General Expenses Time Ratio: 4,500 7,500
3:5
Discount on Sales Sales Ratio 16,000 24,000
4:6
Advertisement Sales Ratio 20,000 30,000
4:6
Preliminary Expenses Post - 70,000
Rent & Rates Time Ratio: 5,625 9,375
3:5
Printing & Stationery Time Ratio: 24,375 40,625
3:5
Total 70,500 1,81,500
 Statement of P&L account of XYZ LTD.
Particulars Note Total Pre- Post-
No. incorporation incorporation
Revenue from 1 16,80,000 4,25,500 6,42,500
Operations
a)
Less: Employee Benefit 2 96,000 36,000 60,000
Expenses
Other Expenses 3 2,52,000 70,500 1,81,500

Total Expenses 3,48,000 1,06,500 2,41,500

b)
Profit for the period 7,20,000 3,19,000 4,01,000
(a-b)
4. A company was incorporated on 30th June 1984 to acquire the business of
Mohan as from 1st January 1984. The accounts for the year ended 31st dec 1984
disclosed the following:
a) there was a gross profit of Rs. 2,40,000
b) the sales for the year amounted to Rs. 12,00,000 of which Rs. 5,40,000 were for
the first six months
c) the expenses debited to profit and loss account included:

PARTICULARS Rs.
Director’s fees 15,000
Bad debts 3,600
Advertising (under a monthly contract 12,000
of Rs. 1,000)
Salaries 64,000
Preliminary expenses written off 5,000
Donation to political parties given by 5,000
the company

Prepare a statement showing profit made before and after incorporation.

SOLUTION:
Time ratio: Pre:1.1.84 – 30.6.84, Post:1.7.84 – 31.12.84
6:6 = 1:1
Sales Ratio: Pre- 5,40,000 , Post- 6,60,00
27:33 = 9:11
Notes to Accounts:
1) Revenue from Operations
Basis of Total Pre Post
Apportionment
Gross Sales Ratio 2,40,000 1,08,000 1,32,000
Profit 9:11
Total 2,40,000 1,08,000 1,32,000

2) Employee Benefit expenses

Salaries Time ratio 64,000 32,000 32,000
1:1
Total 64,000 32,000 32,000

3) Other Expenses
Director’s Post 15,000 - 15,000
fee
Bad debts 9:11 3,600 1,620 1,980
Advertising 1:1 12,000 6,000 6,000
Preliminary Post 5,000 - 5,000
Donation Post 5,000 - 5,000
Total 40,600 7,620 32,980

Statement of Profit & Loss for the year

Particulars Note no. Total Pre Post
Revenue 1 2,40,000 1,08,000 1,32,000
from
operations
(-) EBE 2 64,000 32,000 32,000
(-) Other 3 40,600 7,620 32,980
expenses
Total 1,35,400 68,380 67,020
5. Vector Ltd. Was incorporated on 1.4.90 for the purpose of taking over the
business of Shanta stores as a going concern from 1.1.90. Purchase consideration
will be paid on 31.12.90 and the vendors will be entitled to 50% of the profits
earned prior to incorporation in lieu of interest on unpaid purchase consideration.
The summarized trading results on the basis of accounts prepared for the year
ended on 31.12.90 were as follows:
Particulars Rs. Particulars Rs.
To purchases 7,00,000 By sales (Jan- 2,00,000
(After adjusting Mar) (Apr.-Dec.) 8,00,000
stocks)
To Gross Profit 3,00,000
10,00,000 10,00,000
To General 1,80,000 By Gross profit 3,00,000
Expenses
To Director’s fees 14,000
To formation 6,000
expenses
To Net Profit 1,00,000
3,00,000 3,00,000

Prepare a statement showing pre and post incorporation profits. Gross Profit
should be apportionment on the basis of turnover and general expenses on time
Basis.
SOLUTION:
Sales ratio: 2,00,000:8,00,000 = 1: 4
Time ratio: 3:9 = 1:3
Notes to Accounts:
1) Revenue Basis of Total Pre Post
from Apportionment
operations
Gross profit 1:4 3,00,000 60,000 2,40,000
 Total 3,00,000 60,000 2,40,000

2) Other
Expenses
General 1:3 1,80,000 45,000 1,35,000
expenses
Director’s fees Post 14,000 - 14,000

Formation Post 6,000 - 6,000

expenses
Total 2,00,000 45,000 1,55,000

Statement of Profit & loss for the year ended 31.12.90

Particulars Note no. Total Pre Post

Revenue from 1 3,00,000 60,000 2,40,000

operations
Less: other 2 2,00,000 45,000 1,55,000
expenses
Profit for the 1,00,000 15,000 85,000
period
Profits earned prior to incorporation = 15,000
15,000*50%= 7500 1:3
7500*1/4=1875- Pre 15,000-1875=13125
7500*3/4=5625- Post 85,000-5625=79375
Profits after interest:
Pre-incorporation = 13125 Post-incorporation = 79375

6. Mukesh and co. Ltd was registered on 1.1.1999 to buy the business of M/s.
Mukesh Bros., as on 1.10.1998 and obtained the certificate of commencement of
business on 1.2.99. The accounts of the company for the period of 12 months
ended 30.9.1999 disclosed the Net profit of rs.1,25,000 after having charged the
following amounts:
Salary: Rs. 30,000 (There were 4 employees in the pre-incorporation period and 7
in the post incorporation period).
Wages: Rs. 10,920 (There were 4 workers in the Pre-incorporation period and 5 in
the post- incorporation period and the rate of wages were Rs.160 and Rs.200 per
month per worker in the pre and post incorporation periods respectively).
Sales: Rs. 4,80,000 of which Rs. 80,000 related to pre-incorporation period.
Director’s fee: Rs. 16,000
You are required to calculate profit for pre and post incorporation periods
separately.
SOLUTION:
Gross profit before charging wages:
Net profit - 1,25,000
(+) salaries - 30,000
Director’s fess - 16,000
Wages - 10,920
GROSS PROFIT 1,81,920
Time Ratio: 3:9 = 1:3
Sales – 1:5
Actual wages: 10,920
Pre: 4 workers – 4*3m = 12 * 160= 1920
Post: 5 workers – 5*9m= 45 * 200= 9000
Salaries Ratio:
Pre: 4*3=12 Post: 7*9= 63 12:63 = 4:21
Notes to accounts:
Particulars Basis of Total Pre Post
Apportionment
1) Revenue
from
operations
Gross profit Sales ratio 1,81,920 30,320 1,51,600
(-) wages 10,920 1,920 9,000
Total 1,71,000 28,400 1,42,600
2) Employee
benefit
expenses
Salary 4:21 30,000 4,800 25,200
Total 30,000 4,800 25,200
3) Other
expenses
Director’s fees Post 16,000 - 16,000
Total 16,000 - 16,000

Statement of Profit & loss

Particulars Total Note no. Pre Post
Revenue 171000 1 28,400 142600
from
operations
(-) Employee 30000 2 4,800 25200
benefit
expenses
(-) other 16000 3 - 16000
expenses
profit 125000 23600 101400
Q7. Mohan company Ltd., was incorporated on 30th June 1985 to take over the business of
Mr. K Mohan as from 1st January 1985. The financial accounts of the business for the year
ended 31st December 1985 disclosed the following information:

Particulars RS. RS.

Sales:
January to June 1,20,000
July to December 1,80,000 3,00,000

Less: Purchases
January to June 75,000
July to December 1,20,000 1,95,000

Gross profit 1,05,000

Less:
Salaries 15,000
Selling expenses 3,000
Depreciation 1,500
Directors’ remuneration 750
Debenture interest 90
Administration expenses 4,500 24,840
(Rent, rates, etc.,)

Profit for the year 80,160

You are requested to prepare a statement apportioning the balance of profit between the
periods prior to incorporation and show the profit and loss appropriation account for the
year ended 31st December 1985.
(Hint: Gross profit for each period is sales – purchases for the respective periods)

Solution:
Time ratio: 01/01/1985 to 30/06/1985 : 01/07/1985 to 31/12/1985
6:6 = 1:1
Sales ratio:
1,20,000 : 1,80,000
6:9 = 2:3
Notes to accounts
1. Revenue for operations:

Particulars Basis of Total Pre - Post-

apportionment incorporation incorporation
Gross profit Sales ration 105000 45000 60000
2:3 (1,20,000 – (1,80,000 –
75,000) 1,20,000)

2. Employee benefit expenses:

Basis of total Pre- Post-

apportionment incorporation incorporation
Salaries Time ratio 15000 7500 7500
1:1

3. Depreciation and amortization expenses:

Basis of total Pre- Post-

apportionment incorporation incorporation
Depreciation Time ratio 1500 750 750
1:1
4. Finance cost

Basis of Total Pre - Post

apportionment incorporation incorporation
Debenture post 90 ------- 90
interest

5. Other expenses:

Basis of total Pre- Post-

apportionment incorporation incorporation
Selling expenses Sales ratio 3000 1200 1800
2:3
Directors’ Post 750 ----- 750
remuneration
Administration Time ratio 4500 2250 2250
expenses 1:1
(Rent, rates)
Total 8250 3450 4800
Statement of profit and loss account of Mohan company Ltd. As on 31 st December 1985

Particulars Note No. Total Pre- Post-

incorporation incorporation
Revenue from 1 105000 45000 60000
operations(A)
Less:
Employee benefit
expenses 2 15000 7500 7500
Depreciation and
amortization 3 1500 750 750
expenses
Finance cost 4 90 ----- 90
Other expenses 5 8250 3450 4800

Total expenses 24840 11700 13140

(B)
Profit for the 80160 33300 46860
period (A-B)

Q8. XYZ Ltd. Was formed on 1.4.94 to take over the business of a firm as from 1.1.94. All
profits made from this earlier date were to the benefit of the company but interest on the
purchase price of Rs.50,000 was to be paid at 6% p.a. to the vendors upto the date of
settlement in full on 1.6.94. The following was the statement of profit and loss for the year
ended 31st December 1994.

Particulars Rs. Particulars Rs.

To management 3,050 By gross trading profit 20,000

expenses
To bad debts 200

To directors’ fees 1,000

To interest to vendors 1,250

To preliminary 1,250
expenses
To depreciation 1,000

To net profit 12,250

20,000 20,000
Out of the bad debts written off, Rs.100 related to the period prior to incorporation.
Apportion the profit earned between per incorporation and post incorporation periods by
preparing profit and loss account. You may assume that turnover was spread evenly over
the entire year.
Solution:
Sales ratio: 3:9 = 1:3
Adjusted time ratio for interest to vendors:
1.1.94 to 31.3.94 = 3 months 1.4.94 to 31.6.94 = 2 months = 3:2
Notes to accounts:
1. Revenue from operations

Particulars Basis of Total Pre- Post-

apportionment incorporation incorporation
Gross profit Sales ratio 20000 5000 15000
1:3
2. Depreciation and amortization expenses:

Basis of Total Pre- Post-

apportionment incorporation incorporation

Depreciation Sales ratio 1000 250 750

1:3

3. Other expenses:

Basis of Total Pre - Post-

apportionment incorporation incorporation
Management Sales ratio 3050 763 2287
expenses 1:3
Bad debts 200 100 100

Directors’ fees Post 1000 ------ 1000

Interest on Time ratio 1250 750 500

vendors 3:2
Preliminary Post 1250 ------ 1250
expenses
Total 6750 1613 5137
Statement of profit and loss account of XYZ Ltd as on 31st December 1994

Particulars Note no. Total Pre- Post-

incorporation incorporation
Revenue from 1 20000 5000 15000
operations (A)
Less:
Depreciation 2 1000 250 750

Other expenses 3 6750 1613 5137

Total 7750 1863 5887

expenses(B)
Profit for the 12250 3137 9113
period (A-B)

Q9. X company purchased a business on 1.4.93. The company obtained certificate of

incorporation on 31.7.93. From the following particulars for the year ending 31.3.94,
ascertain profit prior to incorporation and divisible profits.
(a) Total sales up to 31.3.94 to Rs.10,00,000; sales from 1.4.93 to 31.7.93 Rs.2,50,000.
(b) Gross profit for the year Rs. 2,12,000.
(c) Expenses debited to profit and loss account were as under:

Particulars Rs. Particulars Rs.

Rent 6000 Interest on 4000

debentures
Insurance 1500 Printing and 4200
stationery
Salaries 27000 Depreciation on 30000
machinery
Selling expenses 9000 Commission on sales 12600

Advertisement 8000

Audit fees 1200

Bad debts (Rs. 850 2400

related to pre
incorporation)
General expenses 4800

Directors’ fees 2600

 Preliminary expenses 7200

Interest paid to 5000

vendors up to 1st
September 1993

Solution:
Sales ratio: 250000:750000 = 1:3
Time ratio: 4:8 = 1:2
Adjusted time ratio = 4:1
Notes to accounts:
1. Revenue from operations:

Particulars Basis of Total Pre- Post-

apportionment incorporation incorporation
Gross profit Sales ratio 212000 53000 159000
1:3
2 Employee benefit expenses:

Particulars Basis of Total Pre- Post-

apportionment incorporation incorporation
Salaries Time ratio 27000 9000 18000
1:2
3 Finance cost:

Particulars Basis of Total Pre- Post-

apportionment incorporation incorporation
Interest on Post 4000 4000
debentures
4 Depreciation and amortization expenses:

Particulars Basis of Total Pre- Post-

apportionment incorporation incorporation
Depreciation Time ratio 30000 10000 20000
1:2
5 Other expenses:

Particulars Basis of Total Pre- Post-

apportionment incorporation incorporation
Rent Time ratio 6000 2000 4000
1:2
Insurance Time ratio 1500 500 1000
1:2
 Selling expenses Sales ratio 9000 2250 6750
1:3
Advertisement Sales ratio 8000 2000 6000
1:3
Audit fees Time ratio 1200 400 800
1:2
Bad debts Mentioned 2400 850 1550

General expenses Time ratio 4800 1600 3200

1:2
Printing and Time ratio 4200 1400 2800
stationery 1:2
Commission on Sales ratio 12600 3150 9450
sales 1:3
Directors’ fees Post 2600 ------ 2600

Preliminary Post 7200 ------ 7200

expenses
Interest to Adjusted time 5000 4000 1000
vendors ratio = 4:1
Total 64500 18150 46350

Statement of profit and loss account of X company as on 31.3.94

Particulars Note no. Total Pre- Post-

incorporation incorporation
Revenue from 1 212000 53000 159000
operations(A)
Less:
Employee benefit 2 27000 9000 18000
expenses
Finance cost 3 4000 ---- 4000
Depreciation 4 30000 10000 20000
Other expenses 5 64500 18150 46350
Total expenses 125500 37150 88350
(B)
Profit for the 86500 15850 70650
period(A-B)
10. Kamakshi Ltd.., was incorporated on 1st March 1991 to acquire the business of
Meenakshi as from 1st January 1991. The purchase consideration was agreed at Rs 90000 to
be satisfied by the issue of equity shares of Rs 10 each. The following trading and profit and
loss account is presented to you.

PARTICULARS RS PARTICULARS RS

To cost of goods sold 116100 By sales 2,25,000

To gross profits c/d 108900
225000 2,25,000

To salaries 45000 By gross profit b/d 1,08,900

To office expenses 3750
To selling expenses 12300
To carriage outwards 2550
To rent and rates 3000
To directors ‘fees 5025
To stationery 3000
To interest on purchase 1350
To net profit c/d 32925

1,08,900 1,08,900

The following additional information is given

a, sales made after incorporation amounted to Rs 2,02,500
b, the shares were issued to the vendors on 1.4.91 to settle the purchase price.
C, interest on purchase price was paid till date of payment.

Solution
Time ratio
1.1.96 - 31.3.96 = 3 months
1.4.96 - 31.12.96 = 9 months
= 3:9 or 1:3
Sales ratio
Total sales = 7,00,000
Pre = 8000
Post = 320000
= 8: 32.

= 1: 4
Notes to accounts:

1. Revenue from operation:

particulars Basis of total Pre Post
apportionment incorporation incorporation

Gross profit Sales ratio 108890 10890 98010

2. Employees benefit expenses

particulars Basis of total Pre incorporation Post
apportionment incorporation
salaries Time ratio 45000 7500 37500

3.Other expenses:
Particulars Basis of total Pre Post
apportionment incorporation incorporation
Office expenses Time ratio 3750 625 3125
Selling Time ratio 12300 1230 11070
expenses
Carriage Sales ratio 2550 255 2295
outward
Rent, rate Time ratio 3000 500 2500
Director’s fees Time ratio 5025 ---- 5025
Stationery Time ratio 3000 500 2500
Int on purchase Actual Time 1350 900 450
price ratio
30975 4010 26965

Statement of profit and loss for the year ending

Particulars Notes to accounts Pre incorporation Post incorporation

Revenue from 1 10890 98010
operation
(-) employees exp 2 7500 37500
(-) other expenses 3 4010 26965
Total ( -620) 33545

11. Ramu and gopu in partnership floated a limited company i.e., kosal LTD. the company
was incorporated on 31st March 1994 through the partnership business was transferred to the
company on 1st January 1994 itself. Business was carried on till 31st December 94 on which
date the following P & L A/C was prepared.
Profit and loss account of kosal Ltd. for the year ended31.12.94
 Particulars Rs particulars Rs

To office rent 4000 By gross profit b/d 80000

To salaries 20000 By bad debts recovered 4000
To advertising 5000
To partners ‘salary 3000
To carriage 2000
To provision for 1000
doubtful debts
To interest on loan 2000
To underwriting 1000
commission 3000
To insurance 2000
To discount allowed 41000
To net profit c/d 84,000 84,000

Additional information
1, the company’s sales were uniform till the end of June but thereafter recorded an increase of
50% on an average.
2, the partners ‘s salary was for the period incorporation.
3, interest on loan included rs 500 which was on a loan taken in July 94.
4, bad debts recovered were from debtors written off in the year 1991.

Solution
Time ratio
Pre – incorporation period, from 1-01-1994 to 31-03-1994 = 3 months
Post – incorporation period, from 1-01- 1990 to 31- 12- 1994 = 9 months
Therefore, time ratio is 3: 9 or 1: 3
Sales ratio
Pre – incorporation period = 300
Post incorporation period = 1200
300:1200 or 3:12 or 1:4

Notes to account
1. Revenue from operation:
Particulars Basis of total Pre incorporation Post incorporation
apportionment

Gross profit Sales ratio (1:4) 80000 16000 64000

2. Employees benefit expenses:

Particulars Basis of total Pre Post

apportionment incorporation incorporation

Salaries Time ratio (1:2) 20000 5000 10000

3. Finance costs:

particulars Basis of total Pre Post

apportionment incorporation incorporation

Int on deb Direct allocation 5000 ------ 5000

4. Depreciation and amortisation expenses:

particulars Basis of Total Pre Post

apportionment incorporation incorporation

Dep. on Time ratio (1:2) 24000 8000 16000

machinery

5. Other expenses:
particulars Basis of total Pre Post
apportionment incorporation incorporation
rent Time ratio 9000 3000 6000
Audit fees Time ratio 1500 500 1000
Printing & Time ratio 3600 1200 2400
stationery
Directors’ fees Direct 4800 ----- 4800
allocation
Bad debts Actual 1500 500 1000
General Time ratio 4800 1600 3200
expenses
Com on sales Sales ratio 6000 2500 3500
advertising Sales ratio 18000 7500 10500
Discount on Sales ratio 3600 1500 2100
sales
Interest to W.T ratio 3000 2000 1000
vendors
total 55800 20300 35500
Statement showing p & L ac of Laxmi ltd for the year ended 31-10-1990

particulars Note no Pre- Post incorporation

incorporation
Revenue from operation(a) 1 75000 105000
Less: expenses
Employees benefit exp. 2 5000 10000
Finance costs 3 ---- 5000
depreciation 4 8000 16000
Other expenses 5 20300 35500
Total expenses (b) 33300 66500
Profit for the period(a-b) 41700 38500

12.Laxmi Ltd.., was incorporated on 1st March 1990 and received the certificate of
commencement of business on 1st April 1990. The company acquired the business of rajan
with effect from 1st November 1989. From the following figures relating to the year ending
October 1990, find out the profits available for dividend.
A sales for the year were Rs. 600,000 out of which, sales up to 1st March 1990 were Rs
2,50,000
B, gross profit for the year was Rs. 1,80,000
C, the express debited to profit and loss account were:

Particulars Rs

Rent 9000
Salaries 15000
Directors’ fees 4800
Interest on debentures 5000
Audit fees 1500
Discount on sales 3600
Depreciation 24000
General expenses 4800
Advertising 18000
Printing & stationery 3600
Commission on sales 6000
Bad debts 1500
interest to vendors on purchase 3000
1st may

Solution

Sales ratio
Total sales = 6,60,000
Pre incorporation = 2,50,000
Post incorporation = 3,40,00
Sales ratio =5:7
Notes to accounts:
Particulars Basis of Pre- Post incorporation
apportionment incorporation

Revenue from operation

Gross profit (a) Sales ratio 75000 105000
Employee Benefit
Salaries 5000 10000
Finance cost
Debenture interest Post ---- 5000
Depreciation & Amortisation
Depreciation Time ratio 8000 16000
Other expenses
Director fees Post --- 4500
Rent Time ratio 3000 6000
Auditors Allocation 1000 500
Discount Sales ratio 1500 2100
Advertising Sales ratio 7500 10500
Printing Time ratio 1200 2400
Commission Sales ratio 2500 3500
Bad asset Sales ratio 500 1000
Interest on Purchase Adjusted ratio 2000 1000

Total 20,300 35,500

Statement of Profit and loss

Particulars Note no. Pre- Post
incorporation incorporation
Revenue from operation 1 75000 1,05,000
Employee Benefit 2 5000 10,000
Finance cost 3 5000
Depreciation and amortisation 4 8000 16000
Other expenses 5 20,300 35,500
Total 41,700 38,500
13. The promoters of proposed nivetha Ltd.., purchased a running business on 1st April 1994
from Mr. armo shalik. The company was incorporated on 1st aug 1994. The combined profit
and loss account of the company prior to and after the date of incorporations as under.

Particulars Rs Particulars Rs

To rent, rates, insurance, By gross profit 175000

electricity &salaries 15000 By discount received
To directors’ fees 4000 from creditors 8000
To preliminary expenses 5000
To carriage outwards
&selling expenses 6000
To interest paid to
vendors 20000
To net profit 133000

183000 183000
Additional information
i. Sales up to 31st July 1994 were Rs 500000 out of total sales of Rs 2500000 for the
year
ii. Purchase up to 31st July 1994 were Rs 300000 out of total purchase of Rs 12000 for
the year
iii. Interest paid to vendors on 1st feb 1995 @ 12% p.a on Rs 200000 being purchase
consideration.
From the above information, you are required to prepare a statement showing the profit
earned prior to and after incorporation.

Solution: Notes to accounts

1. Revenue from operation

particulars Basis of total Pre incorporation Post incorporation

apportionment

Gross profit Sales ratio 1,75,000 35000 1,40,000

2, other income
Particulars Basis of total Pre incorporation Post incorporation
apportionment

Discount P.R (1:2) 8000 2000 6000

received
3, other expenses

Particulars Basis of Pre- Post incorporation

apportionment incorporation

Rent, rates & taxes Time ratio 5000 10000

Director fees Post ---- 4000
Pre expenses Post ---- 5000
Carriage outward Sales ratio 1200 4800
Int paid to vendors Adjusted ratio 8000 12000

Total 14200 35800

Statement showing p & L account for the year

Particulars Note no Pre-incorporation Post incorporation

Revenue from 1 25000 1,40,000

operation
Other income 2 2000 6000
Other expenses 3 14200 25800

Profits 22800 110200

Q.14
Jones ltd was incorporated on 1st April, 1996 to purchase the
business of Kumaresan with effect from 1st January, 1996. The
following details are available from the company’s books of
account on 31.12.96

PARTICULARS AMOUNT PARTICULARS AMOUNT

SALARIES 44,000 PRELIMINARY 15,000
EXPENSES
INSURANCE 6,000 CARRIAGE 6,000
OUTWARDS
DEPRECIATION 12,000 RENT 4,000
STATIONERY 8,000 DIRECTOR’S FEES 3,000
ADVERTISING 9,600 DONATION 8,000
INTEREST PAID 7,500 DISCOUNT 2,000
TO VENDORS ALLOWED
PROVISION FOR 3,000
BAD AND
DOUBTFUL
DEBTS

• Sales for the year were Rs.4,00,000 of which 80,000

were in the pre-incorporation period.
• Insurance was for the 12 months ending 31st march
• ⅔ of the preliminary expense are to be written off
• Salaries were for 11 months. 1-month salary is outstanding
• Gross profit for the year was Rs. 1,80,000
Prepare a profit and loss account, clearly showing the profit and loss in the
pre-incorporation period.
SOLUTION:
Time ratio- 1:3 Sales ratio- 1:4

Notes to accounts:
PARTICULARS BASIS TOTAL PRE POST
1. Gross profit sales 1,80,000 36,000 1,44,000
Expenses
2. Employee benefit
expenses:
- Salaries time 48000 12000 36000
3.Depreciation
and
Amortization:
time 12000 3000 9000
- Depreciation
4. Other expenses:
Insurance post 4500 _ 4500
stationery time 8000 2000 6000
advertising sales 9600 1920 7680
Interest to vendors time 7500 1875 5625
provision time 3000 600 2400
Preliminary post 10000 _ 10000
expense
Carriage outward sales 6000 1200 4800
rent time 4000 1000 3000
Directors fees post 3000 _ 3000
donation Post 8000 _ 8000
Discount allowed sales 2000 400 1600
TOTAL 8995 56605

STATEMENT OF PROFIT AND LOSS

PARTICULARS NOTE NO. PRE- POST

INCORPORATION INCORPORATION
Revenue from 1 36000 144000
operations
(-) Employee 2 12000 36000
 benefit expenses
(-) Depreciation 3 8000 9000
& amortization.
(-) Other 4 8995 56605
expenses
TOTAL 12005 42395

Q15. X ltd which was incorporated on May 1 1979 acquired a

business on January 11, 1979. The first accounts were closed on
September 30, 1979. The gross profit for the period was R. 42,000.
General expenses 7200
Directors remuneration 12000
Preliminary expenses 2000
Rent up to 30 June was 6000 per annum after which it was
increased by 40% Salary of the manager who on the formation of
the company became the whole-time director and whose
remuneration has been included in the director’s remuneration
given above, was 5100 per annum before incorporation.
The company earned a uniform gross profit. The sales up to sept
1979 were 98000. The monthly average sales for the first four
month of the year was one half of that of the remaining period.
Show the profit and loss account and indicate the pre-incorporation
results.
SOLUTION:
Notes to accounts:
PARTICULARS BASIS OF PRE POST
APPORTIONMENT
Revenue from
operations
Gross profit sales 12000 30000
Other expenses
General expenses time 3200 4000
Preliminary post - 2000
expenses
rent time 2000 3100
Directors fees adj 1400 12000
TOTAL 6900 21100

STATEMENT OF PROFIT AND LOSS

PARTICULARS NOTE NO.1 PRE POST

Revenue from 1 12000 30000
operation
(-) other expenses 2 6900 21100
TOTAL 5100 8900

Q16. Prabhu private ltd was incorporated on 1st July 1994 to take
over the running concern of Mr. Rowther with effect from 1st April
1994. The following is the profit and loss account as on 31st march
1995

PARTICULARS AMOUNT PARTICULARS AMOUNT

To commission 2625 By gross profit 98000
To remuneration 5250 By bad debts 500
realised
To Directors 9000
remuneration
To depreciation 2800
To salaries 18000
To insurance 600
To Preliminary 700
expenses
To rent 3000
To discount 350
To Bad debts 1250
To Net profit 54925
TOTAL 98500 TOTAL 98500
The following details are available:
• The monthly average turnover from July 1994 onwards
was double than that of the previous months
• The rent for the first three months was paid @Rs. 200 pm and
thereafter at the rate of Rs. 50 pm
• Bad debts Rs. 350 related to sales effected after 1st sept 1994
and the realisation of bad debts was in respect of the debts
written off during 1992.
• Advertisement expenses were directly proportionate to sales.
You are required to find out profit prior incorporation.
SOLUTION:
Pre-incorporation: 3months, Post incorporation: 9 months.
Time ratio- 3:9 1:3

Notes to accounts:
PARTICULARS BASIS OF TOTAL PRE POST
APPORTIONMENT
Revenue from
operations
Gross profit sales 98000 14000 84000
Employee
benefit
expenses
salaries time 18000 4500 13500
depreciation time 2800 700 2100
Other
expenses
commission sales 2625 375 2250
Directors fees post 9000 - 9000
insurance time 600 150 450
Preliminary post 700 - 700
expenses
rent time 2850 600 2250
taxes time 150 38 112
discount sales 350 50 300
Bad debts time 1250 386 864
advertisement sales 5250 750 4500
s
TOTAL 22775 2349 20426
STATEMENT OF PROFIT AND LOSS ACCOUNT
PARTICULARS NOTE NO. TOTAL PRE POST
Revenue from 1 98000 14500 8400
operations
(-) 2 500 500 -
other
income
(-) employee 3 18000 4500 13500
benefit
expenses
(-) 4 2800 700 2100
depreciation
(-) other 5 22775 2349 20426
expenses
TOTAL 54925 6951 47974
working notes:(pre and post)
rent: 2x300=600
9x200=1800
bad debts=3:4
taxes: 3000-2850=150(1:3)
pre=38(1:3)
post=112(1:3)

17. A public ltd company was formed to takeover a running business with
effect on 1.4.96. The company was incorporated on 1.8.96 and the
certificate of commencement was received on 1.10.96
Additional information:
• Total sales for the year ended amounted Rs. 9,60,000 this
was even till the date of certification where after they
recorded an increase of two third during the year.
 • Rent was paid 1000 pm up to sept 1996 and thereafter it
was increased by 200 pm
• Travelling expenses included 2400 to the sales promotion
• Depreciation included 300 for assets acquired in post incorporation
period
• Purchase consideration was discharged by the company on
30th sept 1996 by issuing equity shares at Rs.10 each.
The following is the profit and loss account for the period ended 1.4.96 to
31.3.97
PARTICULARS AMOUNT PARTICULARS AMOUNT
To salaries 24000 By gross profit 160000
To printing 2400
To advertisement 8000
To traveling 8400
expenses
To trade expenses 18900
To rent 13200
To electricity 2100
To director’s fees 5600
To bad debts 1600
To commission 8000
To audit fees 3000
To debentures 1500
To interest paid 2100
To selling 12600
expenses
To depreciation 4800
To net profit 43800
TOTAL 160000 TOTAL 160000
Calculate the profits pre-incorporation and post incorporation.
SOLUTION:
Notes to accounts
PARTICULARS BASIS OF PRE- POST
APPORTIONMENT INCORPORATION INCORPORATION
Gross profit sales 40000 120000
Employees
Benefit
salaries time 8000 16000
Finance cost
Debenture post 1500
interest
Other expenses
printing time 800 1600
advertisement sales 2000 6000
travelling sales 2600 5800
trade time 6300 12600
Rent adj 4000 9200
electricity time 700 1400
Directors fees post - 5600
Bad debts sales 400 1200
Commission sales 2000 6000
Audit fee time 1000 2000
Selling sales 3150 9450
expenses
depreciation adj 1500 3300
Interest adj 1400 700
to
vendors
TOTAL 25850 64850
STATEMENT OF PROFIT AND LOSS

PARTICULARS NOTE NO. PRE POST

Revenue from 1 40000 120000
operations
(-) Employee 2 8000 16000
benefit
Financial cost 3 - 1500
Other expenses 4 25850 64850
TOTAL 6150 37650

W/N:
• Time ratio- 4:8 1:2
• sales ratio:
April to august pre
August to October -- post
4:12 1:3
• Rent: 1000 p.m till September 1200 p.m after September
Pre: apr-aug 1000X4=4000
Post: aug-sept 1000X1=1000
sept-mar 1200X7=8400
• RENT: Pre=4000 Post=1000+8400=9400
• Travelling expenses: 8000-2400=6000
6000 (time) 2400 (sales)
Pre - 6000x1/3 = 2000 Pre - 2400x1/3 = 600
Post - 6000x2/3 = 4000 Post - 2400x2/3 = 1800

• Traveling expense: pre= 2000+600 = 2600, post=4000+1800 = 5800

• Depreciation: 4800-300=4500
4500 (time)
Pre: 4500x1/3=1500
Post: 4500x2/3=3000+300(post purchase) = 3300
 UNIT 3

1. FINAL ACCOUNTS OF COMPANIES

 FINAL ACCOUNTS OF COMPANIES
EXERCISE
1.) Following Balances Have Been Extracted From The Books Of Rama Ltd on 31st
March ,2014:
Equity Share Capital (1,00,000 Shares Of Rs 100 Each) Rs 10,00,000; Securities Premium
Rs 2,00,000; 12% Debentures Rs 5,00,000; Creditors Rs 2,00,000; Proposed Dividend Rs
50,000; Surplus, i.e. Balance In Statement Of Profit And Loss(Debit)Rs 50,000; Land And
Buildings Rs 9,00,000, Govt bonds Rs. 5,00,000; Capital WIP(Building) Rs. 3,50,000 And
Discount On Issue Of 12% Debentures Rs 1,00,000; Cash At Bank Rs 50,000; Furniture Rs
60,000; Debtors Rs20,000.
Debentures Were Issued On 1st April,2013 Redeemable After 5, Years ,i.e. On 31st
March,2017.
Surplus, i.e. Balance In Statement Of Profit And Loss Is Before Writing Off Discount On
Issue Of Debentures.
Prepare The Balance Sheet Of The Company As Per Revised Schedule V1, Part 1 Of The
Companies Act, 1956.

ANSWER:

NOTES TO ACCOUNTS :
S. No Particulars Rs. Rs.

1. Share capital

Equity capital 10, 00, 000

2. Reserves and surplus

Securities premium 2,00,000

Surplus(Dr)(Loss)
(50,000)
Discount on issue of shares (20,000)

written off (100000/5) (70,000)

1,30,000

3. Long term borrowings

 12% debentures 5, 00, 000

4. Trade payables

Creditors 2, 00, 000

5. Short term provisions

Proposed dividend 50,000

6. Tangible assets

Furniture 60, 000

Land and building 9,00, 000 10, 00, 000

7. Capital WIP

Capital WIP (Buildings) 3,50,000

8. Non – current investments

Govt. Bonds 5,00,000

9. Trade receivable

Sundry debtors 20,000

10. Cash and cash equivalents 50,000

Cash

BALANCE SHEET

EQUITIES AND LIABILITIES: 1 10,00,000

1. Shareholder’s Funds
Share Capital

Reserves And Surplus 2 1,30,000

2. Non- Current Liabilities

Long Term Borrowings 3 5,00,000

 3. Current Liabilities
Short Term Borrowings
Trade Payables 4 2,00,000

Short term Provisions

5
50,000

TOTAL 18,80,000

Non current Assets:

Fixed assets:
Tangible assets 6 9,60,000
Intangible assets

Capital WIP 7
3, 50,000
Non current investments 8 5,00,000
2. Current Assets: 9 20,000
Trade receivables
Inventories
Short term loans
Cash and cash equivalents 50,000
Other current assets -

TOTAL 18,80,000
2.) The following ledger balances were extracted from the books of Varun Ltd. as on
31.3.2013: Land and Building Rs. 2, 00, 000; 12% Debentures Rs. 2, 00, 000; Share capital
Rs.10, 00, 000; Plant and Machinery Rs. 8, 00, 000; Goodwill Rs. 2, 00, 000; Investments in
shares of Raja Ltd Rs. 2, 00, 000; General Reserve Rs. 1, 95, 000; Stock in trade Rs. 1, 00,
000; Bills Receivable Rs. 50, 000; Debtors Rs. 1, 50, 000; Creditors Rs. 1, 00, 000; Bank
loan Rs. 1, 00, 000; Provision for tax Rs. 50, 000; Proposed Dividend Rs. 55, 000.

Prepare the balance sheet of the company as per revised schedule of the Companies Act
1956.
Answer:

Notes to Accounts :
S. No Particulars Rs. Rs.

1. Share capital

Equity capital 10, 00, 000

2. Reserves and surplus

General reserve 1, 95, 000

3. Long term borrowings

12% debentures 2, 00, 000

4. Short term borrowings

Bank loan 1, 00, 000

5. Trade payables

Creditors 1, 00, 000

6. Short term provisions

Provision for tax 50, 000

Proposed dividend 55, 000 1, 05, 000

7. Tangible assets

Plant and machinery 8, 00, 000

 Land and building 2, 00, 000 10, 00, 000

8. Intangible assets

Goodwill 2, 00, 000

9. Non – current investments

Investment in shares of Raja Ltd. 2, 00, 000

10. Trade receivable

Sundry debtors 1, 50, 000

Bills receivable 50, 000 2, 00, 000

BALANCE SHEET

S. No Particulars Note No. Rs.

I. Equity and liabilities

1. Shareholder’s funds:

Share capital 1 10, 00, 000

Reserves and surplus 2 1, 95, 000

2. Non – current liabilities

Long term borrowings 3 2, 00, 000

3. Current liabilities

Short term borrowings 4 1, 00, 000

Trade payables 5 1, 00, 000

Short term provisions 6 1, 05, 000

Total 17, 00, 000

II. Assets

1. Non – current assets:

Fixed assets:

Tangible assets 7 10, 00, 000

Intangible assets 8 2, 00, 000

Non – current investments 9 2, 00, 000

2. Current assets:

Trade receivable 10 2, 00, 000

Inventories 1, 00, 000

Total 17, 00, 000

3.The following balance sheets have been extracted from the books of Rama ltd as on 31 st
March,2013 :

Share capital Rs. 10,00,000

12% Debenture Rs.5,00,000

Proposed dividend Rs.50,000

Machinery Rs.9,00,000

Work in progress Rs.4,00,000

Surplus i.e balance in Statement of profit and loss(Dr.) Rs.50,000

Securities Premium Rs.1,00,000

Trade Payables(creditors) Rs. 2,00,000

Government bonds Rs.4,00,00

Prepare the Balance sheet of the company as per revised Schedule VI, Part I of the Companies Act,
1956

Notes to Accounts

1. Share Capital Rs.

Equity Capital 10,00,000
2. Reserve and surplus
Securities Premium 1,00,000
Surplus(Dr) (-)50,000
50,000
3. Long term borrowing
12% Debentures 5,00,000
4. Trade Payable
Creditors 2,00,000
5. Short term Provisions
Proposed Dividend 50,000
6. Tangible Assets
Machinery 9,00,000
7. Non- Current
Govt.bonds 4,00,000
8. Inventories
Work in progress 4,00,000
Balance Sheets

Particulars Note . No Rs.

I. Equity and liability
1. Shareholders Fund
Share Capital 1 10,00,000
Reserves and surplus 2 50,000
2. Non- Current Liabilties
Long term Borrowings 3 5,00,000
3. Current Liabilities
Short term borrowings - -
Trade Payables 4 2,00,000
Short Term provisions 5 50,000
Other Current
Liabilities
Total 18,00,000

ii. Assets
1. Non Current assets
Fixed Assets
Tangible assets 6 9,00,000
Intangible Assets -
Non current 7 4,00,000
investments
2. Current assets
Trade Receivables -
Inventories 8 4,00,000
Short term loans and
advances
Cash and cash 1,00,000
equivalents
Other Current assets
Total 18,00,000
Sum no: 4
From the following balances, prepare the Balance Sheet of a Company in the prescribed format.
Goodwill Rs.1, 50,000; Investments Rs.2, 00,000; Share capital Rs.5, 00,000; Reserves
Rs.1,10,000; Securities Rs.15, 000; Preliminary expenses Rs. 10,000; Profit and Loss A/c (Cr)
Rs.25, 000; Debentures Rs.2, 50,000. Other fixed assets Rs.4,70,000; Stock Rs.80,000; Debtors
Rs.60,000; Bank balances Rs. 30,000; Unsecured loans Rs.65,000; Sundry creditors Rs.35,000.
Solution:
Notes to Accounts:
S.No. Particulars Rs. Rs.
1. Share Capital
Equity capital 5,00,000 5,00,000
2. Reserves and Surplus
Reserves 1,30,000
Securities premium 15,000
Profit &Loss A/c (Cr)25,000
Less: Preliminary expenses 10,000 15,000 1,40,000
3. Long term borrowings
Debentures 2,50,000
Unsecured loans 65,000 3,15,000
4. Trade payables
Creditors 35,000 35,000
5. Tangible assets
Fixed assets 4,70,000 4,70,000
6. Intangible assets
Goodwill 1,50,000 1,50,000
7. Non-current investments
Investments 2,00,000 2,00,000
8. Trade receivables
Debtors 60,000 60,000
9. Cash and cash equivalents
Bank balances 30,000 30,000

Balance Sheet
Particulars Note. No. Rs.
 (A) Equity and Liabilities
I. Shareholder’s fund
Share capital 1 5,00,000
Reserve and surplus 2 1,40,000
II. Non-Current liabilities
Long term liabilities 3 3,15,000
III. Current liabilities
Trade payables 4 35,000
Total 9,90,000
(B) Assets
Non-current assets
Fixed assets:
Tangible assets 5 4,70,000
Intangible assets 6 1,50,000
Non-current investments 7 2,00,000
Current assets
Trade receivables 8 60,000
Inventories 80,000
Cash and cash equivalents 9 30,000
Total 9,90,000

Note
 Since the Preliminary expenses is not written off will not be taken in depreciation and
amortization expenses. It will appear under the head of reserves and surplus.

2013721042054
Shalini M
Priyanka ns (2013721042043)

5. prepare a balance sheet as at 31st march 2000 from the following information of ABC ltd as
required under the companies act 1956

Rs

Term loan 10,00,000

Creditors 11,45,000

Advances 3,75,000

Cash &bank balances 2,75,000

Staff advances 55,000

Provision for tax 1,70,000

Securities premium 4,75,000

Loose tools 50000

Investments 2,25,000

General reserve 20,50,000

Capital work in progress 2,00,000

Loss for the year 3,58,000

Sundry debtors 12,25,000

Loans from directors 2,00,000

Provisions for doubtful debts 20,200

Stock 4,00,000

Fixed assets 51,50,000

Finished goods 7,50,000

Additional information:

(a) Share capital consists of :

(1)30,000 equity shares of rs 100 each fully paid up

(2)10,000-10%pref.shares of rs 100 each fully paid up

(b) team loan is secured

(c) depreciation on assets:5,00,000

Solution :

Notes to accounts:
 Rs
1.Share capital
Equity capital 30,00,000
10%preferance capital 10,00,00
------------
Total 40,00,00
2. Reserve and surplus ------------
Securities premium
General reserve 4,75,000
(-) loss 20,50,000
3,58,000
---------------
Total 21,67,000
---------------
3.Long term borrowings
Term loan

4.Short term borrowings 10,00,000

Long from directors

5. Trade payables 2,00,000

creditors

6. Short term provisions 11,45,000

Provision for tax

7.Tangiable assets 1,70,000

Fixed assets

8.capital WIP 51,50,000

Capital WIP

9. Non-current investments 2,00,000

Investments

10. Trade receivable 2,25,000

Sundry debtors
(-less) PBDD
12,25,000
20,200
--------------
Total 12,04,800
--------------
11. Inventories
Finished goods 7,50,000
Stock 4,00,000
Loose tools 50,000
--------------
Total 12,00,000
---------------
 12. Short term loans and advances 3,72,000
Advances 55,000
Staff advances -------------
Total 4,27,000
--------------

Balance sheet as on 31st march 2000

Particulars Note no. Rs

I. Equity and liabilities

1. Shar holder’s funds:
Share capital 1 40,00,000
Reserve and surplus 2 21,67,000

2. Non-current liabilities:
Long term borrowings 3 10,00,000

3. Current liabilities:
Short term borrowing 4 2,00,00
Trade payable 5 11,45,000
Short term provisions 6 1,70,000
Other current liabilities --- ------

Total 86,82,000

II. Assets
1. Non -current assets:
Fixed assets:
Tangible assets 7 51,50,000
Intangible assets -- ----
Capital WIP 8 2,00,000
Non - current investments 9 2,25,200

2. Current assets :
Trade receivables 10 12,04,800
Inventories 11 12,00,000
Short term loans and advances 12 4,27,000
Cash and cash equivalents 2,75,000
Other current assets -- ------
---------------
Total 86,82,000
----------------
6. Following balances have been extracted from the books of jennies company ltd as on 31 st march
2014:

particulars Dr( rs ) Cr(rs)

Machinery 1,60,000
Land &building 6,74,000
Deprecation on machinery 16,000
Purchases (adjusted) 4,00,000
Closing stock 1,50,000
Wages 1,20,000
Sales 10,00,000
Salaries 80,000
Bank overdraft 2,00,000
10%debentures (issued on 1st apr 2013) 1,00,000
Equity share capital -shares of rs 100 each 2,00,000
(fully paid)
preference share capital -1,000 6%shares of rs 1,00,000
100 each (fully paid)

The board of directors of jennies company ltd had decided to make the following appropriations:

(1) to declare an equity dividend @10% on paid up capital

(2) to pay dividend on the preference share capital in full
(3) to transfer rs2,00,000 to general reserve

prepare statement of profit and loss for the year ended 31 st march 2014 and the balance sheet
as at the date. Ignore the income tax.

Solution:

notes to accounts:

Rs Rs
1. share capital
Equity capital 2,00,000
preference capital 1,00,000
------------
Total 3,00,000
-------------
2.Reserve and surplus
Surplus (cr) 3,74,000
(less)proposed equity dividend 20,000
(less)proposed preference dividend 6,000
(less)Dividend tax 26,000*17% 4,420
(less)General reserve 2,00,000
1,43,580
(add)general reserve 2,00,000
------------
3,43,580
------------
3. long term borrowings
10% debentures 1,00,000
 4.short term borrowings
Bank overdraft 2,00,000

5.short term provisons

proposed equity dividend 20,000
proposed preference dividend 6,000
Dividend tax payable 4,420
----------
Total 30,420
----------
6. other current liabilities
Interest on Debentures due 10,000

7.tangible assets
Machinery 1,60,000
Land and building 6,74,000
------------
Total 8,34,000
------------
8. Revenue and operations
Sales 10,00,000

9.purchases
purchase(adjusted) 4,00,000

10.employee benefits expense

Wages 1,20,000
Salaries 80,000
------------
Total 2,00,000
-------------

11.finance costs
Interest on Debentures 10,000

12. depreciation and amortisation of

expenses
Depreciation On Machinery 16,000

Statement of profit and loss

particulars note no Rs
I. revenue from operations 8 10,00,000
II. other income ------
total revenue(A) 10,00,0000

III. expenses:
 cost of goods sold 9 4,00,000
employee benefit expense 10 2,00,000
finance costs 11 10,000
depreciation and amortised expense 12 16,000
other expenses -----

total expenses(B) 6,26,000

profit before tax({A-B) 3,74,000

less: current tax Nil
3,74,000
profit after tax

Balance sheet as on 31st march 2014

particulars note no Rs
i. equity and liabilities
1.shareholders fund
share capital 1 3,00,000
reserves and surplus 2 3,43,580
2.non- current liabilities:
Long term borrowings 3 1,00,000
3.current liabilities:
Short term borrowings 4 2,00,000
Trade payable - ----
Short term provisions 5 30,420
Other curren.t liabilities 6 10,000
9,84,000
Total

ii. Assets
1.non -current assets:
Fixed assets -
Tangible assets 7 8,34,000
Intangible assets -
Noncurrent investments -
2. current assets:
Trade receivables -
Inventories -
Short term loans and advances 1,50,000
Cash and cash equivalents -
Other current assets -
9,84,000
Total
FINAL ACCOUNTS OF COMPANIES:
7. A Limited company was registered with an authorized capital of Rs.30,00,000 in
equity share of Rs.10 each. The following list of balances was extracted from its
books on 31.12.94.

BALANCES AMOUNT(Rs.)
Purchase 9,25,000
Wages 4,24,325
Manufacturing expenses 65,575
Salaries 70,000
Bad debts 10,550
Director’s fees 31,125
Debenture’s interest paid 45,000
Preliminary expenses 25,000
Calls-in-arrears 37,500
Plant and machinery 15,00,000
Premises 16,50,000
Interim dividend paid 1,87,500
Furniture and fixtures 35,000
Sundry expenses 4,36,000
General expenses 84,175
Stock on 1.1.94 3,75,000
Cash in hand 1,00,000
Goodwill 28,750
Cash at bank 1,99,500
Subscribed and fully called up capital 20,00,000
Profit and loss a/c /(Cr.) 72,500
6% debenture 15,00,000
Sundry creditors 2,90,000
Bills payable 1,67,500
Sales 20,75,000
General reserve 1,25,000
You are required to prepare statement of profit and loss for the ear ended
31.12.94 and the balance as on that date, after making the following adjustments:
Depreciate plant and machinery by 10%. Provide half year’s interest on
debentures. Also write off preliminary expenses and make provision for bad and
doubtful debts of Rs.4,250 on sundry debtors. Stock for 31 st December 1994 was
Rs. 4,55,000. Provide for corporate dividend tax@17%.

SOLUTION:

NOTES TO ACCOUNTS:
PARTICULARS Rs. Rs.
1. Share Capital
Equity Share Capital 20,00,000
Less: Calls in Arrears 37,500
19,62,500

2. Reserves and Surplus

General Reserve 1,25,000
Profit & Loss 72,500
Add: Current profits 2,75,000
3,47,500
Less: Interim Dividend 1,87,500
Dividend Tax (1,87,500*17%) 31,875 1,28,125
2,53,175

3. Long Term Borrowing

6% Debentures 15,00,000

4. Trade Payables
Sundry Creditors 2,90,000
Bills Payables 1,67,500
4,57,500
 5. Short Term Provisions 31,875
Dividend tax payable 31,875

6. Other Current Liabilities

Interest on Debentures due 45,000

7. Tangible Assets
Plant and machinery 15,00,000
Less: Dep. 1,50,000 13,50,000
Premises 16,50,000
Furniture and fittings 35,000
30,35,000

8. Intangible assets
Goodwill 28,750

9. Trade receivables
Sundry Debtors 4,36,000
Less: PBDD 4,250
4,31,750

10. Cash and Cash Equivalents

Cash in Hand 1,00,000
Cash at Bank 1,99,500
2,99,500

11. Revenue from Operations

Sales 20,75,000

12. Cost Of goods sold

Opening stock 3,75,000
Add: Purchases 9,25,000
13,00,000
Less: Closing stock 4,55,000
8,45,000
 13. Employee Benefit Expenses
Wages 4,24,325
Salaries 70,000
4,95,325

14. Finance Cost

Interest on Debentures 45,000
Add: Interest Due 45,000
90,000

15.Depreciation & amortization

exp
Dep on Plant & Machinery 1,50,000
Preliminary Exp. Written off 2,500
1,75,000

16. Other expenses.

Bad Debts 10,550
Manufacturing Expenses 65,575
General Expenses 84,175
PBDD 4,250
Directors Fees 31,125
1,95,675
 Statement Of Profit & Loss
Particulars Note No. Rs.
1. Revenue from Operations 11 20,75,000
2. Other Income ------------
Total Revenue(A) 20,75,000
3. Expenses
Cost of goods sold 12 8,45,000
Employee benefit expenses 13 4,94,325
Finance cost 14 90,000
Depreciation and amortization cost 15 1,75,000
Other expenses 16 1,95,675
Total Expenses(B) 18,00,000

Profit Before Tax(A-B) 2,75,000

Less: Current Tax NIL
Profit After Tax 3,00,000
 Balance Sheet
Particulars Note No. Rs.
1. Equity and Liability
1. Shareholder’s funds:
Share Capital 1 19,62,500
Reserves and surplus 2 2,53,125
2. Non-current liability
Long term Borrowings 3 15,00,000
3. Current liabilities:
Short term borrowings
Trade payables 4 4,57,500
Short term provisions 5 31,875
Other current liabilities 6 45,000
Total 42,50,000

2.Assets
1. Non-current Assets:
Fixed Assets:
Tangible Assets 7 30,35,000
Intangible Assets 8 28,750
Non-current Investments -
2. Current Assets:
Trade receivables 9 4,31,750
Inventories 4,55,000
Short Term loans and advances -
Cash and Cash equivalents 10 2,99,500
Other current Assets -------------
42,50,000
SUM NO: 08 CHAPTER: FINAL ACCOUNTS

The following is the trail balance of ABC Company Ltd as on 31/12/2994.

Prepare statement of profit & loss and balance sheet.
Particulars Dr Cr
Rs. Rs.
Authorized capital: 50,000 shares of Rs. - 5,00,000
10 each
Subscribed capital: 10,000 shares of Rs. 1,00,000
10 each
Calls-in-arrears 6,400
Land 10,000
Building 25,000
Machinery 15,000
Furniture 3,200
Carriage inwards 2,300
Wages 21,400
Salary 4,600
Bad debts reserve (1.1.92) 1,400
Sales 80,000
Sales return 1,700
Bank charges 100
Coal 700
Rates and taxes 800
Purchases 50,000
Purchases return 3,400
Bills receivable 1,200
General expenses 1,900
Sundry debtors 42,800
Sundry creditors 13,200
Srock on 1.1.94 25,000
Fire insurance 400
Cash at bank 13,000
Cash in hand 2,500
Securities premium - 6,000
General reserve - 24,000
2,28,000 2,28,000
 Charge depreciation on building at 2 ½ % on machinery at 10 % and on
furniture at 10 %. Make a reserve of 5 % on debtors for bad debts.
 Carry forward the following unexpired amount:
Fire insurance Rs. 120
 Provide for liabilities:
Wages Rs. 3,200
Salaries Rs. 500
Rates Rs. 200
 The value of stock on 31.12.94 was Rs. 30,000
ANSWER SUM NO: 08
CHAPTER: FINAL ACCOUNTS
NOTES TO ACCOUNTS:
S. No Particulars Rs.
1. SHARE CAPITAL
Equity share capital 1,00,000

Less: Calls in arrears 6,400

93,600
2. RESERVES & SURPLUS
General reserve 24,000
Securities premium 6,000
Less: current loss (2,465)

27,535
3. TRADE PAYABLES
Sundry creditors 13,200

4. OTHER CURRENT LABILITIES

Wages due 3,200
Salaries due 500
Rates due 200

3,900
5. TANGIBLE ASSETS
Land 10,000
Building 25,000
Less depreciation 625 24,375

Machinery 15,000
Less depreciation 1,500 13,500

Furniture 3,200
Less depreciation 320 2,880

50,755
6. TRADE RECEIVABLES
Bills receivable 1,200
Sundry debtors – PBDD 40,660
42,800-2,140
41,860
7. CASH & CASH EQUIVALENTS
Cash in hand 13,000
Cash at bank 2,500

15,500
8. OTHER CURRENT ASSETS
Prepaid insurance 120

9. REVENUE FROM OPERATIONS

Sales (80,000-1,700) 78,300

10. COST OF GOODS SOLD

Opening stock 25,000
+ Purchases (50,000-3,400) 46,600
+ Carriage inwards 2,300

73,900
- Closing stock 30,000

43,900
11. EMPLOYEE BENEFITS EXPENSE
Depreciation on building 625
Depreciation on machinery 1,500
Depreciation on furniture 320

2,445
12. OTHER EXPENSES
Bank charges 100
Coal 700
Rates & taxes + due: 800+200 1,00
General expenses 1,900
Fire insurance – prepaid: 400-120 280
New PBDD – Old PBDD: 2,140-1,400 740

4,720
 STATEMENT OF PROFIT & LOSS
S. No PARTICULARS NOTE RS.
NO
I Revenue from operations 9 78,300
II Other income -

Total revenue(A) 78,300

III Expenses
Cost of goods sold 10 43,900
Employee benefit expenses 11 29,700
Finance costs -
Depreciation & amortised expenses 12 2,445
Other expenses 13 4,720

Total expenses (B) 80,765

Loss (A-B) 2,465

BALANCE SHEET
S. No PARTICULARS NOTE Rs.
NO
I EQUITY & LIABILITIES
1. Shareholders’ fund:

Share Capital 1 93,600

Reserves and Surplus 2 27,535
2. Non-current liabilities:
Long term borrowings
3. Current Liabilities:
Short term borrowings
Trade payables 3 13,200
Short term provisions
Other current liabilities 4 3,900

TOTAL 1,38,235
 S. No PARTICULARS NOTE NO Rs.
II ASSETS
1. Non – current assets:
Fixed assets
Tangible assets 5 50,755
Intangible assets
Non-current assets
2. Current assets
Trade receivables 6 41,860
Inventories 30,000
Short term loans & advances
Cash & cash equivalents 7 15,500
Other current assets 8 120

TOTAL 1,38,235
 CHAPTER-7- FINAL ACCOUNTS OF COMPANIES

SUM NO 9:
The following Trial balance of Nallis Ltd as at 30 th dec.1998 is
given to you:
DEBITS Rs. CREDITS Rs.
Stock (1.1.1998) 80,000 8,000 equity shares of
Bank 17,600 Rs.100 each, Rs.75
Patents 60,000 paid 6,00,000
Calls-in-arrears 20,000 6% debentures 2,00,000
Returns inwards 30,000 Sundry creditors 1,00,000
Purchases 7,72,000 General reserve 80,000
1,08,000 Sales 10,00,000
Wages
400 Returns outward 20,000
Insurance prepaid
30,000 P&L A/c (Cr) 12,000
Bills receivable 80,000
Sundry debtors
Discount on issue of 10,000
debentures 4,00,000
Plant & Machinery 3,00,000
Land &Building 4,000
Insurance 40,000
General expenses
Establishment 60,000
expenses
20,12,000 20,12,000
Additional information:
(I) The value of stock on 31st dec.1998 was Rs.74,000
(ii) Outstanding wages totaled Rs.10,000
(iii) A provision 5% is to be created on sundry debtors for doubtful
debts.
(iv) Depreciate patents @10% and Plant &Machinery @7 half and on
Land & Building @ 4%.
You are required to prepare statement of Profit &Loss for the year
ended 31.12.1998 and Balance Sheet as on date.

Notes to accounts:
PARTICULARS Rs.
1.Revenue from operations
Sales 10,00,000 9,70,000
Less: Sales returns (30,000)
2. Cost of goods sold
Opening stock 80,000
Add: Purchases 7,72,000
Less: Purchases returns (20,000)(7
Less: Closing stock 4,000) 7,58,000
3.Employee benefit wages 1,08,000
Add: Outstanding wages 10,000 1,18,000
4.Depreciation &Amortization
Machinery 30,000
Patent 6000 48,000
 Land & building 12,000
5. Other Expenses
General expense 40,000
Insurance 4000
Establishment expense 60,000
Provision for doubtful debts 4000 1,08,000

6.Share capital
Equity share capital 6,00,000
Less: Calls-in-arrears (20,000) 5,80,000
7.Reserves &surplus
General Reserve 80,000
Profit &loss 12,000
Less: Current(loss) (62,000) 30,000
8. Long term borrowing
6% Debentures 2,00,000
9.Trade payable
Sundry creditor 1,00,000
10.Other current liability
Outstanding liability 10,000
11.Tangible assets
Plant &machinery
Less: Depreciation 3,70,000
Land & building
Less: Depreciation 2,88,000 6,58,000
12.Intangible assets
Patents
Less: Depreciation 54,000
13.Trade receivables
Sundry debtors
Less: Provision
76,000
Bills receivable
30,000 10,06,000
14.Other current assets
Prepaid insurance 400
Discount on debentures 40,000
40,400
15.Inventories
Stock 74,000

NALLIS LTD
STATEMENT OF PROFIT &LOSS ACCOUNT
For the year ended 30th Dec 1998

PARTICULARS NOTE NO Rs.

Revenue from operation 1 9,70,000
Total(A) 9,70,000

Expenses: 7,58,000
Cost of goods sold 2 1,18,000
Employee benefit expense 3 48,000
Depreciation &Amortization 4 1,08,000
Other expense 5 10,32,000
Total(B)
LOSS (A-B) 62,000
 NALLIS LTD
BALANCE SHEET AS ON 31.12.1998

PARTICULARS NOTE NO Rs.

A. Equity & Liability
1. Shareholder’s funds
-Share capital 6 5,80,000
- Reserves & surplus 7 30,000
2. non-current liability
- Long term borrowing 8 2,00,000
3. Current liability
- Trade payable 9 1,00,000
- Other current liability 10 10,000
Total 9,20,000
B.Assets
1. non-current assets
(I)Fixed assets
- Tangible asset 11 6,58,000
- Intangible asset 12 54,000
2. Current assets
- Trade receivable 13 1,06,000
- Other current asset 14 10,400
-Cash & equivalent 17,600
-Inventories 15 74,000
Total 9,20,000
 CORPORATE ACCOUNTING
Chapter: Final Accounts of companies
Sum no: 10
From the following balances as on 31st Dec 1988 of a limited company, prepare statement of a
profit and loss for the year ended and the balance sheet as on that date:
Debits Rs. Credits Rs.
Stock 1.1.88 33,380 Subscribed & paid up capital 50,000
Discounts 6,788 Sales 1,46,268
Land 22,000 Sundry receipts 200
Plant & Machinery 10,700 Creditors 39,532
Purchases 91,888 Provision for bad debts 5,300
Furniture 2,750 Discount (Cr) 5,904
Debtors 63,600 Bank overdraft 13,823
P&L A/c (Dr) 4,960 Customer’s deposit 400
Carriage 3,780
Wages 9,016
Bad debts 1,820
Office expenses 10,275
Cash in hand 470

The following adjustments have to be made:

(a) Stock on 31.12.1988 Rs.35,460
(b) Depreciation on Plant & Machinery at 10% and Furniture at 6%.
(c) Provide 10% for bad and doubtful debts.
(d) Customer’s deposit has been forfeited.
(e) Proposed dividend at 10%.
(f) Provision for taxation Rs.7,500
(g) The managing director is entitled to 10% commission on net profits before charging such
commission.

Solution:
Note to accounts:
S.No Particulars Rs. Rs.
1. Revenue from operations
Sales 1,46,268 1,46,268
2. Other incomes
 Sundry receipts 200
Discounts (Cr) 5,904
Customer’s deposit forfeited 400 6,504
3. Cost of goods sold
Opening stock 33,380
Add: purchases 91,888
Carriage 3,780
1,29,048
Less: Closing 35,460 93,588
4. Employees benefit expenses
Wages 9,016 9,016
5. Depreciation and Amortisation expenses
Depreciation on Plant & Machinery 1,076
Depreciation on Furniture 165 1,235
6. Other expenses
Bad debts 1,820
Add: new provision for 6,360
doubtful debts
Less: old provision for 5,300 2,880
Doubtful debts
Office expenses 10,275
Discounts 6,788
Managing commission
35,350*10% (W.N) 3,535 23,478
7. Share capital
Equity capital 50,000 50,000
8. Reserves and Surplus
Profit & Loss a/c (Dr) 4,906
Add: current profit 17,955
12,995
Less: Proposed dividend 5,000
Dividend tax (5,000*17%) 8,50 7,145
9. Short term borrowings
Bank overdraft 13,823 13,823
10. Trade payables
Sundry creditors 39,533 39,533
11. Short term provisions
Proposed dividend 5,000
Provision for tax 7,500
 Dividend tax payable 850 13,350
12. Other current liabilities
Manager commission due 3,535 3,535
13. Tangible assets
Land 22,000
Plant & Machinery 10,700
Less: depreciation 1,070 9,630
Furniture 2,750
Less: depreciation 165 2,585 34,215
14. Trade receivables
Sundry debtors 63,000
Less: provision for doubtful debts 6,360 57,240

Statement of profit & Loss for the year ended 31.12.1988

Particulars Note.No. Rs.

I. Revenue from operations 1. 1,46,268
II. Other Income 2. 6,504
Total Revenue (A) 1,52,772
III. Expenses
Cost of goods sold 3. 93,588
Employee benefits expenses 4. 9,016
Depreciation and Amortised expenses 5. 1,235
Other expenses 6. 23,478
Total Expenses (B) 1,27,317
Profit before tax 25,455
Less: current tax 7,500
Profit after tax 17,955

Balance Sheet as on 31.12.1988

Particulars Note.No. Rs.

I. Equity and Liabilities
(1) Shareholder’s fund
Share capital 7. 50,000
Reserves and Surplus 8. 7,145
(2) Current Liabilities
Short term borrowings 9. 13,823
 Trade payables 10. 39,532
Short term provisions 11. 13,350
Other current liabilities 12. 3,535
Total 1,27,385
II. Assets
(1) Non- current assets
Tangible assets 13. 34,215
(2) Current assets
Trade receivables 14. 57,240
Inventories
Short term loans and advances 35,460
Other current assets 470
Total 1,27,385

Working notes for managing director’s commission

Total revenue 1,52,772

Add: old provisions for doubtful debts 5,300
1,58,072
Less: Other expenses 18,833
(Bad debts+ office expenses +discounts )

Cost of goods sold 93,588

Employees benefit expenses 9,016
Depreciation and Amortisation 1,235
Total 35,350
Managing director’s commission =35,350
*10% =3,535

Name: Shalini M
Reg.no: 2013721042054
 FINAL ACCOUNTS OF COMPANIES
11.FOLLOWING IS THE TRIAL BALANCE EXTRACTED FROM THE BOOKS OF
FOSTER COMPANY LTD:

DEBITS RS CREDITS RS
STOCK ON 1.1.86 7000 AUTHORIZED CAPITAL: 200000
2000 EQUITY SHARES OF RS
100 EACH
PURCHASES 30000 ISSUED SHARE CAPITAL 100000
WAGES 8000 RENT RECEIVED 3500
CARRIAGE 2000 SALES 105000
BUILDING 50000 SUNDRY CREDITORS 16800
MOTOR VEHICLE 37000 BANK OVERDRAFT 12200
SUNDRY DEBTORS 9600 PROFIT AND LOSS A/C 22500
SALARIES 15000
BANK INTEREST&CHARGES 400

TRAVELLING EXPENSES 4000

MACHINERY 80000
DISCOUNT ALLOWED 1500
CASH IN HAND&BANK 1000
PRINTING AND STATIONERY 2000
REPAIRS AND RENEWALS 1500
DIRECTOR’S REMUNERATION 2500
AUDIT FEES 500
CALLS IN ARREARS 3000
INTERIM DIVIDEND 5000
260000 260000

ADJUSTMENTS:
i. CLOSING STOCK ON 31.12.86 WAS RS 6000
ii. OUTSTANDING WAGES WERE RS 1000
iii. DEPRECIATE MACHINERY BY RS 2000,BUILDING BY 7000 AND MOTOR VEHICLE BY RS
620.
iv. DIRECTORS DECLARED A FINAL DIVIDEND AT 20% ON PAID UP CAPITAL.
v. CREATE A PROVISION FOR BAD DEBTS AT 5%ON DEBTORS
vi. THERE IS A CONTINGENT LIABILITY OF RS 2000 FOR THE COMPENSATION CLAIM
AGAINST THE COMPANY PENDING IN THE COURT
vii. PROVIDE FOR CORPORATE DIVIDEND TAX @17% ON INTERIM DIVIDEND AND
PROPOSED DIVIDEND
YOU ARE REQUIRED TO PREPARE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
31.12.86 AND BALANCE SHEET AS ON THAT DATE.

NOTES TO ACCOUNTS:
1.REVENUE FROM OPERATIONS:
SALES 105000
2.OTHER INCOME:
RENT RECEIVED 3500
3.COST OF GOODS SOLD:
OPENING STOCK 7000
ADD:PURCHASES 30000
CARRIAGE 2000
LESS:CLOSING STOCK 6000 33000
4.EMPLOYEE BENEFIT EXPENSES:
SALARIES 15000
WAGES+DUE:8000+1000 9000 24000
5.DEPRECIATION AND AMORTISATION EXPENSES:
DEPRECIATION ON MACHINERY 2000
DEPRECIATION ON BUILDING 7000
DEPRECIATION ON MOTOR VEHICLE 620 9620
6.OTHER EXPENSES:
BANK INTEREST AND CHARGES 400
TRAVELLING EXPENSES 4000
DISCOUNT ALLOWED 1500
PRINTING AND STATIONERY 2000
REPAIRS AND RENEWALS 1500
DIRECTOR’S REMUNERATION 2500
AUDIT FEES 500
PROVISION FOR BAD AND DOUBTFUL DEBTS 480 12880
7.SHARE CAPITAL:
EQUITY SHARE CAPITAL 100000
LESS:CALLS IN ARREARS 3000 97000
8.RESERVES AND SURPLUS:
PROFIT AND LOSS A/C(Cr) 22500
ADD:CURRENT PROFIT 29000
LESS:INTERIM DIVIDEND 5000
PROPOSED DIVIDEND(97000*20%) 19400
DIVIDEND TAX(24400*17%) 4148 22952
9.SHORT TERM BORROWINGS:
BANK OVERDRAFT 12200
10.TRADE PAYABLES:
SUNDRY CREDITORS 16800
11.SHORT TERM PROVISIONS:
PROPOSED DIVIDEND 19400
DIVIDEND TAX PAYABLE 4148 23548
12.OTHER CURRENT LIABILITIES:
 WAGES DUE 1000
13.TANGIBLE ASSETS:
BUILDING-DEPRECIATION(50000-7000) 43000
MOTOR VEHICLE-DEPRECIATION(37000-620) 36380
MACHINERY-DEPRECIATION(80000-2000) 78000 157380
14.TRADE RECEIVABLES:
SUNDRY DEBTORS-PBDD(9600-480)
9120

STATEMENT OF PROFIT AND LOSS A/C:

PARTICULARS NOTE NO RS
I. REVENUE FROM OPERATIONS 1. 105000
II. OTHER INCOME 2. 3500
TOTAL REVENUE(A) 108500
III. EXPENSES:
COST OF GOODS SOLD 3. 33000
EMPLOYEE BENEFIT EXPENSE 4. 24000
FINANCE COSTS - -
DEPRECIATION AND AMORTISATION EXPENSE 5. 9620
OTHER EXPENSES 6. 12880
TOTAL EXPENSES(B) 79500
PROFIT BEFORE TAX(A-B) 29000
LESS:CURRENT TAX -
PROFIT AFTER TAX 29000

BALANCE SHEET:
PARTICULARS NOTE NO RS
I.EQUITY AND LIABILITIES
1.SHAREHOLDER’S FUNDS
SHARE CAPITAL 7. 97000
RESERVES AND SURPLUS 8. 22952
2.NON CURRENT LIABILITIES: -
LONG TERM BORROWINGS -
3.CURRENT LIABILITIES
SHORT TERM BORROWINGS 9. 12200
TRADE PAYABLES 10. 16800
SHORT TERM PROVISIONS 11. 23548
OTHER CURRENT LIABILITIES 12. 1000
TOTAL 173500
II.ASSETS
1.NON CURRENT ASSETS:
FIXED ASSETS:
TANGIBLE ASSETS 13. 157380
INTANGIBLE ASSETS -
NON CURRENT INVESTMENTS - -
2.CURRENT ASSETS: -
TRADE RECEIVABLES 9120
INVENTORIES 14. 6000
SHORT TERM LOANS AND ADVANCES -
CASH AND CASH EQUIVALENTS 1000
OTHER CURRENT ASSETS -
TOTAL 173500
 REG NO : 2013721042057
CORPORATE ACCOUNTING (FINAL ACC)

Q.12 The following are the ledger accounts of the Krishna trading Co. Ltd.
Madurai on December 31,1988

Rs
Equity share capital 50,000
(10,000 shares of Rs. 10 per share, rs.5 per share called up)
Trade debtors 6,000
Calls in arrears 2,000
Sales 25,420
Land & building 6,000
Provision for bad debts on 1.1.88 300
Stock on 1.1.88 8,000
Trade creditors 6,364
Plant & machinery 18,500
Wages 1,283
Investments 2,000
Profit & loss a/c on 1.1.88 Cr 1,640
Discount (Dr) 265
Returns outwards 730
Interest on investments 75
Cash at bank 7,425
Salaries 1,430
Director’s salary 1,000
Bad debts written off 225
Gas and water 501
Goodwill 10,500
Manufacturing expenses 1,600
Director’s fees 300
Dividend on shares (Dr) 2,250
Trade expenses 120
Purchases 14,210
Preliminary expenses 500
Returns inwards 420
 The stock on December 31.1988 was valued at Rs. 8,100. Provide for
depreciation on plant and machinery at 10%. write off preliminary expenses.
Provide for bad debts up to Rs.400 and transfer Rs. 1,000 to general reserve.
Prepare statement of profit and loss for the year ended 31.12.1988 and a
balance sheet as on that date.

Solution : Notes to accounts

1. share capital
Equity share capital 50,000
Less: calls in arrears 2,000
48,000
2.Reserves and surplus
Profit and loss A/c (Cr) 1,650
Add: current profit 2,521
4,161
2,250
Less: Dividend (previous year) 1,000
General reserve

911
Add: general reserve 1,000
1,911

3.Trade payables
Trade creditors
6,364
4. Tangible assets
Land & buildings
6,000
Plant & machinery 18,500
Less: depreciation 1,850
16,650
22,650
5. Intangible assets
Goodwill 10,500
6. Noncurrent investment
Investment 2,000
7.Trade receivables
Trade debtors 6,000
Less: PBDD 400 5,600
8.Revenue from operation
Sales 25,420
Less: returns 420 25,000

9. other income
Interest on investments 75

10.cost of goods sold

Opening stock 8,000
Add: purchases – returns 13,480
(14,210-730) 21,480
Less: closing stock 8,100
13,380
11. Employee benefit expenses
Salaries 1,430
Wages 1,283
Director’s salary 1,000
3,713
12.Depreciation and amortisation of expenses
Depreciation on plant & machinery 1,850
Preliminary expenses written off 500
2,350

13.other expenses
Bad debts + new PBDD - old PBDD 325
(225 + 400 - 300)
Trade expenses 120
Discounts 265
Director’s fees 300
Gas and water 501
Manufacturing exp 1,600
3,111
 Statement of profit and loss
particulars Note no Rs
1. Revenue from operations 8 25,000
2. Other income 9 75
Total revenue (i) 25,075

3. Expenses:
Cost of goods sold 10 13,380
Employee benefits expense 11 3,713
Finance costs -
Depreciation and amortisation exp 12 2,350
Other expenses 13 3,111
Total expenses (ii) 22,554

Profit before tax (i-ii) 2,521

Less: current tax -

Profit after tax 2,521

Balance sheet
Particulars Note no Rs
I. Equity and liabilities
1.shareholder’s funds:
Share capital 1 48,000
Reserves and surplus 2 1,911
2.Noncurrent liabilities:
Long term borrowings
3.current liabilities
Short term borrowings
Trade payables 3 6,364
Short term provisions
Other current liabilities

Total 56,275
II. assets
1.noncurrent assets
Fixed assets-
Tangible assets 4 22,650
Intangible assets 5 10,500
Noncurrent investments 6 2,000
2.current assets
Trade receivables 7 5,600
Inventories 8,100
Short term loans and advances -
Cash and cash equivalents 7,425
Other current assets -

Total 56,275
13) The following is the trial balance of Rubi Ltd.

CREDITS RS DEBITS RS
Subscribed capital: 10000 1,00,000 Calls in arrears 6400
shares of Rs.10 per share
Bad debts provision(1.7.90) 2400 Land 10000
Sales 85000 Building 25000
Discount 750 Plant and machinery 15000
Purchase returns 3400 Furniture and fixtures 3200
Sundry creditors 13200 Carriage inwards 2300
Securities premium 6000 Wages 21400
General reserve 24000 Salaries 4600
Sales returns 2700
Bank charges 100
Travelling expenses 1200
Discount 550
Coal, gas and water 700
Rates and taxes 800
Purchases 50000
Bills receivable 1200
Printing and stationery 1500
Audit fees 1500
General expenses 1900
Sundry debtors 42800
Stock (1.7.90) 25000
Fire insurance 400
Cash in hand 2500
Cash at bank 14000

Prepare Statement of Profit and Loss for the year ended 30.6.1991 and Balance sheet as at that date
after considering the following matters.

(i) Value of stock as on 30.6.1991 was Rs.30000

(ii) Outstanding liabilities as on 30.6.1991 were wages Rs.3200; Salaries Rs.500 and
rates and taxes Rs.200
(iii) Fire insurance prepaid was Rs.120
(iv) Provision to be made at 5% on debtors for bad debts
(v) Depreciation to be charged on building at 2 ½%, on plant and machinery at 10%
and on furniture and fixtures at 10% p.a
(vi) The authorised capital of the company is 50000 shares of Rs.10 each
Solution:

Notes to accounts:

Particulars Rs.
1. Share capital
Equity share capital 100000
Less: calls in arrear 6400
93600
2. Reserves and surplus
Securities premium 6000
General reserve 24000
Less: current loss 1465
28535
3. Trade payables
Sundry creditors 13200

4. Other current liabilities

Wages due 3200
Salaries due 500
Rent & rates due 200
3900
5. Tangible assets
Land 10000
Building – depreciation 25000-625 24375
Plant and machinery – depreciation 15000-1500 13500
Furniture and fixtures- depreciation 3200-320 2880
50755
6. Trade receivables
Bills receivable 1200
Sundry debtors - PBDD 42800-2140 40660
41860
7. Cash and cash equivalents
Cash in hand 2500
Cash at bank 14000
16500
8. Other current assets
Prepaid expenses 120

9. Revenue from operations

Sales – sales returns 85000-2700 82300

10. Other income

Discount received 750
PBDD(excess) 2140-2400 260
1010
11. Cost of goods sold
Opening stock 25000
Add : purchases – returns 50000-3400 46600
Add: carriage 2300
Less: closing stock 30000
43900
12. Employee benefit expenses
Salaries+ due 4600+500 5100
Wages+ due 21400+3200 24600
29700
13. Depreciation and amortisation
expenses
Depreciation on plant & machinery 1500
Depreciation on building 625
Depreciation on furniture& fixtures 320
2445
14. Other expenses
Discount 550
Bank charges 100
Travelling expenses 1200
Coal, gas and water 700
Rates & taxes+ due 800+200 1000
Printing & stationery 1500
Audit fees 1500
General expenses 1900
Fire insurance- prepaid 400-120 280
8730

STATEMENT OF PROFIT AND LOSS

PARTICULARS NOTE NO RS.

I. Revenue from operations 9 82300
II. Other income 10 1010
Total revenue(A) 83310

III. Expenses
Cost of goods sold 11 43900
Employee benefit expenses 12 29700
Finance costs -
Depreciation and amortisation expenses 13 2445
Other expenses 14 8730
Total revenue(B) 84775

LOSS(A-B) 1465
 BALANCE SHEET OF RUBI LTD

PARTICULARS NOTE NO RS.

I. Equity and liabilities
1. Shareholder’s funds:
Share capital 1 93600
Reserves and surplus 2 28535
2. Non-current liabilities:
Long term borrowings -
3. Current liabilities:
Short term borrowings -
Trade payables 3 13200
Short term provisions -
Other current liabilities 4 3900
TOTAL 139235
II. Assets
1. Non- current assets:
Fixed assets:
Tangible assets 5 50755
Intangible assets -
Non-current investments -
2. Current assets :
Trade receivables 6 41860
Inventories 30000
Short term loans and advances -
Cash and cash equivalents 7 16500
Other current assets 8 120
TOTAL 139235
14. The following balances were extracted from the books of Chandra Limited for the year ended
December 31, 1996.

Rs.

Buildings 6,00,000

Furniture 60,000

Motor vehicles 60,000

Equity shares of companies 4,00,000

Stock-in-trade at cost 4,00,000

Sundry debtors, unsecured considered good 2,80,000

Cash at bank 1,72,000

Advance against construction of building 1,30,000

Share capital: 10,000 equity shares of Rs. 100 each 10,00,000

Sundry creditors 3,50,000

Profit and Loss A/c (credit) 20,000

Gross profit 10,00,000

Dividend received on investments 10,000

Salaries and wage 2,20,000

Directors' fees 8,000

Electricity charges 25,000

Rates, taxes and insurance 10,000

Auditors' fees 15,000

Prepare Statement of Profit & Loss of the company for the year ended December 31, 1996, and a Balance
Sheet as on that date after considering the following Adjustments.

(a) Provide 10% depreciation per annum on Fixed Assets.

(6) Stock has been revalued Rs. 3,60,000. This has not yet been considered

(c) Debts more than 6 months are Rs. 80,000.

(d) Ignore tax provision.

Ans:

1. Share capital Rs.

Equity capital 10,00,000

2. Reserves and surplus

Profit & loss a/c (cr) 20,000
Add: current profit 6,20,000
6,40,000
3. Trade payables
Sundry creditors 3,50,000

4. Tangible assets
Buildings- dep.: 6,00,000 – 60,000 5,40,000
Motor vehicles – dep.: 60,000 – 6,000 54,000
Furniture – dep.: 60,000 – 6,000 54,000
6,48,000
5. Non- current investments
Equity shares of companies 4,00,000

6. Trade receivables
Sundry debtors 2,80,000

7. Short term loans and advances

Advance against construction of building 1,30,000

8. Revenue from operations

Gross profit 10,00,000

9. Other income
Dividend on investments 10,000

10. Employee benefits expense

Salaries & wages 2,20,000

11. Depreciation and amortization of expenses

 Dep. On buildings 60,000
Dep. On motor vehicles 6,000
Dep. On furniture & fixtures 6,000
72,000
12. Other expenses
Electricity 25,000
Rent, rates and taxes 10,000
Director's fees 8,000
Audit fees 15,000
Fall in value of stock 40,000
98,000

STATEMENT OF PROFIT AND LOSS

PARTICULARS NOTE NO. Rs.

1. Revenue from operations 8 10,00,000

2. Other income 9 10,000

Total revenue (A) - 10,10,000

3. Expenses:

Cost of goods sold - -

Employee benefits expense 10 2,20,000

Finance costs -

Depreciation and mortised expenses 11 72,000

Other expenses 12 98,000

Total expenses (B) 3,90,000

Profit (A -B) 6,20,000

BALANCE SHEET

PARTICULARS NOTE NO. Rs.

1. Equity and Liabilities

1. Shareholders' funds: 1 10,00,000

Share capital 2 6,40,000

Reserves and surplus

2. Non- current liabilities:

Long term borrowings

3. Current Liabilities:

Short term borrowings 3 3,50,000

Trade payables

Short term provisions

Other current liabilities

TOTAL 19,90,000

IL Assets

1. Non- current assets:

Fixed assets:

Tangible assets 4 6,48,000

Intangible assets

Non -current investments 5 4,00,000

2. Current assets:

Trade receivables 6 2,80,000

Inventories 3,60,000

Short term loans and advances 7 1,30,000

Cash and cash equivalents 1,72,000

Other current assets -

Total 19,90,000
15. From the following particulars furnished by pioneer ltd, prepare the
balance sheet as at 31.3.1997 as required by part 1, revised schedule VI of
the companies Act.

particulars dr cr
Equity share capital(rs. 1000000
10 fully paid up)
Calls in arrears 1000
land 200000
buildings 350000
Plant & machinery 525000
furniture 50000
General reserve 210000
Loan from state 150000
financial corporation
Stock 250000
Finished goods 200000
Raw materials 50000
Provision for taxation 68000
Sundry debtors 200000
advances 42700
Proposed dividend 60000
Profit and loss a/c 100000
Cash in hand 30000
Cash at bank 247000
Preliminary expenses 13300
Loans (unsecured) 121000
Sundry creditors 200000
19,09,000 19,09,000

The following additional information is also provided:

(i) 2,000 equity shares were issued for consideration
other than cash.
(ii)Debtors of Rs. 50,000 are due for more than 6
months.
(iii)Balance at bank includes Rs. 2,000 with perfect bank Ltd.
which is not a scheduled
(iv)Bills receivable for Rs. 2,7 5,000 maturing on 30th June
1997 have been discounted.
(v) The company had contract for the erection of Machinery at
Rs. 1,50,000 which
is still incomplete.

Ex. 15. Notes to Accounts

Share capital 10,00,000
Equity capital 1,000
Less: Calls in arrears ____________
2. Reserves and Surplus 9,99,000
2,10,000
General reserve
1,00,000
Current profit
___________
3,10,000
Less: Preliminary expenses 13,300
__________
3. Long term borrowings 2,96,700
Loan from SFC 1,50,000
Unsecured Loans 1,21,000
_______
2,71,000
4. Trade payables
Sundry creditors 2,00,000
5. Short term provisions 68,000
Provision for tax 60,000
______
Proposed dividend 1,28,000
 Tangible assets 2,00,000
Land 3,50,000
5,25,000
Building 50,000
Plant & machinery
Furniture ________
11,25,000
7. Trade receivables _______
Sundry debtors 1,50,000 + 50,000
8. Short term loans and advances
Advances 2,00,000
9. Cash and cash equivalents 42,700
Cash in hand
Cash at bank 30,000
2,47,000
_______
2,77,000
Equity and Liabilities
1. Shareholders' funds:
Share capital 1 9,99,000
Reserves and surplus 2 2,96,700
2. Non- current liabilities:
Long term borrowings 3 2,71,000
3. Current Liabilities:
Short term borrowings
Trade payables
Short term provisions
Other current liabilities 4 2,00,000
5 1,28,000
Total ________
I. Assets 18,94,000
1.Non- current assets:
Fixed assets:
Tangible assets
Intangible assets
Non -current investments 6 11,25,000

Current assets

Trade receivables 7 2,00,000

Inventories
8 2,50,000
Short term loans and advances
42,700
Cash and cash equivalents 9 2,77,000
Other current assets
________
18,94,700
Question number :16
The ALFA manufacturing company ltd was registered with a nominal capital of
rs.6,00,000 in equity shares of rs.10 each. The following is the list of balances
extracted from its books on 31st December 1996.
Particulars Rs
Calls in arrears 7,500
Premises 3,00,000
Plant and machinery 3,30,000
Interim dividend paid on 1.8.1996 37,500
Stock on 1.1.1996 75,000
Fixtures 7,200
Sundry debtors 87,000
Goodwill 25,000
Cash in hand 750
Cash at bank 39,900
Purchases 1,85,000
Preliminary expenses 5,000
General expense 16,835
Wages 84,865
Freight charges 13,115
Salaries 14,500
Director’s fees 5,725
Bad debts 2,110
Debenture interest paid 9,000
Subscribed and fully paid up capital 4,00,000
Debentures (6%) 3,00,000
Profit and loss (credit balance) 14,500
Bills payable 38,000
Sundry creditors 50,000
Sales 4,15,000
General reserve 25,000
Bad debts reserve (1.1.1996) 3,500

Prepare statement of profit and loss account and balance sheet in proper form
after making the following adjustment
(a) Depreciate plant and machinery by 10%
(b) Write off from preliminary expenses
(c) Provide half year’s debenture interest due
(d) Leave bad and doubtful debts reserve at 5% on sundry debtors.
 (e) Closing stock rs.95,000

Notes To Accounts
Particulars Rs Rs
1.Share Capital
Equity Capital 4,00,000
Less – Calls in arrears 7,500 3,92,500

2. Reserves and
Surplus
General reserve 25,000
Profit and loss (credit 14,500
balance)
Add – current profit 61,000
Less – Interim dividend 37,500
Dividend tax 6,375
(37500*17%)
Preliminary expenses 5,000 26,625
51,625

3. Long term
borrowings
Debentures (6%) 3,00,000

4.Trade Payables
Sundry creditors 50,000
Bills payable 38,000 88,000

5.Short term
provisions
Dividend tax payable 6,375

6.Other current
liabilities
Debenture interest due 9,000

7.Tangible assets
Premises 3,00,000
Plant and machinery 2,97,000
Less – depreciation
(3,30,000 – 33,000)
Fixtures 7,200 6,04,200

8.Intangible assets
Goodwill 25,000

9.Trade receivables
Sundry debtors 87,000
Less - Provision for bad 4,350 82,650
doubtful debts

10.Cash and cash

equivalents
Cash in hand 750
Cash at bank 39,900 40,650

11.Revenue from
operation
Sales 4,15,000

12.Cost of goods
sold
Opening stock 75,000
Add purchases 1,85,000
Freight and carriage 13,115
2,73,115

Less closing stock 95,000 1,78,115

13.Employee
benefit expense
Salaries 14,500
Wages 84,865

14.Finance costs
Interest on debenture 9000
Add due 9000 18,000
 15.Depreciation
and amortisation
expenses
Depreciation on plant 33,000
and machinery

16.Other expenses
Director’s fees 5,725
Add - bad debts +new 2,110
Provision for bad 4,350
doubtful debts
Less - old Provision for 3,500
bad doubtful debts
2,960
General expense 16,835 16,835
25,520

Statement Of Profit And Loss

Particulars Note Number Rs
1.Revenue from 11 4,15,000
operation
2.Other income
Total revenue (A) 4,15,000
3.Expenses
Cost of goods sold 12 1,78,115
Employee benefit 13 99,365
expenses
Finance cost 14 18,000
Depreciation and 15 33,000
amortised expenses
Other expenses 16 25,520

Total expense (B) 3,54,000

Profit(A-B) 61,000

Balance Sheet
Particulars Note Number Rs
I. Equity and
liabilities
1.Shareholder’s funds
Share capital 1 3,92,500
Reserves and surplus 2 51,625
2.Non – current
liabilities
Long term borrowings 3 3,00,000
3.Current liabilities
Short term borrowing 4 88,000
Trade payables 5 6,375
Short term provision 6 9,000
Other Current liabilities

TOTAL 8,47,500

II. Assets
1.Non current assets
Fixed assets
Tangible assets 7 6,04,200
Intangible assets 8 25,000
Non- current investment
2.Current Assets
Trade receivables 9 82,650
Inventories 95,000
Short term loan and
advances
Cash and cash equivalents 10 40,650
Other current assets

TOTAL 8,47,500
Ex : 17 2013721042063

The following is the trial balance of A ltd. as on 30.6.90

Particulars Debit Credit

Rs Rs

Stock on 30.6.89 7,500

Purchases and sales 2400 35,000
Wages 5000
Discount 700 500
Salaries 750
Rent 495
Insurance 1,705
P and L a/c 1,503
Divided paid 900
Capital 10,000
Debtors and creditors 3,750 1,750

Machinery 2900
Cash at bank 1,620
Reserve 1,550
Bad debts 483
50,303 50,303

Adjustments:

1. Stock on 30.6.89 Rs. 8,200

2. Depreciate machinery at 10%
3. Provide 5% discount on Debtors
4. Provide 2 1/2% Discount on creditors
5. Six Months Insurance was unexpired at Rs . 75 per annum
6. One month rent Rs. 540 Per was due on 30th June
7. provide managing director’s Commission, 15 percentage on the net profit before deducting his
Commission.

Notes to Accounts

Particulars Rs Rs
1. shareCapital

Equity capital 10,000

2. Reserves and surplus

P and L a/c 1,503

Add: current profit 1,807
 3320
Less: dividend paid 900

2410
+ reserve 1550
3.trade payables

Sundry creditors 1,706

4.other current liabilities
Rent outstanding 45

MD commission due 319

364
5. Tangible assets

Machinery Dep 2,610

2900-290
6. Trade receivables

Sundry debtors Bad debt:3,750 - 188 3652

7. Other current assets

Prepaid insurance 38

8. Revenue from operations

Sales 35,000
9.other income
Discount 500
Provision for discount on creditors 45
544
10. Costs of goods sold
Opening stock 7500
+ purchases 24,500
 32,000
-closing stock 8,200
23,800
11.Emplyee benefit expense

Salaries 750
Wages 5,000
5,750
12.
Depreciation and amortization of
expenses

Dep on machinery 290

13. Other expenses
Discount allowed 700
Insurance prepaid(1, 705-38) 1,667

Bad debts 483

Provision for dis on debtors 188

Commission ( 35 544– 319

5,750– 290-3,
578=2,
126
15%)
Rent 540
+due(495+45)
3,897

Statement of profit and loss

Particulars Note No Rs.

1. Revenue form 8 35000
operation
2. Other income 9 544
Total (A) 35,544
3.expenses:
Cost of goods sold 10 23,800
Employee benefits expenses 11 5,750
Finance costs -
 Depreciation and amortised exp 12 290
Other expenses 13 3,897
Total (B) 33,737
Profit before tax (A -B) 1,807

Balance sheet

Particulars Note no Rs
l. Equity and liablities
1.shareholder’s fund
Share capital 1 10,000
Reserves and surplus 2 3,960
2.Non – current liabilities:
Long term borrowings
3. Current liabilities
Short term borrowings
Trade payables 3 1,706
Other current liabilities 4 364
Total 16,030
ll. Assets
1.Non-current assets:
Fixed assets:
Tangible assets 5 2,610
2.current assets:
Trade receivables 6 3,562
Inventories 8,200
Short term loans and advances -
Cash and cash equivalents 1,620
Other current assets 7 30
Total 16,030
 CH– 7
Final Accounts of Companies

18) Asit Limited is a company with an authorised capital of

Rs.5,00,000 divided into 5,000 equity shares of Rs.100. On
31.12.1990 2,500 shares were fully called up. The following
balances were extracted from the ledger of the company as on
31.12.90.
Rs.
Stock 50,000
Sales 4,25,000
Purchases 3,00,000
Wages 70,000
Discount allowed 4,200
Discount received 3,100
Insurance upto 31.3.91 6,720
Salaries 18,500
Rent 6,000
General expenses 8,950
Profit & Loss account 6,220
Printing and Stationery 2,400
Advertisement 3,800
Bonus 10,500
Debtors 38,700
Creditors 35,200
Plant & Machinery 80,500
Furniture 17,100
Cash and bank balance 1,34,700
Reserve 25,000
Loan from Managing director 15,700
Bad debts 3,200
Calls-in-arrears 5,000
You’re required to prepare Statement of profit & loss A/C for the year
ended 31.12.90 and the balance sheet as on that date.
Additional information:
a) Closing stock Rs. 91,500
b) Provide depreciation at 15% on Plant & Machinery and 10%
furniture
c) Outstanding liabilities: Wages Rs. 5,200; Salary Rs. 1,200; Rent Rs.
600.
d) Provide 5% dividend on the paid up share capital.
e) Provide for corporate dividend tax @ 17%.
Sol:-

Rs.
1. Share capital
Equity capital 2,50,000
Less: Calls in arrear 5,000
2,45,000

2. Reserves and Surplus

Profit & Loss A/C (cr.) 6,220
Add: current profit 16,275
22495
Less: Proposed dividend 12,250
Dividend tax (12,25017%) 2,083
8,162
Reserve 25,000
33,162

3. Short term borrowings

Loan from MD 15,700

4. Trade payables
Sundry creditors 35,200

5. Short term provisions

Proposed dividend 12,250
Dividend tax payable 2,083
14,333
6. Other current liabilities
Wages due 5,200
Salary due 1,200
Rent due 600
7,000
7. Tangible assets
Plant & Machinery 80,500
Less: dep. 12,075
68,425
Furniture 17,100
Less: dep. 1,710 15,390
83,815
8. Trade receivables
Sundry debtors
38,700
9. Other current assets
Prepaid insurance
1,680
10.Revenue from operations
 Sales 4,25,000
11. Other income
Discounts (cr.) 3,150

12.Costs of goods sold

Opening stock 50,000
Add: purchases 3,00,000
3,50,000
Less: closing stock 91,500
2,58,000
13.Employee benefits expense
Wages +Due (70,000+5,200) 75,200
Salaries +Due (18,500+1,200) 19,700
Bonus 10,500
1,05,400

14.Depreciation and amortisation of

expenses 12,075
Dep. On machinery 1,710
Dep. On furniture 13,785

15.Other expenses 4,200

Discounts allowed 5,040
Insurance – Prepaid: 6,720 - 1,680 6,600
Rent + due: 6,000+600 8,950
General expenses 2,400
Printing & stationery 3,800
Advertisement 3,200
Bad debts 34,190

Statement of Profit & Loss

Particulars Note No. Rs.

i. Revenue from operations 10 4,25,000
ii. Other income 11 3,150
Total revenue (A) 4,28,150
iii. Expenses
Cost of goods sold 12 2,58,500
Employee benefits expense 13 1,05,400
Finance costs - -
Depreciation and amortised 14 13,785
expenses 15 34,190
Other expenses
4,11,875
Total expenses (B) 16,275
 Profit (A - B)

Balance Sheet

Particulars Note No. Rs.

1. Equity and Liabilities
I) Shareholders funds:
Share capital 1 2,45,000
Reserves and surplus 2 33,162
II) Non- current liabilities:
Long term borrowings
III) current liabilities:
Short term borrowings 3 15,700
Trade payables 4 35,200
Short term provisions 5 14,333
Other current labilities 6 7,000
Total 3,50,395

2. Assets
I) Non – current assets:
Fixed assets:
Tangible assets 7 83,815
Intangible assets
Non- current investments

II) Current assets

Trade receivables 8 38,700
Inventories - 91,500
Short term loans and advances - -
Cash and cash equivalent - 1,34.700
Other current assets 1,680
Total 3,50,395
19. Following is the trial balance extracted from the books of Narega Ltd.

Items Debit Items Credit

Opening stock-in-trade 1,50,000 Equity share capital 5,00,000
Purchases 3,82,000 Purchase return 10,000
Wages 60,000 Sales 11,50,000
Furniture 25,000 Discount 6,300
Salaries 12,000 Profit and loss Account 1,70,000
Rent 15,000 Trade creditors 33,700
Trade expenses 11,000 General reserve 82,000
Trade debtors 54,000 Provision for doubtful debts 3,000
Print and Machinery 12,00,000 Bill payable 13,000
Cash at bank 21,500
Computer software 9,000
Bills receivable 14,000
Bad debts 6,500
Discount allowed 8,000
19,68,000 19,68,000

Additional information:

(i) Stock-in-trade on 31st march, 2012 Rs. 2,00,000

(ii) Depreciate plant and machinery at 12%, furniture at 10% and computer software at 20%
(iii) Further bad debts amounted to Rs.4,000. Provide 5% on debtors for bad debts
(iv) Provide for income tax @35% and for corporate dividend tax @17%
(v) The Board of directors recommended a dividend of 25%
(vi) Equity sharecapital comprises 50,000 equity, shares of Rs.10 each, fully paid up.
Authorised share capital consists of 60,000 equity shares of Rs. 10 each.

Prepare Statement of Profit and Loss for the year ended 31st March, 2012, Balance Sheet as at
31st March, 2012 and Notes to Accounts.

Solution:
Notes to accounts
S.No Particulars Rs. Rs.
1. Share capital
Equity Capital 5,00,000
2. Reserves and Surplus
Profit & loss A/c (cr) 1,70,000
Add: Current profit 3,70,500
5,40,500
Less: Proposed dividend 1,25,000
Dividend tax (1,25,000 x 17%) 21,250
3,94,250
General Reserve 82,000 4,76,250
3. Trade Payables
Sundry creditors 33,700
Bills payable 13,000 46,700
4. Short term provisions
Provision for income tax 1,99,500
Proposed dividend 1,25,000
Dividend tax 21,250 3,45,750
5. Tangible Assets
Machinery 12,00,000
Less: Depreciation 1,44,000
10,56,000
Furniture 25,000
Less: Depreciation 2,500
22,500 10,78,500
6. Intangible Assets
Computer Software 9,000
Less: Depreciation 1,800 7,200
7. Trade Receivables
Sundry Debtors 54,000
Less: Bad debts 4,000
Less: Provision for bad and doubtful debts 2,500
47,500
Bills Receivable 14,000 61,500
8. Revenue from operations
Sales 11,50,000
9. Other Income
Discount 6,300
10. Cost of goods sold
Opening Stock 1,50,000
Add: Purchases – returns (3,82,000-10,000) 3,72,000
5,22,000
Less: Closing stock 2,00,000 3,22,000
11. Employee benefit expenses
Salaries 12,000
Wages 60,000 72,000
12. Depreciation and amortization of expenses
Depreciation on machinery 1,44,000
Depreciation on furniture 2,500
Depreciation on computer software 1,800 1,48,300
13. Other expenses
Rent 15,000
Trade expenses 11,000
Discount allowed 8,000
34,000
Bad debts 6,500
Add: New bad debts 4,000
Add: New provision for bad and doubtful debts 2,500
Less: Old provision for bad and doubtful debts 3,000 44,000
 Statement of Profit and Loss
S.NO Particulars Note Rs.
No.
i. Revenue from operations 8 11,50,000
ii. Other income 9 6,300
Total revenue (A) 11,56,300
iii. Expenses
Cost of goods sold 10 3,22,000
Employee benefit expense 11 72,000
Finance costs -
Depreciation and amortised expenses 12 1,48,300
Other expenses 13 44,000
Total expenses (B) 5,86,300
Profit before tax (A-B=>11,56,300-5,86,300) 5,70,000
Less: Current Tax (5,70,000 x 35%) 1,99,500
Profit after tax 3,70,500

Balance Sheet
Particulars Note Rs.
No.
i. Equity and Liabilities
1.Shareholder’s funds:
Share capital 1 5,00,000
Reserves and surplus 2 4,76,250
2.Non-current liabilities:
Long term borrowings
3.Current liabilities:
Short term borrowing
Trade payables 3 46,700
Short term provisions 4 3,45,750
Other current liabilities -
Total 13,68,700
ii. Assets
1.Non-current assets:
Fixed assets:
Tangible assets 5 10,78,500
Intangible assets 6 7,200
Non-current investments -
2.Current assets:
Trade receivables 7 61,500
Inventories 2,00,000
Short term loans and advances -
Cash and cash equivalents 21,500
Other current assets -
Total 13,68,700
20. Following the trail balance of Usha trading co.Ltd as on 31st, March 2012

Particulars Dr.(RS) Cr.(Rs)

Inventories on 1 April,2011 30,000
Buildings 1,50,000
Purchases 1,00,000
Sales 1,80,000
Return 4,000
Productive wages 20,000
Carriage inwards 1,500
Carriage Outwards 900
Discounts 1,200 1,000
Salaries 2,600
Rent 1,650
Commissions 1,200
General Expense inc 5,500
insurance
Profit and Loss ( 1st April, 12,000
2011)
Interim Dividend paid 9,900
Capital (2000 0f Rs. 100 each) 2,00,000
Calls in arrear 2,000
Trade Receivables and Trade 50,000 20,300
payables
Plant and Machinery 87,750
Cash in Hand and at bank 800
10% Debenture 50,000
Interest paid on debentures 2,500
Debenture Redemption fund 10,000
Preliminary expense 7,200

Prepare a Profit and loss statement and balance sheet in proper form after making the following
adjustments

1. Closing Inventories was valued at Rs. 40,000

2. Trade Receivables include Rs. 1,000 as advance for expense
3. Provide 5% on trade receivables for doubtful debts. Also provide 2% for discount on trade
receivables and trade payables.
4. One month’s rent @ Rs,1,800 per annum was due on 31st march, 2012
5. Insurance was paid on 1st October, 2011 to run for one-year Rs.2,000
6. Write off Preliminary expense
7. The Directors decided to transfer Rs. 5000 to General Reserve and recommended a final
Dividend of 10% on share capital
8. Provide for Corporate Dividend Tax at 11%
Notes to Accounts

1.Share Capital
Equity Capital 2,00,000
Less : Calls in arrear 2000

1,98,000

2. Reserve and Surplus

Debenture redemption fund 10,000
General Reserve 5,000
Profit and Loss a/c 12,000
Add: Current Profit 43,525
55,525
Loss: Interim Dividend 9,900
Proposed Dividend 19,800
Divided tax 5,049
Transfer to GR 5,000 15,776
30,776

3.Long term borrowings

10% Debenture 50,000
4.Trade Payable
Trade Payable – PDC 19,894
(20,300 – 406)

5.Short term Provisions

Proposed Dividends 19,800
Dividend tax 5,049
24,849
6.Other Current Liabilities
Rent due 150
Interest on Debenture Due 2,500
2,650
7.Tangible assets
Building 1,50,000
Plant and Machinery 87,750
2,37,750
8. Trade Receivable
Trade Receivable – Advance
for expense- PBDD – PDD 45,619
(50,000-1,000-2,450-931)
9. Other current assets
Advance for expenses 1,000
Insurance prepaid 1,000
2,000
10.Revenue from Sales
Sales – Returns 1,75,000
(1,80,000 – 5,000)
11.Other Income
Discount Received 1,000
Commission Received 1,200
Provision for the discount on 406
creditors
2,606
12. Cost of goods sold
Opening stock 30,000
Add : Purchases 96,000
Carriage inwards 1,500
1,27,500
Less: Closing Stock 40,000
87,500
13. Employee Benefit
Expenses
Productive Wages 20,000
Salaries 2,600
22,600

14. Finance costs

Interest on debenture + Due 5,000
(2,500 + 2,500)
15.Depreciation and
amortized expense
Preliminary expense written
off 7,200
16.Other expenses
Carriage outwards 900
Discount Allowed 1,200
Rent + Due 1,800
(1650+150)

General expense- Prepaid 4,500

expense ( 5,500 – 1,000)
PBDD 2,450
PDD 931
11,781

Statement of profit and loss

Particulars Note. No RS.

I. Revenue from 10 1,75,000
operations
II. Other income 11 2,606
Total (A) 1,77,606
Expenses:
Cost of goods sold 12 87,500

Employee benefits expense 13 22,600

Finance costs 14 5,000
Depreciation and amortized 15 7,200
expense
Other expense 16 11,781
Total expense (B) 1,34,081

Profit (A-B) 43,525

Balance Sheet

Particulars Note.No Rs.

I. Equity and
Liabilities
1. Shareholders Fund:
Share Capital 1 1,98,000
Reserve and Surplus 2 30,776
2. Non-Current assets
Long term borrowings 3 50,000
3. Current Liabilities
Short term borrowings
Trade Payable 4 19,894
Short term provisions 5 24,849
Other Current liabilities 6 2650
Total 3,26,169

II. Assets
1. Non-current assets
Fixed assets:
Tangible assets
Intangible assets 7 2,37,750
Non-current investments

2. Current assets:
Trade receivable 8 45,619
Inventories 40,000
Short term loans and -
advances
Cash and cash 800
equivalents
Other current assets 9 2000
Total 3,26,169
 21. The following balance appeared in the books of Gujrat fabrics limited as on 31st march 2012.

Particulars Particulars
Opening inventories 36000 Interest on gov bonds 2000
Royalties 7200 Share capital. 50000 shares of rs.10 350000
each, RS . 8 paid up
Closing inventories 45000 P&L AC Balance on 1st April 32500
Loans to staff 15000 Reserve fund 12400
Trade receivables 28000 Trade payables 25200
10 % gov. bonds 40000
Security deposit 10000
Building 320000
Furniture 12500
Purchases( adjusted) 216000
Wages 24000
Salaries 7400
Comm on sales 6100
Printing and stationery 2300
Advertisement 4300
Bank balance 4500
b/r 3800
goodwill 40000
822100 822100

Prepare Financial Statements after making the following adjustments :

1. Inventories worth Rs.10000 was destroyed by fire during the year . Insurance company has
admitted a claim of 60 % only.
2. Trade Receivables for Rs.6000 are more than 6 months old.
3. Amount of Rs 5000 and Rs.2500 debited to purchases and wages respectively , were for making
new furniture during the year.
4. Charge depreciation @ 5% on Building and 20 % on furniture on the closing balances.
5. Advertisements include unissued materials of Rs.800.
6. Bills discounted not matured Rs. 2000.
7. Directors decided to transfer Rs.10000 to Reserve Fund and proposed a dividend of 5 % on paid
up share capital .
8. Provide for Corporate Dividend Tax at 17 % .

SOLUTION:

NOTES TO ACCOUNTS

1. SHARE CAPITAL RS RS
Equity capital 400000
2. RESERVES AND SURPLUS
Reserve fund 12400+10000 22400
Profit & loss a/c 32500
Add : current profit 44000
76500
Less: reserve fund 10000
Proposed dividend 20000
Dividend tax 20000*17% 3400 43100
65500
3. Trade payables
Trade payables 25200
4. Short term provisions
Proposed dividend 20000
Dividend tax 3400
23400
5. Tangible assets
Land & building 320000
Less: dep 16000 304000
Furniture 12500+5000+2500 20000
Less: dep 4000 16000
320000
6. Intangible assets
goodwill 40000
7. Non- current investments
10% gov. bonds 40000
8. Long term loan and advances
Loans to staff 15000
Security deposit 10000
25000
9. Trade receivables
Trade receivables 28000
Bills receivables 3800
31800
10. Other current assets
Int accrued on investments 1000
Advertisement material in hand 800
Recoverable from insurance co. 6000
7800
11. Revenue from operations
sales 350000
12. Other income
Int on gov bonds + accrued interest 2000+1000 3000
13. Purchases
Purchases(adjusted)-tr to furniture-loss by fire(216000-5000-10000) 201000
14. Employee benefit expenses
Wages-wrong debit(24000-25000) 21500
Salaries 7400
 28900
15. Depreciation and amortization expenses
Dep on land & building 16000
Dep on furniture 4000
20000
16. Other expenses
Royalties 7200
Comm on sales 6100
Printing & stationery 2300
Advertisement- material in hand 3500
19100

STATEMENT OF PROFIT AND LOSS

PARTICULARS NOTE NO. RS.

1. REVENUE FROM OPERATIONS 11 350000
2. OTHER INCOME 12 3000
TOTAL REVENUE (A) 353000

3. EXPENSES
PURCHASES (ADJUSTED) 13 201000
CHANGE IN INVENTORY - 36000
EMPLOYEE BENEFIT EXPENSES 14 28900
FINANCE COSTS - -
DEP AND AMORTIZATION EXPENSES 15 20000
OTHER EXPENSES 16 19100
TOTAL EXPENSES (B) 305000

PROFIT BEFORE EXTRAORDINARY ITEMS(A-B) 48000

LESS: LOSS BY FIRE 4000
PROFIT 44000

BALANCE SHEET

PARTICULARS NOTE NO. RS.

1. EQUITY AND LIABILITIES
SHAREHOLDERS FUNDS
SHARE CAPITAL 1 400000
RESERVES AND SURPLUS 2. 65500

CURRENT LIABILITIES
TRADE PAYABLES 3 25200
SHORT TERM PROVISIONS 4 23400
TOTAL 514100

2. ASSETS
NON-CURRENT ASSETS
TANGIBLE ASSETS 5 320000
INTANGIBLE ASSETS 6 40000
NON CURRENT INVESTMENTS 7 40000
LONG TERM LOANS AND ADVANCES 8 25000

CURRENT ASSETS
TRADE RECEIVABLES 9 31800
INVENTORIES 45000
SHORT TERM LOANS AND ADVANCES
CASH AND CASH EQUIVALENTS 4500
OTHER CURRENT ASSETS 10 7800
TOTAL 514100
 AMERITHAVARSHINI G

[2013721042067]

FINAL ACCOUNTS OF COMPANIES

22] The authorised capital of ABC Ltd is Rs 7,50,000 consisting of 3,000

6per cent cumulative preference shares of Rs100 each and the
remaining in equity shares of Rs100 each. Following is the trial balance
drawn on 31st march 2012

Rs
Paid up capital
3,000 - 6per cent cumulative preference shares 3,00,000
3,000 equity shares [Rs 75 per shares called up] 2,25,000
Goodwill 1,00,000
5per cent mortgage debentures-secured on freehold 2,10,000
premises
Debtors 1,67,500
Trade payables 1,25,520
Freehold properties at cost 3,90,000
Inventories on 1st april 2012 2,41,000
General reserve 82,725
Salaries 1,05,000
Profit and loss a/c [credit] 58,500
Provision for taxation 8,800
Delivery expenses 1,00,000
Rent and taxes 38,000
General expenses 21,250
Furniture at cost 75,000
Sales 9,18,600
Purchases 4,76,500
Bills receivable 6,000
Freight and carriage 3,750
Investment - 600 shares of Rs100 each 60,000
Debenture interest- half year to 30th September 2011 5,250
Final dividend for 2010-11 20,250
Preference dividend half – year to 30th September 2011 9,000
Balance at bank 97,000
Cash in hand 14,645
Share forfeited a/c 2,000

ADJUSTMENTS ;

1. The value of inventories on 31st march 2012 was Rs 2,15,000.

2. Depreciation on freehold premises is to be provided at 2 ½
percent and on furniture 6 percent.
3. The directors propose to pay the second half – year’s dividend on
preference shares and 10 per cent dividend on equity shares.
4. Shares were forfeited on non - payment of Rs 35 per share.
5. Provide corporate dividend tax at 17 per cent.

----------------------------------------------
 NOTES TO ACCOUNTS
Rs
1] share capital
Equity share capital + forfeited shares a/c 2,27,000
[2,25,000+2000]
6 per cent preference capital 3,00,000
5,27,000

2] reserves and surplus

General reserve 82,725
Profit and loss a/c [credit] 58,500
Add ; current profit 1,22,350
1,80,850
Less ; final dividend 20,250
Preference dividend 18,000
Proposed equity dividend 22,500
Dividend tax [18,000+22,500 * 17/100] 6,885 1,13,215

3] long term borrowings 2,10,000

5 percent mortgage debentures

4] trade payables 1,25,520

Trade payables

5] short term provisions

Proposed preference dividend 9,000
Proposed equity dividend 22,500
Dividend tax 6,885
Provisions for tax 8,800
47,185
6] other current liablilites 5,250
Debenture interest due

7] tangible assets 3,80,250

Freehold properties – dep [3,90,000-
9,750]
Furniture – dep [75,000-4,500] 70,500

8] intangible assets
Goodwill 1,00,000

9] non current investments

Investment 60,000

10] trade receivables

Trade debtors 1,67,500
Bills receivables 6,000

11] cash and cash equivalents

Cash in hand 97,000
Cash at bank 14,645

12] revenue from operations

Sales 9,18,600

13]cost of goods sold

Opening stock 2,41,500
Add ; purchases 4,76,500
Freight and carriage 3,750
7,21,750
Less ; closing stock 2,15,000
5,06,750
14] employee benefit expenses
salaries
1,05,500

15]finance costs
Interest on debentures + due
5,250 + 5,250 10,500

16] depreciation and amortisation

expenses
Dep on freehold premises 9,750
Dep on furniture 4,500

17] other expenses

Delivery expenses 1,00,000
Rents and rates 38,000
General expenses 21,250
1,59,250
 STATEMENT OF PROFIT AND LOSS
PARTICULARS NOTE Rs
NO
I. Revenue from operations 12 9,18,600
II. Other income - -
Total revenue [A] 9,18,600

III. Expenses ;
Cost of goods sold 13 5,06,750
Employee benefit expenses 14 1,05,500
Finance costs 15 10,500

Depreciation and amortised expenses

16 14,250
other expenses 17 1,59,250
Total expenses [B] 7,96,250

Profit [A – B] 1,22,350
 BALANCE SHEET
PARTICULARS NOTE Rs
NO
i. Equity and liabilities
1. Shareholders funds
Share capital 1 5,27,000
Reserves and surplus 2 1,95,940
2. Non– current liabilities ;
Long term borrowings 3 2,10,000
3. Current liabilities ;
Short term borrowings
Trade payables 4 1,25,520
Short term provisions 5 47,185
Other current liabilities 6 5,250
TOTAL 11,10,895

ii. Assets
1. Non- current assets ;
Fixed assets ;
Tangible assets 7 4,50,750
Intangible assets 8 1,00,000
Non – current investments 9 60,000
2. Current assets ;
Trade receivables 10 1,73,500
Inventories - 2,15,000
Short term loans and advances - -
Cash and cash equivalents 11 1,11,645
Other current assets - -
TOTAL 11,10,895
( Priyanka ns 2013721042043)

23. From the following trial balance of Bharat manufacturing Co.ltd

as at 31st March 2012,prepare statement of profit &loss relating to
2011-12 and the balance sheet as at the end of the year:
Debit balance Rs Credit balance Rs
Inventories(1-4-2011) 60,000 Trade payables 45,000
Purchase 3,20,000 Provision for income 45,000
Wages 90,000 tax 38,000
Electric power 15,000 P& L account 1,90,000
Manufacturing expenses 35,000 General reserve
Carriage outward 20,000 Share capital(fully paid) 3,00,000
Carriage inward 10,000 Equity (Rs. 10 each)
Salaries 60,000 6%redeemable
Insurance 10,000 preference 2,00,000
Trade receivable 90,000 Share(Rs 100 each)
Bank balance 6,000 6% debentures ( 2,00,000
Investment(4%govt tax secured on fixed assets) 25,000
securities of Rs 1,00,000) 90,000 Salaries and wages
Debenture interest 6,000 unpaid 7,70,000
Land &building 3,00,000 Sales
Plant &machinery 4,50,000 Interest received on 2,000
Directors fees 10,000 government securities
Audit fees 6,000
Income tax paid 41,000
Dividend paid on pref.
Shares 6,000
Interim Dividend paid 30,000
Preliminary expenses 20,000
Goodwill 1,40,000
18,15,000 18,15,000

The closing inventories on 31 st March, 2012 was Rs, 58,000.

There was no further liability for income tax except for 2011-12 for
which a provision of Rs 50,000 should be made. Depreciation is to be
provided @2% on land and building and @10% plant and machinery.
Write off preliminary expenses. The directors recommend that Rs
25,000 be transferred to general reserve and that a final Dividend of
10% on equity shares be paid. Provide for corporate divided tax at
17%.
Solution:
Notes to Accounts
1. Share capital
Equity capital 3,00,000
6%preference capital 2,00,000 5,00,000

2. Reserve and surplus 2,15,000

General reserve
Profit &loss a/c (cr)+savings
in provision tax:38,000+4,000(45,000- 42,000
41,000)
Add: current Profit 63,000

Less: General reserve 1,05,000

Interim Dividend 25,000
Proposed Equity Dividend 30,000
Preference Dividend 2,00,000×6% 12 000 (-) 4,240
Dividend tax 72,000×17% 12,240 2,10,760

3. Long term borrowings 2,00,000

6% debentures

4. Trade payables 45,000

Trade payables

5. Short term provisions

Provision for tax 50,000
 Proposed Equity Dividend 30,000
Proposed preference 6,000
Dividend due
Dividend tax 12,240 98,240

6. Other current liabilities

Debentures interest due 6,000
Salaries &wages due 25,000 31,000

7. Tangible assets
Land&building-dep:3,00,000- 2,94,000
6,000
Plant &machinery- 4,05,000
6,99,000
dep:4,50,000-45,000

8. Intangible assets
1,40,000
Goodwill

9. Non current investments

90,000
4% govt securitie

10.Trade receivable
90,000
Trade debtors

11.other current assets

Interest accrued on
2,000
investment

12. Revenue from operation

7,70,000
Sales

13.other income
Interest on govt securities +
4,000
accrued:2,000 +2,000
 14. Cost of goods sold
Opening stock 60 000
Add: purchases 3,20,000
Carriage inward 10,000
3,90 000
Less : closing stock 58 000 3,32,000

15. Employee benefits expense

Salaries 60,000
Wages 90,000 1,50,000

16. Finance costs

Interest on Debenture 12,000
+due:6,000+6,0000

17. Depreciation and

amortization of expense
Dep on L&B 6,000
Dep on P & M 45,000
Preliminary expenses 20,000 71,000
written off

18. Other expenses

Electric power 15,000
Manufacturing expenses 35,000
Carriage outward 20,000
Insurance 10,000
Directors fees 10,000
Audit fees 6,000
96,000

Statement of profit and loss

Particulars Note no. Rs
i. Revenue from operation 12 7,70,000
 ii. Other income 13 4,000
Total revenue (A) 7,74,000

iii. Expenses:
Cost of goods sold 14 3,32,000
Employees benefit expenses 15 1,50,000
Finance costs 16 12,000
Depreciation and amortized expense 17 71,000
Other expenses 18 96,000
Total expenses (B) 6,61,000
Profit before tax(A-B) 1,13,0000
Less: current tax 50,000
Profit after tax
63,000

Balance sheet as on 31st March,2011-12

Particulars Note No Rs
1. Equity and liabilities
• Shareholders funds:
Share capital 1 5,00,000
Reserve and surplus 2 2,10,760

• Non current liabilities

Long term borrowings 3 2,00,000

• Current liabilities
Short term borrowings
Trade payables 4 45 000
Short term provisions 5 98,240
Other current liabilities 6 31,000
Total 10,85,000

2. Assets
• Non current assets
 Fixed assets:
Tangible assets 7 6,99,000
Intangible assets 8 1,40,000
Non current investments 9 90,000

• Current assets:
Trade receivable 10 90,000
Inventories 58,000
Short term loans and advances -
Cash and cash equivalent 6,000
Other current assets 11 2,000
Total 10,85,000
 ACCOUNTS ACTIVITY
EXERCISE-24
QUESTION
The following balances appeared in the books of accounts on
31st march 2013:
Particulars amount particulars amount
Building 1,50,000 Equity share capital 6,00,000
Purchases 5,00,000 General reserve 2,50,000
Salaries and wages 3,59,000 Unclaimed dividend 6,250
Repairs to building 26,810 Trade payable 36,880
Miscellaneous 31,090 Sales 10,83,984
expenses
machinery 2,00,000 Provision for 71,000
depreciation
Motor vehicle 5,000 Interest on 8,540
investment
Furniture 1,72,050 Profit and loss 16,840
Opening stock 2,23,380 Staff provident fund 37,500
Trade receivables 2,88,950
investments 50,000
Advance payment 72,240
Cash balance 1,800
Directors fees 2,88,950
21,11,220 21,11.220

From the following prepare the company’s balance sheet and

statement of profit and loss
1.closing stock =1,48,680
2.provide Rs 10,000 for depreciation on fixed assets Rs 1,800
for directors fees and Rs 6,200 for provident fund.
3. interest accrued on investment Rs 2,750
4.provision of Rs 50,000
5.8% dividend on general reserve Rs 30,000. Assume
corporate dividend tax at 17%.
6.claim of 2,500 for workmen’s compensation
7.authorised capital Rs 80,000 equity shares of Rs 10 each.
The company have issued 60,000 at 10% share each.
Notes to accounts
particulars amount amount
1.share capital 6,00,000
Equity capital
2.Reserves and surplus 2,80,000
General reserve2,50,000+30,000 16,840
Profit & loss a/c (cr) 84,260
Add: current profit 1,01,100
Less: general reserve 30,000
Proposed equity dividend 48,000
Dividend tax 8,160

14,940
2,94,940
_________
3.Long term borrowing 43,700
Staff provident funds (37,500+6,200)
4.Trade payables 36,880
Trade payables
5.Short term provisions 48,000
Proposed equity dividend 8,160
Dividend tax Nil
Provision for tax-advance tax:50,000-50,000 56,160
__________
6.Other current liabilities 6,520
Unclaimed dividend 1,800
Directors fees due 8,320
___________
7.Tangible assets 1,50,000
Building 2,00,000
Machinery 30,000
Motor vehicle 5,000
Furniture: 3,85,000
Less:dep.71,000+10,000 81,000
3,04,000

8.non-current investments 2,88,950

Lt investments
9.Trade receivables 2,23,380
Trade receivables
10.Other current assets 2,750
Accrued interest on investment
11.Revenue from operations 10,83,940
Sales
12.Other income 11,290
Interest on investment+accrued:8,540+2,750
13.Cost of goods sold 1,72,050
Opening stock 5,00,000
Add: purchases 6,72,950
Less:closing stock 1,48,680

5,24,270
14.Employee benefits expense 3,59,000
Salaries & wages 6,200
Contribution to stuff welfare fund 3,65,000

15.Depreciation and amortization of expenses 10,000

Dep. On fixed assets
16.Other expenses 26,810
Repairs to building 31,090
Miscellaneous expenses 3,600
Directors’s fees (1,800+1,800)
61,500

Statement of profit & loss

1.revenue from operation 11 10,83,940
2.other income total revenue 12 11,290
total revenue(A) 10,95,230

3.expenses:
Cost of goods sold 13 5,24,270
Employee benefits expense 14 3,65,200
Finance costs 15 10,000
Depreciation and amortised 16 61,500
expenses 9,60,970
Other expenses 1,34,260
Total expenses (B) 50,000
Profit before tax (A-B)
84,000
Less: current tax
Profit after tax

Balance sheet
particulars Note no. rs
Equity and liabilities
1. Shareholders fund 1. 6,00,000
Share capital 2. 2,94,940
Reserves and surplus
2. Non-current
liabilities: 43,700
Long term borrowings 3.

3. Current liabilities
Short term
borrowings 36,880
Trade payables 4. 56,160
Short term provisions 5. 8,320
Other current 6.
liabilities
total 10,40,000

Assets
1. Non-current assets:
Fixed assets 7 3,04,000
Tangible assets - -
Intangible assets 8 2,88,950
Non-current investments
2.current assets:
Trade receivables 9 2,23,380
Inventories - 1,48,680
Short term loans and - -
advances - 72,240
Cash and cash equivalents 10 2,750
Other current assets
total 10,40,000
25) The following is the trial balance of R.S Limited as at 31 st March 2012:

Particulars Dr. Cr.

Stock of finished goods (1-4- 1,20,000

2011)

Purchases of raw materials 41,00,000

Sales 58,40,000

Sales return/ Raw material – 24,000 30,000

Returns

Manufacturing expenses 5,30,000

12% bank loan (long-term) 2,00,000

Salaries 4,49,000

Director’s remuneration 50,000

Building (cost) 5,00,000

Plant and Machinery (cost) 15,00,000

Provision for depreciation:

On building 80,000

On plant and machinery 2,90,000

Trade debtors 5,00,000

Trade creditors 1,60,000

Advance tax 35,000

Auditor’s fees for audit 60,000

Interim dividend paid 50,000

Balance/surplus in statement of 3,60,000

profit and loss (as at 1-4-2011)

Preliminary expenses 4,000

Cash at bank 57,000

Bad debts 21,000

 Provision for bad debts 40,000

Equity share capital (fully paid 10,00,000

shares of Rs. 10 each)

80,00,000 80,00,000

Adjustments:

1. Stock of finished goods on 31st March 2012 Rs. 2,00,000

2. Depreciation on building at 5% on cost and plant and machinery at 10% on cost

3. Make provision for tax at 40%

4. Provision for bad debts is to be created at 2% on debtors

5. A machine purchased for Rs. 50,000 was wrongly debited to purchase account

6. Bank loan was raised on 1st October 2011

7. Write off preliminary expenses

8. The board of Directors recommended a dividend @15% on paid up capital (excluding

interim dividend)

9. Corporate dividend tax is 17%

10. There was neither opening stock of raw materials nor closing stock of raw materials

11. Director’s remuneration includes Rs. 5,000 for those directors who attend only board
meeting and are not under a contract of service with the company

12. Authorised capital consists of Rs. 1,20,000 equity shares of Rs. 10 each

13. Manufacturing expenses include wages Rs. 2,00,000

Prepare P&L for the ended 31st March 2012, Balance sheet as at that date and accompanying
notes.

Ex
25 Notes To Accounts- Profit And Loss

S.No. Particulars Rs. Rs.

1 Revenue From Operations

 Sales (58,40,000-24,000) 5816000

2 Other Income

Excess Pbdd ( 21000+10000-40000 )

(Bad debts+new prov-old prov) 9000

3 Change In Inventory Of Finished Goods

Closing Stock 200000

Less: Opening Stock 120000 80000

Purchases:

Purchase-returns-wrongly debited

41,00,000-30,000-50,000 40,20,000

4 Employee Benefit Expenses

Salaries 449000

Wages 200000

649000

5 Finance Cost

Interest On Bank Loan

(2,00,000*12%=24,000*6/12) 12000

6 Depreciation And Amortization Expense

Depn On Bldg (5,00,000*5%) 25000

Depn On P&M (15,00,000+50,000)*10% 155000

Preliminary Expenses Written Off 4000 184000

7 Other Expenses

Manufacturing Expense 330000

Director's Fees 50,000

Audit Fees 60000 440000

 Statement Of Profit And Loss
Particulars Note No. Rs.

Revenue From Operations 1 5816000

Other Revenue 2 9000

Total Revenue(A) 5825000

Expenses:

Cost Of Goods Sold 4020000

Change In Inventory (80000)

Employee Benefit Expenses 694000

Finance Cost 12000

Depreciation And Amortization Expense 184000

Other Expenses 395000

Total Expenses(B) 5225000

Profit Before Tax (A-B) 600000

Less: Current Tax (40%) 240000

Profit After Tax 3,60,000

Notes To Accounts- Balance Sheet

S.
No. Particulars Rs. Rs.

1 Share Capital

Equity Capital 1000000

2 Reserves And Surplus

Add: Current Profit 360000

 Less: Interim Dividend 50000

Proposed Equity Dividend (10,00,000*15%) 150000

Corporate Dividend Tax (50,000+1,50,000)

34000
=2,00,000*17%

(NOTE: CORPORATE DIVIDEND TAX IS

CALCULATED AT 17%)

Transfer To Gr (3,60,000*7.5%) 27000

Add: General Reserve 27,000

486000

3 Long Term Borrowings

12% Bank Loan 200000

4 Trade Payables

Trade Payables 160000

5 Short Term Provisions

Proposed Equity Dividend 150000

Corporate Dividend Tax 34000

Provision For Tax 240000

Less: Advance Tax 35000 205000

389000

6 Other Current Liabilities

Interest On Bank Loan Due 12000

7 Tangible Assets

Building-Depn 395000

P&M- Depn 1105000 1500000

8 Trade Receivables

Trade Receivables- new Pbdd 490000

Balance Sheet
Particulars Note No. Rs.

Equity And Liabilities

1 Shareholders Funds

Share Capital 1 1000000

Reserves And Surplus 2 486000

2 Non-Current Liabilities

Long Term Borrowings 3 200000

3 Current Liabilities

Trade Payables 4 160000

Short Term Provisions 5 389000

Other Current Liabilities 6 12000

Total 22,47,000

Assets

1 Non Current Assets

Fixed Assets

Tangible Assets 7 1500000

Non Current Investments 0

2 Current Assets

Trade Receivables 8 490000

Inventories 200000

Cash And Cash Equivalents 57000

Total 22,47,000
 MANAGERIAL REMUNERATION
2) On 31.12.1998, the trial balance of Brian Co .Ltd shows provision for tax of Rs
500,000 which represents the provision of the previous year. The trial balance also
shows income tax paid Rs 4, 50,000. It is estimated that a provision of Rs 1, 40,000 is
required for the current year’s income. Tax deducted at source while receiving interest
on investments amount to Rs.1, 00,000. The gross amount of the interest was shown in
Profit & Loss a/c.Write the provision for income tax account incorporation the above
details.

Solution:

Provision for income tax a/c

Date Particulars Rs Date Particulars Rs

31.12.98 To income tax 4,50,000 1.1.90 By Balance b/d 5,00,000
a/c
To P/L 50,000
appropriation
a/c
5,00,000 5,00,000
31.12.98 To tax 1,00,000 31.12.98 By P/L 1,40,000
deducted at a/c(current year
source provision)
To balance c/d 40,000
1,40,000 1,40,000
3) The following P&L a/c is presented by B.B Patil Ltd for the year ended 31.12.98

Profit and Loss A/c

Particular Rs. Particulars Rs.

To salaries and wages 1,28,000 By gross profit b/d 5,08,000
To director’s fees 4,000 By capital profit on sale of 25,000
company’s land
To repairs 27,000 By subsidy received from state 50,000
government
To depreciation(including 1,06,000
rebate Rs.16000)
To scientific research(New 20,000
laboratory set up)
To general expenses 15,000
To income tax 1,00,000
To proposed dividends 1,00,000
To interest on debentures 24,000
To Balance b/d 59,000

5,83,000 5,83,000
Income tax authorities have allowed Rs.82000 as depreciation excluding development
rebate. Calculate the remuneration payable to the managing director.

Solution:
Particulars Rs. Rs.
Net profit as per P/L a/c 59000
Add:
Rebate 16000
Scientific Research 20000
Tax 100000
Proposed Dividend 100000
Excess 8000 2,44,000
3,03,000
Less:
Capital profit on sale of company land 25000
278000

Managerial Remuneration = 278000 x 5/100

= 13900
4) Lee Ltd employs a manager who is entitled to a salary of Rs. 10000 per month and in
addition, to a commission of 2% of the net profits of the company before such salary or
commission. The Profit and Loss Account for the company’s financial year ending 31 st
March, 1998 as follows:

Particulars Rs Particulars Rs
To staff salaries &bonus 8,35,000 By gross profit b/d 30,50,000
To general expenses 3,15,000 By unpaid dividend 60,000
To depreciation 2,75,000 By subsidy from the state 1,25,000
government
To income tax 4,25,000 By profit on sale of 2,00,000
Machinery &Plant
To Manager’s salary 1,20,000 (diff between price realized
and WDV)
To commission to the 25,000 Cost= 7,50,000
manager Realized= 8,00,000
To ex-gratia payment 20,000
To charitable donation 50,000
To Balance b/d 13,70,000
34,35,000 34,35,000
Depreciation includes Rs. 75,000 development rebate on new machinery installed
during the year. Calculate the commission payable to the manager.

Solution:

Particulars Rs. Rs.

Net profit as per P/L a/c 13,70,000
Add:
Developmental Rebate 75,000
Income Tax 4,25,000
Manager’s salary 1,20,000
Commission to Manager 25,000
Ex gratia payment to employee 20,000 6,65,000
20,35,000
Less:
Dividend unpaid 60,000
Profit 50,000 1,10,000
Cost – realized value 19,25,000

Maximum commission payable to manager = 19, 25,000 x 5% = 96,250.

Manager’s salary and commission = 1, 20,000+25000=1, 45,000

1, 45,000- 96,250=48,750 (Recovery from Manager)

5) Calculate the managerial remuneration from the following particulars of Ankit and Co,
Ltd due to the managing director of the company at the rate of 5% of the profits. Also
determine the excess remuneration if any:

Particulars Rs.
Net profit 2,00,000
i. Depreciation 40,000
ii. Preliminary expenses 10,000
iii. Tax provision 3,10,000
iv. Director’s fees 8,000
v. Bonus 15,000
vi. Profit on sale of fixed assets ( Cost=20,000 ; 15,500
WDV= Rs.11,000)
vii. Provision for doubtful debts 9,000
viii. Scientific research expenditure( for setting up 20,000
new machinery)
ix. Managing director’s remuneration paid 30,000
Other information:

i. Depreciation allowable under income tax rules = 35,000

ii. Bonus liability as per payment of Bonus Act 1965= 18,000

Solution:

Particulars Rs. Rs.

Net profit as per P/L a/c 2,00,000
Add:
Depreciation 5,000
Preliminary expenses 10,000
Provision for tax 3,10,000
Provision for Doubtful debts 9,000
Scientific research expenditure 20,000
Managerial Remuneration 30,000 3,84,000
Less: 5,84,000
Bonus debited to P/L 15,000
Liability as per Bonus 18,000 (3000)
Profit and sale of Fixed Assets (11000+15500-20000) 6500
5,74,500

Manager’s Commission=5, 74,500 x 5/100 = Rs 28,725.

Recovery from Manager= 30000 – 28725

= 1275
 6) Determine the maximum remuneration payable to the part time director and
manager of B. Ltd (a manufacturing company) under section 309 and 387 of the
Companies Act, 1956 from the following particulars:

Before charging any such remuneration, the profit and loss account showed a credit
balance of Rs 23, 10,000 for the year ended 31 st March , 1987 after taking into
account the following matters :

Particulars Rs.
Capital expenditure 5,25,000
Subsidy received from Govt 4,20,000
Special Depreciation 70,000
Multiple shift allowance 1,05,000
Bonus to foreign technicians 3,15,000
Provision for taxation 28,00,000
Compensation paid to injured workman 70,000
Ex-gratia to an employee 35,000
Loss on sale of fixed asset 70,000
Profit on sale of investment 2,10,000
Company is providing depreciation as per section 350 of the Companies Act, 1956

Solution:

Particulars Rs. Rs.

Net profit as per P/L a/c 23,10,000
Add:
Capital expenditure 5,25,000
Special Depreciation 70,000
Provision for taxation 28,00,000
Ex-gratia to an employee 35,000 34,30,000
57,40,000
Less:
Profit on sale of investment 2,10,000
Net profit for managerial remuneration 55,30,000

Managerial remuneration = 55, 30,000 x 5%=2, 76,500

Part time Director’s Remuneration = 55, 30,000 x 1%= 55,300

Total managerial remuneration = 2, 76,500 + 55300 = 3, 31,800

 7) Determine the maximum remuneration payable to the part time director and
manager of Blueprint Co Ltd (a manufacturing company) under Section 309 and 387
of the Companies Act, 1956 from the following particulars:

Before charging any such remuneration, the profit and loss account showed a credit
balance of Rs 6, 60,000 for the year ended 31 st March, 1987 after taking into
account the following matters:

Particulars Rs.
Capital expenditure 1,50,000
Subsidy received from Govt 1,20,000
Special Depreciation 20,000
Multiple shift allowance 30,000
Bonus to foreign technicians 90,000
Provision for taxation 8,00,000
Compensation paid to injured workman 20,000
Ex-gratia to an employee 10,000
Loss on sale of fixed asset 20,000
Profit on sale of investment 60,000

Solution:

Particulars Rs. Rs.

Net profit as per P/L a/c 6,60,000
Add:
Capital expenditure 1,50,000
Special Depreciation 20,000
Provision for taxation 8,00,000
Ex-gratia to an employee 10,000 980000
16,40,000
Less:
Profit on sale of investment 60000
Net profit for managerial remuneration 15,80,000

Managerial remuneration = 15, 80,000 x 5%= 79000

Part time Director’s Remuneration = 15, 80,000 x 1%= 15,800

Total managerial remuneration = 79000+15800 = 94800

8) The following is the profit and loss account of Charles & Rahim Ltd. Calculate

i) The overall maximum remuneration under section 198 and

ii )The maximum commission permissible to directors (a) when not assisted by

managing director or manager or whole time directors (b) when assisted by a
managing director/manager/ whole time director

Particulars Rs. Particulars Rs.

To salaries and wages 4,20,000 By gross profit 75,75,000
To director’s fees 1,80,000 By subsidy from central 3,60,000
government
To repairs & renewals 1,80,000 By profit on sale of a fixed 14,40,000
asset
To miscellaneous 1,44,000 Cost 24,00,000
expenses WDV 12,00,000
To workmen’s 75,000
compensation including
Rs. 30,000 legal
compensation
To loss on sale of 3,75,000
investment
To scientific research 6,00,000
To compensation for 36,000
breach of contract
To donation to charitable 1,05,000
institutions
To depreciation(including 6,00,000
rebate Rs.75000 and initial
depreciation Rs.30,000)
To provision for income tax 18,00,000
To proposed dividend 12,00,000
To interest on debentures 1,50,000
To interest on unsecured 30,000
loans
To balance b/d 34,80,000
93,75,000 93,75,000

Solution:

Particulars Rs. Rs.

Net profit for the year ended 34,80,000
Add:
Salaries and wages 4,20,000
Scientific research 6,00,000
Provision for income tax 18,00,000
Proposed Dividend 12,00,000
Depreciation 30,000
Workmen’s Compensation fund 75,000 76,05,000

Less:
Capital profit on sale of fixed asset
(12,00,000+14,40,000-24,00,000) 2,40,000
73,65,000

Overall maximum remuneration = 73, 65,000 x 11/100 = 8, 10,150

Director’s remuneration when not assisted by managing director or manager or

whole time directors = 73, 65,000 x 3/100 = 2, 20,950

Director’s remuneration when assisted by a managing director/manager/ whole time

directors = 73, 65,000 x 1/100 = 73,650
 UNIT 4

1. VALUATION OF GOODWILL AND SHARES

 CORPORATE ACCOUNTING (leader:Sakshi.R.Dave)
VALUATION OF GOODWILL AND SHARES
V. TEJASWI SHARMA
2013721042073

1. Madhan & Co. decided to purchase a business for Rs. 2,40,000. Its profits for
the last four years were 1995 Rs. 60,000; 1996 - Rs. 75,000; 1997 - Rs. 72,000
and 1998 - Rs. 69,000. The owner of the business was personally managing it.
A manager to replace him has to be paid Rs. 9,000 p.a. Calculate the value of
goodwill if it is valued on the basis of three years' purchase of the average net
profit for the last four years.

SOLUTION:

Total profit: 60,000+75,000+72,000+69,000 = Rs. 2,76,000

Average profit = Total profit

Number of years

Average profit= 2,76,000 = 69,000

Less: Manager’s remuneration = (-) 9000
60,000

Goodwill = Average profit x No. of years’ purchase

Good will = 60000 x 3

= 1,80,000

GOODWILL = Rs. 1,80,000

2. The following particulars are available in respect of the business carried on by

Bal Thakrey Ltd.

(a) Profit earned: 1996 - Rs. 50,000; 1997 - Rs. 48,000; and 1998 – Rs. 52,000.

(b) Profit of 1997 is reduced by Rs. 5,000 due to stock destroyed by fire and profit
of 1996 included a non-recurring income of Rs. 3,000.

(c) Profit of 1998 include Rs. 2,000 income on investment

(d) The stock is not insured and it is thought prudent to insure the stock in future.
The insurance premium is estimated at Rs. 500 p.a.
(e) Fair remuneration to the proprietor (not taken in the calculation of profits) is
Rs. 10,000 p.a.

You are required to calculate the value of goodwill on the basis of 2 years purchase
of average profits of the last three years.

SOLUTION:

Year Adjustments Final

1996 50,000
Less: non-recurring income (-) 3,000 47,000
1997 48,000
Add: stock destroyed by fire (+) 5,000 53,000
1998 52,000
Less: income on investment (-) 2,000 50,000
TOTAL: 1,50,000

Average profit = Total profit

Number of years

Average profit = 1,50,000 = Rs. 50,000

3
Less: Insurance premium = (-) 5,000
Less: Remuneration = (-) 10,000
39,500

Goodwill = Average profit x No. of years’ purchase

= 39,500 x 2
= 79,000

GOODWILL = RS. 79,000

 3. 'A' purchased the business of 'B' on 1.1.98. The profits of the business were
Rs.80,000, Rs.86,000 and Rs.84,000 respectively for the years 1995, 1996 and
1997. It was ascertained that, during 1996, there was a non-recurring income
of Rs. 3,000. In 1997, there was loss due to fire of Rs. 2,000, the risk being not
insured. It is decided to insure against risk of fire in future at an annual
premium of Rs. 500. ‘A’ was employed at a salary of Rs. 1,000 per month
before purchasing the business. He will replace the manager of the present
business who is getting Rs. 750 per month. The goodwill is agreed to be 2
years purchase of the average profit of the last 3 years. You are required to
value of goodwill of the business.

SOLUTION:
Year Adjustments Final
1995 80,000
1996 86,000
Less: non- recurring income (-) 3000 83,000
1997 84,000
Add: loss due to fire (+) 2,000 86,000
TOTAL: 2,49,000

Average profit = Total profit/ Number of years

Average profit = 2,49,000 = Rs. 83,000

3
Salary (less): = (-) 3,000
80,000
Annual premium (less) : = (-) 500
79, 500
Goodwill = Average profit x No. of years’ purchase
= 79,500 x 2
= 1,59,000
GOODWILL: RS. 1,59,000

Working notes on salary of ‘A’:

1000 x 12 = 12,000
750 x 12 = 9000
Rs. 3,000
 Shalni.j
2013721042074

4) X, who has been carrying on a retail business foe the past 15 years, intends selling his
business on 31st Dec 2001.it is agreed between X and the buyer that the buyer pay
Rs.50,000 for goodwill. from the following particulars supplied by X ascertain the amount
of goodwill if it were based on three years purchase of the average profits of the last four
years including the profit of 2001.
Profit earned:
1998: Rs.10,000
1999: Rs.12,000
2000: Rs.15,000
2001: Rs. 18,000
At the time of acquring X's business, the buyer was employed as the manager of a similar
business on a salary of Rs.300 per month. The profit of 2001 included income from
investment Rs.1000 and profits of 1998 has been reduced by Rs.3000 being speculation loss.
Similarly the profits of 2000 had been reduced by Rs.5000 owing to loss from betting.
Solution:
1998 =10,000+3000= 13,000
1999=12,000= 12,000
2000=15,000+5000= 20,000
2001=18,000-1000= 17,000
62,000
Average profit= total profit/no.of years
average profit = 62,000/4= 15,500
(-) manager commission= 15,500-3600= 11,900
Goodwill=total profit* no. of years of purchase
=11,900*3
ANS: =35,700
5) Greener Ltd. Proposed to purchase the business carried on by Thiru dass. Goodwill for
this purpose is agreed to be valued at three year's purchase of the average profit for the
past four years. The appropriate weights to be used are:
1994-1
1995-2
1996-3
1997-4

Profits for these years were:

1994-Rs.10,000; 1995-Rs.11,000;
1996-Rs.12,000;
1997-Rs.15,000;
Compute the value of the goodwill of the firm.
Solution:

YEAR A.P WEIGHT PRODUCTS

1994 10,000 1 10,000
1995 11,000 2 22,000
1996 12,000 3 36,000
1997 15,000 4 60,000
TOTAL: 10 1,28,000

Weighted average profit=total product of profit/total of weights

WEIGHTED AVERAGE PROFIT= 1,28,000/10
=12,800
Goodwill=total profit* no. of years of purchase
=12,800*3
ANS: =38,400

6) XYZ Co. Ltd. is proposing to purchase the business of Mr. Ranga. It is agreed that
goodwill should be valued at 3 years purchase of the weighted average profits of the past 4
years, the weight being 4,3,2 and 1 for the previous year starting from 1989 respectively.
The profits were 1989-Rs.60,000;
1988-Rs.40,000;
1987-Rs.49,600;
1986-Rs.40,000.

A scrutiny of the accounts reveal that:

a) During march 1988, a non-recurring expenditure of Rs.12,000 was incurred.
b) Closing stock of 1987 was overvalued by Rs.4,800
c) The management expenses will increase by Rs.5,000 per year in future.
Compute the value of goodwill of Mr.Ranga's business.
Solution:
YEAR A.P WEIGHT PRODUCTS
1986 40,400 1 40,400
1987 49,600 2 99,200
1988 40,000 3 1,20,000
1989 60,000 4 2,40,000
TOTAL 10 4,99,600

YEAR A.P WEIGHT PRODUCTS

1986 40,400 1 40,400
1987 44,800 2 89,600
1988 56,800 3 1,70,400
1989 60,000 4 2,40,000
TOTAL 10 5,40,400

Weighted average profit=total product of profit/total of weights

Weighted average profit=5,40,400/10 = 54,440
Adjust average profit(weighted)= 54,040-5000
=49,040
Goodwill=total profit* no. of years of purchase=49,040*3
ANS: = Rs 1,47,120
NAME: AISHWARYA S REG
NO: 2013721042075

7th sum: OMMITTED

Q8. Mr. Vishwanath has invested Rs. 4,00,000 in a business. His net profit before tax at 50% is Rs. 1,60,000, out
of which Rs. 12,000 annual rent of own building used a business premises and Rs. 24,000 p.a. as his salary were
not deducted. For staring this business, he left a job fetching him a monthly salary of Rs. 2,000. Before starting
this business, he had invested this amount on 10% securities. Fair compensation for the risk involved is 2%.
Calculate the value of goodwill on the basis of three years purchase of the average annual super profits.

1,60,000-24,000=1,36,000₹

Average profit= 1,36,000*50%=68,000₹

Normal profit = Capital employed * normal rate of return

= 4,00,000*12%=48,000₹

Super profit = average profit - normal profit

= 68,000-48,000=20,000₹

Goodwill = Super profit * no of years purchase

= 20,000*3 = Rs 60,000

Q9. From the following information calculate the value of goodwill on the basis of three years purchase of the
super profit:
(I) Average capital employed in the business Rs. 7,00,000.
(II) Net trading profit of the firm for the past three years Rs. 1,07,600; Rs. 90,700 and Rs. 1,12,500
(III) Race of interest expected from capital having regard to the risk
involved 12%
(IV) Fair remuneration to the partner for their savings Rs. 12,000 p.a
(V) Sundry assets of the firm - Rs. 7,54,762
(VI) Sundry liabilities of the firm - Rs. 31,329

Calculation of adjusted average profit

Total profit= 1,07,600 + 90,700 + 1,12,500=3,10,800₹

Average profit = 3,10,800/3=1,03,600₹

Average profit - fair remuneration = 1,03,600 - 12,000 = 91,600₹ Adjusted average profit = 91,600₹

Normal profit = average capital employed * normal rate of return

= 7,00,000*12%=84,000₹

Super profit = adjusted average profit - normal profit

= 91,600-84,000=7,600₹

Goodwill = super profit * no of years purchase

= 7,600*3 = 22,800₹
THEN MALAR L
2013721042076
BCOM CS

10. From the following particulars relating to the business of Mr. Rahul, compute the value of
goodwill on the basis of three years purchase of super profits talking average of last four years
Capital invested – 1,20,000
Market rate of return on investment – 12%
Rate of risk of return on capital invested – 3%
Managerial remuneration of the proprietor, if employed elsewhere Rs. 30,000p.a
Trading results:
1995 Profit 60000
1996 Profit 72000
1997 Loss 8,000
1998 Profit 88,000

SOLUTION:

Average profit
= 60000 + 72000 + 88000 = 220000
3 3
= 53000 – 30,000(remuneration) = 23,000
Normal profit = Average capital employed x normal rate of return
= 1,20,000 x 15% = 18000
Super profit = Average profit – normal profit = 23000 – 18000 = 5000
Goodwill = super profit x no. of profit years = 5000 x 3 = 15,000
11. The following particulars are available in respect of the business carried on by john
(a) capital invested – rs.50,000
(b) trading results
1990 Profit – 12,200
1991 Profit – 15,000
1992 Loss – 2000
1993 Profit – 21,000
(c) market rate of interest on investment 8%
(d) rate of risk return on capital invested in business 2%
(e) remuneration from alternative employment of the proprietor (if not engaged in business) -
rs.3,600
Compute the value of the goodwill of the business on the basis of three uyears of super profit
taking average of the last four years

SOLUTION:
Average profit =
Total profits/ no. of years = 12,200 + 15,000 + 21,000 – 2,000
4
= 46,200 = 11,550 – 3600 (remuneration)
4
= 7950

Normal profit = average capital employed x normal rate of return

= 50,000 x 10% =5000
Super profit = average profit – normal profit = 7950 – 5000 = 2950
Goodwill = super profit x no. Of years = 2950 x 3 =8850
12. Ramesh runs an automobile repair shop from rented premises. He pays a rent rs.15,000 per
month. Apart from the non-skilled workers, he employs a skilled engineer at a salary of rs.12,000
per month. Ramesh made a profit of rs.6,50,000 before taxes for the year ended 31.03.97 on
which date his net assets were worth rs.30,00,000. The owner of the premises is very keen to get
it back from Ramesh to enable his son, an automobile engineer, to carry on his business. Ramesh
is willing to sell his business provided he receives fair compensation.
The premises are worth rs.5,00,000. If 15% were to be a reasonable rent on capital employed in
the line of business, how much goodwill can Ramesh expect on a basis of 3 years of purchase of
super profits?

SOLUTION:
Expected profit = 6,50,000 + 1,80,000 = 8,30,000
Assets + premises = 35,00,000

Normal profit = average capital employed x normal rate of return

= 35,00,000 x 15 = 5,25,000
100
Super profit = average profit – normal profit
= 8,30,000 – 5,25,000 = 3,05,000

Goodwill = super profit x no. Of years = 3,05,000 x 3 = 9,15,000

Akshaya Sree M

2013721042077

13. A trader started business on March 1, 1980, with Rs.25,000 as capital. His profits
for the first two years were Rs.7,200 and Rs.11,700 but for the year ending April 30,
1983, he incurred a loss of Rs. 1,575. His estimate of the market rate of interest on
investment was 10% and of the rate of risk return on his capital was 3%. He estimated
his salary from an alternative employment at Rs. 1,500 per year. Compute the value of
goodwill of the business at 2 years of purchase of super profits of average profits of
three years.
Solution:
Total profit = 7200+11700-1575 = 17,325
Average profit = Total profit/ Number of years
= 17325/3
= Rs. 5,775
Normal Profit = Capital employed x Normal rate of return
= 25,000 x 13%
= Rs. 3250
Adjusted average profit = 5775-1500 = 4,275
Super profit = Average profit – Normal profit
= 4275 – 3250
= Rs. 1025
Goodwill = Super profit x Number of years of purchase
= 1025 x 2
Goodwill = Rs.2,050

14. The average net profits adjusted for valuation of goodwill of the Balu co. ltd
amounted to Rs. 4,52,090. The average profits (before adjustment) were Rs. 4,04,000.
6% represented a fair commercial return. The average “tangible” capital employed was
Rs. 26,83,200 but the upon valuations, the capital was revalued at Rs.28,80,000.
Assuming seven years purchase, find out the value of goodwill.
Solution:
Average Profit = Total profit / Number of years
 = Rs. 4,52,090
Normal profit = Capital employed x Normal rate of return
= 28,80,000 x 6%
= Rs. 1,72,800
Super profit = Average profit – Normal profit
= 452090 – 172800
= Rs. 2,79,290
Goodwill = Super profit x Number of years of purchase
= 279290 x 7
Goodwill = Rs.19,55,030

15. The following is the balance sheet of A ltd, as on 31st December 1999
LIABILITIES Rs. ASSETS Rs.
6% Preference 1,50,000 Goodwill 1,50,000
shares of Rs. 10
each
Equity shares of 4,50,000 Land 3,75,000
Rs. 10 each
Profit and loss a/c 7,50,000 Plant 1,50,000
6% debentures 3,00,000 Investments 3,00,000
Sundry creditors 1,85,000 Stock 2,50,000
Debtors 3,00,000
Bank 3,00,000
Preliminary 10,000
expenses
18,35,000 18,35,000

Additional information:
a) Debentures are to be redeemed in full before business is taken over by new
company.
b) The investments will be sold and the proceeds so realized will be used in partly
redeeming debentures.
c) The values of land is to be ascertained on the basis of 8% return. The current
rental value is Rs. 50,400.
You are required to calculate the amount of capital employed in the business for
valuation of goodwill.
Solution:
Asset side approach:
Land (50,400 x 100/8) 6,30,000
Plant 1,50,000
Stock 2,50,000
Debtors 3,00,000
Bank 3,00,000 16,30,000
Liabilities side approach:
Sundry creditors 1,85,000
Debentures 3,00,000 4,85,000

Capital employed = 16,30,000 – 4,85,000

= Rs. 11,45,000
Land value = Rs. 6,30,000

HARINI.V

REG NO : 2013721042078

16. The balance sheet of X Ltd as on 31.3.1996 is as follows:

Liabilities Rs Assets Rs

5000 8% pref shares of Rs 10 each 50000 Goodwill 10000

10000 equity shares Rs 10 each 100000 Fixed assets 180000

Reserves ( including provisions 100000 Investments(5% govt 20000

for taxation Rs 10000) loan)

8% debentures 50000 Current assets 100000

creditors 25000 Preliminary expenses 10000

Discount on debentures 5000

325000 325000
The average profit of the company (after deducting interest on debentures and taxes) is
Rs 30000. The market value of the machinery includes in fixed assets is Rs 5000 more.
Expected rate of return is 10% evaluate the goodwill of the company at 5 times of the
super profit.

Solution:

Calculation Of Average Capital Employed

Asset:

Fixed Asset = 180000

(+) Machinery Amt = 5000

________
185000
Current Assets = 100000
________
285000

Liabilities:
Debentures = 50000
Creditors = 25000
Provision For Taxation = 10000
________
85000

Average Profit = Rs. 30000

Capital Employed = Assets – Liabilities
= 285000 – 85000
= 200000
Average Capital Employed = Capital Employed - ½ Average Profit
= 200000 – 14500
= 1,85,500

Calculation Of ½ Of Average Profit :

( ½ Average Profit = 30000 – 1000 (20000 *5% Govt. Loan)
= 29000
= 29000 * ½
= 14500
 Calculation Of Normal Profit:

Normal Profit = Average Capital Employed X Normal rate of return

= 185500 * 10%
= 18550
Super Profit = Average Profit – Normal Profit
= 29000 – 18550
=10450

Goodwill = Super Profit X no of years purchased

= 10450
= Rs.52250

17. The following is the balance sheet of Mr. Ram Gopal as on 31.12.1998.
Liabilities Rs Assets Rs
Share capital:20000 equity Land and building 80000
Shares of Rs 10 each 200000 Plant and machinery 100000
General reserve 90000 goodwill 30000
Profit and loss A/C : investment 120000
Balance on 1.1.98 12000
Profit for the year 48000 60000

8% debentures 100000 stock 120000

creditors 60000 Sundry debtors 140000
Less: provisional for
doubtful debts 20000 120000

Provision for taxation 40000 Cash at bank 40000

Accumulation depreciation on Preliminary expenses 10000
plant and machinery 50000
600000 600000
Profit for the year includes Rs 6000 income from investments .investments are all in
gov securities land and buildings are worth Rs 200000 and plant and machinery Rs
40000. Compute the value of goodwill on the basis of 3 ears purchase of super profit.
Normal return on capital emploed in this type of business is 10%.

solution

Calculation of Average Capital Employed

Assets:
 Land And Buildings = 200000
Plant And Machinery = 40000
Stock = 100000
Debtors = 120000
Cash At Bank = 40000
_________
500000

Liabilities:
Debentures = 100000
Creditors = 60000
Provision For Taxation = 40000
_________
200000
Capital Employed = Asset – Liabilities
= 500000 – 200000
= 300000
Average Capital Employed = Capital Employed – ½ Average Profit
= 300000 – 21000
= 279000

Profit For The Year = 48000

Average Profit = 48000 – 6000(Income From Investment)
= 42000
½ Average Profit = 42000 X ½
= 21000

Normal Profit = average Capital Employed X Nrr

= 279000 X 10%
= 27900

Super Profit = Average Profit - Normal Profit

= 42000 – 27900
= 14100

Goodwill = Super Profit X No. Of Yrs Purchase

= 14100 X 3
= Rs . 42300

18.The following is the balance sheet of quality traders ltd, as at 30th April 1998.
 Liabilities Rs Assets Rs
Share capital 328000 Fixed assets 180000
reserve 80000 Current assets 244080
creditors 76080 Investment in shares 60000
484080 484080
The following net profit were earned which included a fixed income from investment of
Rs 4000 p.a
Year ended 30th April 1995 – Rs 64000
Year ended 30th April 1996 – Rs 72000
Year ended 30th April 1997 – Rs 86000
Year ended 30th April 1998 – Rs 90000
Standard rate of return on capital employed in such type of business is 8% compute the
amount of goodwill of the above business at three years purchase of profit was fully
distributed as dividend among the shareholders. Use weighted average for calculating
average profit.

solution
Assets:
Fixed assets = 180000
Current assets = 244080
__________
424080
liabilities:
Creditors = 76080
__________
Capital employed = assets - liabilities
= 424080-76080
= 348000
Calculation of adjusted profit:
particulars RS RS

Profit for the year ended 30/4/1995 64000

(-) interest on investments 4000 60000

Profit for the year ended 30/4/1996 72000

(-) interest on investment 4000 68000

Profit for the year ended 30/4/1997 86000

(-) interest on investment 4000 82000

Profit for the year ended 30/4/1997 90000

(-) interest on investment 4000 86000
Calculation of weighted average profit:
year profit weight product

1995 60000 1 60000

1996 68000 2 136000

1997 82000 3 246000

1998 86000 4 344000

10 786000
Average profit = 786000/10
= 28600
Calculation of normal profit:
Normal profit = capital employed x nrr
= 348000x8/100
= 27840
Super profit = average profit - normal profit
= 78600-27840
= 50760
Goodwill = super profit x number of years
purchased
= 50760x3
= RS . 152280

Register number :
2013721042079
Name: Nanditha
Anand
Question 19 (pg 8.94)
Following is the balance sheet of Shanti Niketan Ltd. For the year ending 31.3.1998

Liabilities Rs Assets Rs
Share capital 2,00,000 Fixed assets 3,00,000
Reserves and surplus 1,80,000 Current assets 1,00,000
Secured loans 1,40,000 Cash at bank 1,20,000
Stock 80,000
Current liabilities 80,000
6,00,000 6,00,000
Normal rate of return on average capital employed is 10%. Find out the value of goodwill on
the basis of 2 years purchase of super profit. Buildings are revalued at Rs.3,00,000 and
Machinery at Rs.80,000. All other assets are worth their book value.
ANSWER:
Average profit 1,60,000

Adding all the profit items

Net Profit = 300000+80000+100000+80000+120000-80000
=380000
Net profit = 380000*10/100= 38000
Super profit = Average profit – Net profit
Super profit = 160000-38000= 122000
As, Goodwill = Super Profits x (100/ Normal Rate of Return)
Goodwill = 122000*2= 244000
So therefore the goodwill = 244000

Question 20 (pg 8.94)

The balance sheet of sunlight co ltd as on 30th June 1998 was as follows:
Liabilities Rs Assets Rs
Pref share cap 1,00,000 Goodwill 20,000
Equity share 2,00,000 Fixed assets 3,60,000

Reserves 2,00,000 Investments 40,000

Debentures 1,00,000 Current assets 2,00,000
creditors 35,000 Preliminary exp 15,000

The average profit of the company after tax is Rs 62,000. Fixed Assets are undervalued by Rs
10,000. Normal rate of return is ascertained to be 10%.
You are required to value the goodwill of the company at four times the super profits.

Answer:
Average capital employed= capital employed- ½ of average profit
Average profit = 62000-2000(government bonds interest)
= 60000
Half of avg profit= 60000*1/2= 30000
Capital employed = 415000-30000
= 385000
Net profit = capital employed * 10 %
= 385000*10/100
= 38500
Super profit = Average profit- Normal profit
= 60000-38500
= 21500
Goodwill value= 21500*4
= 86000

Question 21 (pg8.94)
Capitalization of super profit method
21. From the following information compute the value of goodwill by capitalizing super
profits:
1. Average capital employed is rs 2,00,000
2. Normal rate of return is 10%
3.profit for 1991 Rs.31,000, 1992 Rs.29500, 1993 Rs 33,000
4.profir for 1992 has been arrived after writing off abnormal loss of Rs1000 and profit for
1993 includes a non recurring income of Rs 1500.

ANSWER:
Goodwill =Average annual super profit *100
Normal rate of return

Year Profit AdjProfit

1991 31000
1992 29500
 + abnormal loss 10000 30500

1993 33,000

-non recurring income (1500) 31,500

Total adjusted profit 93000

Average profit = Profit for no years / no of years

Average profit = 93000/3
= 31000
Normal Profit = Capital Employed x (Normal Rate of Return/100)
Normal profit= 200000*10/100
= 20000
Super profit = Average profit – Net profit
Super profit = 31000-20000
= 11000
Goodwill = 10000*100/10 = Rs 110000
 201372102002
AKSHADA VG

22. Find out out goodwill by capitalising super profit:

a) Normal rate of return 12%
b) Profit for the last four years are: Rs. 30,0000; 1992 Rs. 40,000; Rs. 50,000 and
Rs. 45,000
c) Non-recurring income of Rs.3,000 is included in the above mentioned profit of
Rs.30,000
d) Average capital employed is Rs.3,00,000

Profit Adj Profit

30,000
(-) Non profit reccuring Income: 3000 = 27,000
40,000 40,000
50,000 50,000
45,000 45,000
= 1,62,000

Average profit= 16200/4 = 40,500

Normal profit= 3,00,000*12% = 36,000
Super profit = Average profit-Normal profit
= 40,500 – 36,000
= 4,500
Goodwill= 4,500*100/12
= Rs. 37,500

23. Mr. Wise has invest a sum of Rs.2,00,000 in his own business which is a very
profitable one. The annual profit earned from his business is Rs.45,000which includes a
sum of Rs.10,000 received as compensation for a part of his business premises. As an
alternative to his engagement in his business, he could have invested the money in long-
term deposit, with bank earning a normal rate of interest of 10% and also could engage
himself in employment thereby getting an annual salary an annual salary income of
Rs.7,200. Considering 2% as fair compensation for the risk involved in the business,
calculate the value of goodwill of his business on capitalisation of super profits at the
normal rate of interest. Ignore taxation.

i. Calculation of expected future profits:

Profit earned from business= 45,000
Less: compensation for premises= 1000
Less: Wiseman’s remuneration = 7200
Expected future profit = 27,800
ii. Calculation of normal profit:
Normal profit= average capital employed * normal rate of return
= 2,00,000*12/100*{interest obtained deposits + risk premium}
= 24,000
iii. Calculation of super profits:
Super profits= expected future profits – normal profit
= 27,800 – 24,000
= 3,800
iv. Calculation of goodwill:
Goodwill= super profit/normal rate of return
= 3800*12/100
= 31,667

24. The following information is given:

a) Capital employed- Rs.3,00,000
b) Net profit for five years 1991- Rs.28,800; 1992- Rs.30,800; 1993- Rs.33,800; 1994-
Rs.34,800 and 1995- Rs.35,800. Profits included non-recurring profits had a
tendency of appearing at the rate of rs.1,400 p.a.
c) Normal rate of profit 10% . You are required to calculate the value of goodwill
as per capitalisation of super profit method.
Average profit= 28,800+33,800+34,800+35,800/5
= 1,64,000/5
= 32,800
32,800 – Non-reccuring = 32,800 – 600
= 32,200
Normal profit= 3,00,000*10%
= 30,000
Super profit= Average profit-Normal profit
= 32,200 – 30,000
= 2,200
Goodwill= 2,200*100/10
= Rs. 22,000
Annuity Method

25. The net profits of a company after providing for taxation, for the past five years are Rs.
40,000; Rs. 42,000; Rs. 45,000; Rs. 46,000 and Rs. 47,000. The capital employed in the business
is Rs. 4,00,000 on which a reasonable rate of return of 10% is expected. It is expected that the
company will be able to maintain its super profits for the next five years. Calculate the value of
goodwill of the business on the basis of an annuity of super profits, taking the present value of
annuity of one rupee for 5 years @10% interest as Rs. 3.78.

Solution:

Average = 40000 +43000 + 49000+46000+47000

= 220000/5 = 44000

Normal = 400,000x10/100 =40,000

Super = 44000-40000 =4000

Goodwill = Average profit x No. of years’ purchase

Goodwill= 4000x378= 15,120

26. During the last 3 years the profits of a company were Rs. 1,00,000; Rs. 96,000 and Rs.
1,04,000 respectively. The capital employed is Rs. 6,00,000 and in similar businesses return on
capital employed is 10%. The present value of Re. 1 annuity for 3 years @10% return is Rs.
2.48. Find out goodwill by annuity method based on super profit.

SOLUTION:

Average= 100000 + 96000+ 104000

=300000/3 = 100000
Normal = 600000x10/100 = 60,000
Super= 100000-60000= 40,000
Goodwill = Average profit x No. of years’ purchase
Goodwill= 40000x248 = 99200

27) From the following particulars, find out the value of goodwill as per the annuity
method:
a) Capital employed: Rs.3,00,000
b) Normal rate of return: 10%
c) present value of Re. 1 to 5 years at 10% at 3.78
d) Normal profit for 5years:
1st year:30,000
2nd year:32,000
3rd year:34,000
4th year:36,000
5th year:38,000

Non-recurring Income: Rs. 1,600

Non-recurring expenses: Rs. 1,000

SOLUTION:

AVERAGE PROFIT= 34,000-16,00+1000

=33,400
NORMAL PROFIT=CAPITAL EMPLOYED*NORMAL RATE OF RETURN
= 3,00,000*10%
=30,000
SUPER PROFIT= AVERAGE PROFIT-NORMAL PROFIT
= 33,400-30,000
=3,400
GOODWILL= 3400*3.78= 12,852

28) The following information is given:

a) Capital employed Rs. 1,50,000
b) Normal rate of profit 10%
c) present value of annuity of Re. 1 to 5 years at 10% is 3.78
d) Net profit for 5years:
I year- 14,400
II year- 15,400
III year- 16,900
IV year- 17,400
V year- 17,900
The profits include non-recurring profit on an average basis of Rs. 1,000 out of which it
was deemed that even non-recurring profit had a tendency pf appearing at the rate of Rs.
600 per annum. You are required to calculate goodwill:
(i) As per annuity method
(ii) As per 5 years purchase of super profit.

SOLUTION:
I year- 14,400- 400 =14,000
II year- 15,400- 400 =15,000
III year- 16,900- 400 =16,500
IV year- 17,400- 400 =17,000
V year- 17,900- 400 =17,500

AVERAGE PROFIT=14,000+15,000+16,500+17,000+17,500
= 80,000/5= 16,000
NORMAL PROFIT= CAPITAL EMPLOYED*NORMAL RATE OF RETURN
=1,50,000*10%
=15,000

SUPER PROFIT= AVERAGE PROFIT-NORMAL PROFIT

=16,000-15,000
=1000
GOODWILL as per annuity method = 1000*3.78= 3780
as per purchase of super profit =1000*5= 5000

Q29. A company earned the following net profits during the last four years after taxes 1986-Rs.
60,000; 1987 - Rs. 65,000; 1988 - Rs. 75,000 and 1989 - Rs. 70,000.
The capital employed in the business was Rs. 60,000. Reasonable rate of return, Normal in the
industry was 10%. Super profits of the company can be maintained for 5 years. Find out
goodwill of the company
● If the present value of annuity of Re. 1 for five years at 10% is 3. 78 and the
goodwill should be valued on annuity basis.
● If the super profit should be capitalised at the normal rate of return
(ii) If goodwill is 5 years purchase of the super profits.
Average profit = 60,000 + 65,000 + 75,000 + 70,000 / 4
= 67,500
Normal profit = capital employed * normal rate of return
= 6,00,000 * 10/100
= 60,000
Super profit = average profit - normal profit
= 67,500 - 60,000
= 7,500
A)
Goodwill = 7,500 * 3.78 = 28,350
B)
Goodwill = 7,500 * 100/10 = 75,000
C)
Goodwill = 37,500

Q30. The following particulars are available in respect of the business carried on of trader:
● Profit earned : 1987 - Rs. 50,000; 1988 - Rs. 60,000; 1989 - Rs. 55,000
● Normal rate of Profit 10%
● Capital employed Rs. 3,00,000
● Present value of an annuity of one rupee for five years at 10% is Rs. 3.78.
● The profits included non-recurring profits on an average basis of Rs. 4,000 out of
which it was deemed that even Non-recurring profits had a tendency of
appearing at the rate of Rs. 1,000 P.A
You are required to calculate goodwill:
(i) as per Five years purchase of Super profits (ii)as per Capitalisation of Super Profit method
(iii) as per Annuity method.

Solution :
Average profit = 50,000 + 60,000 + 55,000 / 3
= 55,000 - 3,000
= 52,000
Normal profit = 3,00,000 * 10/100
= 30,000
Super profit = average profit - normal profit
= 52,000 - 30,000
= 22,000
Goodwill = 22,000 * 5
= 1,10,000
B) Goodwill = 22,000 * 100/10
= 2,20,000
C)Goodwill = 22,000 * 3.78
= 83,160
III CAPITALISATION METHOD
31. A runs a chemist shop. His assets as on 31st march1996 amounted to rs.20,00,000. After
paying a rent of rs. 45,000 a year and a salary of rs. 30,000 to the chemist, he earns a profit of rs.
2,10,000. His landlord, who happens to be an expert chemist, is interested in purchasing the
shop. 8% is considered to be a reasonable return on capital employed. What can 'A' expect as
payment for goodwill?
Solution:
Profit after paying chemist - 210,000
Rent - 45,000
Future profit AP 2,55,000
Normal profit = 20,00,000 × 8% = 1,60,000
Super profit = 2,55,000 - 1,60,000 = 95,000
Goodwill = 95,000 × 100/8 = 11,87,500
Capitalised value :
8% - 255,000
100% - 31,87,500

32) A Company is desirous of selling its business to another company. Its average annual profits
of Rs.1,50,000 fairly represent the profits likely to be earned in the future except that:
a) Director’s fees Rs.5,000 charged against such profits, will not be payable by the purchasing
company whose existing board can cope with additional duties.
b) Rent Rs.5,000 per annum, being paid by the vendor company, will not be a charge in the
future since the purchasing company owns its own premises.
The value of the net tangible assets of the vendor company was Rs.10,00,000 and 10% was
considered to be a reasonable return of capital employed in this class of business. Ascertain the
value of goodwill.
Solution:
Capitalized value of business = Average Profit/ Normal rate of return
= 1,50,000 + 10,000 / 10%
= 1,60,000 / 10%
= Rs. 16,00,000
Net Tangible Asset = Rs.10,00,000
Goodwill = Capitalized value of business – Net tangible assets
= 16,00,000 – 10,00,000
Goodwill = Rs. 6,00,000

Q33. From the following information calculate the value of goodwill

● Average capital employed 12,00,000
● Company declared 15% dividend on the shares of RS 20 fully paid, which is quoted
in the Market at RS 25
 ● Sundry assets of the firm RS 15,85,000 ,and sundry liabilities RS 62,654
● Net trading profits for the past three years are RS 2,15,200; RS 1,81,400 And RS
2,25,000

Solution :
Average profit = 2,15,000 + 1,81,400 + 2,25,000 / 3
= 2,07,200
Normal rate of return = 15/100 * 20/25 = 0.12
= 12%
Net assets = 15,85,000 - 62,654
= 15,22,346
Capitalised value of business = 2.07,200 * 100/12
= 17,26,667
Goodwill = Capitalised value - Net Assets
= 17,26,667 - 15,22,346
= 2,04,321

34)
Ascertain the value of goodwill Imran.co.Ltd carrying on business from the following:
Liabilities . rs Assets
Paid up capital;
Goodwill at cost. 2,50,000
2,500 shares of Rs. 100
Land & Buildings at cost. 11,00,000
each fully paid. 25,00,000
Plant & Machinery at cost.
Bank overdraft. 4,80,000
ess depreciation. 10,00,000
Sundry creditors. 8,05,0000
Stock-in-trade. 15,00,000
Provision for tax 425000
Book debts less
P and L Appropriation AC
provision for bad debts 9,60,000
6,00,000
Total. 48,10,000
Total. 48,10,000

The company started operations in 1989 with a paid up capital as aforestated of

Rs. 25,00,000. Profit earned before providing for taxation have been as follows:
Year ended 30th June Rs.
1990 6,00,000
1991 7,50,000
1992 8,50,000
1993 9,50,000
1994 8,50,000

Income tax @ 50% has been payable on these profits. Dividend have been distributed
from the profits of the first three years @ 10% and from those of the next two years
@ 15% of the paid up capital,

Solution:
Step 1 : Subtract Average profit and tax
AP = 800,000
(-) Tax= 400,000
400,000

Step 2 : To get capital value, muiltiply 400000 by 12 and divide by 12

Capital Value = 400000*12

12
Step 3 : Add all the Net assets and subtract the liabilities
Net Assets = 11,00,000+10,00,000+500,000+960,000-480,000- 805,000-425,000

Net Assets = 28,50,000

Step 3: Goodwill = Capital value – Net assets
GOODWILL = Capital Value – Net Assets = 33,33,333 – 28,50,000
GOODWILL = Rs. 4,83,333

35. The Balance Sheet of Tip Top manufacturing Co. Ltd discloses the following position as at
31.3.1998
Liabilites Assets
Rs. Rs.
Paid up capital: Goodwill at cost land and buildings at
90,000 shares of Rs.10 each fully paid 5,25,000
9,00,000 Cost less depreciation
Plant & Machinery at cost less
Capital reserve
2,70,000
1,80,000
Depreciation
Sundry creditors Stock cost
2,13,000 3,45,000
 Book debts 2,94,000
Provision for taxation
Less: Provision for bad debts 9,000
1,65,000
2,85,000
Profit & Loss a/c Cash at bank
78,000 21,000
15,36,000 15,36,000

You are required to value the goodwill of Tip Top manufacturing company for which purpose the
following information is supplied:
● Adequate provision has been made in the accounts for income tax and depreciation.
● Rate of income tax may be taken at 50%.
● The average rate of dividend declared by the company for the past five years was
15%.
● The reasonable return on capital invested in the class of business done by the
company is 12%.
Solution:
Net profit before tax= 3,30,000 (1,65,000*2)
(-) Tax = 1,65,000
= 1,65,000
Capitalized value of the business = Expected average net profit/ NRR
= 1,65,000/ 12% = Rs. 13,75,000
Net tangible assets = Total assets ( expected goodwill) – Sundry creditors- Provision for taxation
= 13,75,000 – 10,68,000
= Rs. 3,07,000
VALUATION OF SHARES

36. The following is the summarized balance sheet of company as at 31.12.1987

Liabilities Rs Asset Rs

Share capital: 10,00,000

10,000 5% preference shares of Rs.100 each fully paid
Fixed assets 38,00,000
2,00,000 equity shares of Rs.10 each fully paid 20,00,000
Investment 10,25,000
General reserve
Stock-in-trade 5,72,000
Profit & Loss A/c 15,00,000
Sundry debtors 12,78,000
6% debentures 12,00,000
Cash at bank 2,25,000
Sundry creditors 8,00,000
Outstanding expenses 2,75,000
1,25,000
69,00,000 69,00,000

For the purpose of valuation of shares, fixed assets are to be depreciated by 10% and investments are to be revalued at Rs.
10,80,000. Debtors will realise Rs. 12,14,100. Interest on debentures is accrued due for 9 months and preference dividend for
1987 is also due; neither of these has been provided for in the Balance Sheet Calculate the value of each equity share.

ANS:

Particulars Rs.
Assets:
Fixed assets
Tnv
Stock
Debtors
Cash
34,20,000
10,80,000
5,72,000
(-) Liabilities
12,14,100
Debtors
2,25,000
Tnt
Creditors 8,00,000
Out liabilities 36,000
2,75,000
(-) Preferred dividend 1,25,000

(-) Preferred Capital

65,11,100
 12,36,000
52,75,100
(50,000)
52,25,100
10,00,000

42,25,100

Intrinsic Value = net assets / No of equity share

= 42,25,100 / 2,00,000 = 21.13

37. The following is the Balance Sheet of X Co. Ltd. as on 31.12.1986.

Liabilities Rs Asset Rs

Share capital:
10,000
1,000 6% preference shares of Rs.10 each
Fixed assets 30,000
3,000 equity shares of Rs.10 each
30,000 Current assets 25,000
7% debentures
Preliminary expenses 2,000
Debenture redemption fund
10,000 Discount on issue of debentures 3,000
Depreciation fund
5,000 Profit 7 Loss A/c 12,000
Creditors
10,000
7,000
72,000 72,000

You are supplied with the following information:

(a) Debenture interest is owing for one year,
(b) Book debts included in current assets are doubtful to the extent of Rs. 2,000 for which no provision has been made;
(c) The market value of investments included in current assets is Rs.10,000 while the asset has been shown at its cost of Rs.
15,000.
Ascertain the value of each equity share by the asset-backing method

ANS:
Particulars Rs.
Assets:
Fixed assets
Current assets 30,000
48000
18,000
(-) Liabilities
Debt
Creditors 10,000
Depreciation fund 7,000
Tuton debt 10,000
27,700
700
(-) Preferred share capital
20,300
10,000

10,300
Intrinsic Value = net assets / No of equity share
= 10,300/3000 = Rs. 3.43

38. From the following Balance sheet, you are required to value the equity shares.
Liabilities Rs Assets Rs
Assets at book values 600000
2000 6% pref. shares of
Rs 100 each 200000
30000 equities share of
Rs 10 each 300000
Current liabilities 100000

600000 600000

ANS:
Rs
Assets:
Equity share
Less:
Liabilities
615000
Less:
105000
Pref share capital
Net assets

510000

200000
310000

Intrinsic value = net assets / No of equity share

= 300000/30000
=Rs.10.33

39. Crystal Ltd started its business on 1st April 1996. On 31st March 1999, its balance sheet in a summarised form was as
follows:
Liabilities Rs Asset Rs

Share capital:
15,00,000
15,000 10% preference shares of Rs.100 each, fully paid
Fixed assets
4,50,000 equity shares of Rs.10 each, fully paid
4,50,000 Current assets 45,00,000
Capital reserve
37,500 Preliminary expenses 60,00,000
Profit & Loss A/c
8,25,000 75,000
13% debentures
7,50,000
Sundry Creditors
27,00,000
Provision for income tax
2,62,500
1,05,75,000 1,05,75,000
The company is yet to declare its maiden dividend on 31.3.1999.the fixed assets are revalued at rs.48,00,000. Calculate the value
of the two classes of shares.

ANS:
Particulars Rs.
Assets
Fixed assets 48,00,00
Current assets 60,00,000
1,08,00,000
(-) Liabilities
Debtors 7,50,000
Creditors 27,00,000
Prov for test 2,62,500
37,12,500

(-) Preferred share capital 15,00,000

70,87,500

55,87,500

Intrinsic value = net assets / No of equity share

= 55,87,500/4,50,000 = 12.42

40. Following is the balance sheet of Abdul Hakeem company ltd as at 31st march 1998.
Liabilities Rs Assets Rs

Share capital:
Fixed assets 967960
6160 shares of Rs 100 each 616000
Stock 728000
Reserve fund 106260
Investments
Employees saving A/c 63560
(at market value ) 569800
Employee’s security deposit 15120
Cash &Bank balance 863520
Workmen’s compensation fund 73130
Preliminary expenses 7000
Depreciation fund 129640
Income tax 33130
Creditors 1088080
Profit &loss A/c 1011360

3136280 3136280

ANS:
Particulars Rs
 Assets:
Fixed assets 967960
Stock 728000
Investment 569800
Cash 863520 31,29,280
Less:
Liabilities
Depreciation fund 114520
Creditors 1088080
Employee’s security deposit 15120
Income tax 33130
Employees saving A/c 63560 13,14,410
18,14,870

Intrinsic value = net assets /no of equity share

= 18,14,870/ 6160 = 294.62

41. The following is the balance sheet of ‘S’ company limited as on 31st december 1998.
Liabilities Rs Asset Rs

Cash in hand 2,000

Share capital: 3,00,000
Cash at bank 20,000
3,000 equity shares of Rs.100 each
Sundry debtors 80,000
1,500 8% preference shares of Rs.100 each 1,50,000
Stock-in-trade 1,40,000
General reserve
Land & building 2,05,000
Profit & Loss A/c 40,000
Furniture 30,000
Bank loan 10,000
Goodwill 70,000
Sundry creditors 50,000
Discount on shares 18,000
15,000
5,65,000 5,65,000

The value of assets is assessed as follows:

(i) Furniture to be depreciated at 10%.
(ii) Value of stock-in-trade, Land and buildings and goodwill is estimated at Rs. 1,20,000; Rs. 2,50,000 and Rs. 80,000
respectively.
(iii) Debtors are expected to realise 80% of book value. Find out the value of equity shares.

ANS:
Particulars Rs.
 Assets
Cash in hand
Cash at bank
Sundry debtors 2,000
Stock in trade 20,000
Land and building 64,000
Furniture 1,20,000
Goodwill 2,50,000 5,63,000
27,000
(-) Liabilities 80,000
Bank loan
Sundry credits 65,000
50,000 4,98,000
15,000
(-) Preferred shared capital 1,50,000
Net assets
3,48,000

Intrinsic value = net assets / No of equity share

= 3,48,000/3000 = 116

42. The summarized balance sheet of BK LTD, as of 31st March 1997, is as follows:
Liabilities Rs Asset Rs

Goodwill
Share capital: 3,00,000
Fixed Assets
30,000 equity shares of Rs.10 each 70,000
Current Assets
10,000 equity shares of Rs.10 each, Rs. 8 paid up 80,000 4,50,000
Preliminary expenses
Reserves 2,20,000
11% debentures 1,80,000 10,000
Current liabilites 1,00,000
90,000
7,50,000 7,50,000

The goodwill is independently valued at Rs. 50,000 and fixed assets at Rs. 4,20,000. There was a contingent liability of Rs.
20,000 which has become payable. Determine the value of both the categories of shares under the Net Assets method
ANS:
Particulars Rs.
Assets:
Fixed assets
Goodwill 4,20,000
Current assets 50,000
6,90,000
2,20,000
(-) Liabilities:
Debentures
Current liabilities 1,00,000
Contingent liability 90,000
2,10,000
20,000
Net assets
4,80,000
Intrinsic value = net assets / No of equity share
Intrinsic value of Rs.10 paid up share = 1.26 x 10 = Rs. 12.6
Intrinsic value of Rs.8 paid up share = 1.26 x 8 = Rs. 10.08
Intrinsic value = 4,80,000/3,80,000 = Rs. 1.25

43. From the following information, find out the value of each share:
Liabilities Rs Asset Rs
Fixed assets:
Share capital:
Goodwill
20,000 equity shares of Rs.10 each 2,00,000
Investment 1,90,000
Reserves and surplus
Current assets 3,00,000
Reserves 2,50,000
Loans and advances 50,000
Profit & Loss A/c 30,000
Miscellaneous expenses 30,000
Unsecured loans 80,000
10,000
Current liabilities 20,000

5,80,000 5,80,000

for the purpose of valuation of shares goodwill shall be taken at two years purchase of the average profit of the last five years.
The profits for the last five years are - Rs. 60,000; Rs. 70,000; Rs. 40,000; Rs. 50,000 and Rs. 50,000.

ANS:
AP = 60,000 + 70,000 + 40,000 + 50,000 + 50,000 = 54,000
5
GW = AP x No. of years purchased = 54,000 x 2 = Rs. 1,08,000

Particulars Rs.
Assets
GW
Tuv 1,08,000
Current assets 3,00,000
Loans & advance 50,000
30,000 4,88,000
(-) Liabilities
Unsecured loans
Current liabilities 80,000
20,000 1,00,000
Net assets
3,88,000

Intrinsic value = net assets / No of equity share

= 3,88,000 / 20,000 = 19.40

44. On 31st Dec. 1998 the balance sheet of a company was as follows:
Liabilities Rs. Assets Rs.
 10,00,000
10,000 equity shares of Rs. 100 each, fully paid
Land and Buildings 4,40,000
Profit and Loss A/C
2,00,000 Plant and Machinery 1,90,000
Creditors
1,80,000 Stock 7,00,000
Provision for tax
1,00,000 Debtors 3,00,000
Proposed dividend
1,50,000
16,30,000 16,30,000

The net profits of the company after providing for taxation were: 1994- Rs. 1,70,000; 1995- Rs. 1,92,000; 1996- Rs. 1,80,000;
1997- Rs. 2,00,000 and 1998- Rs. 1,90,000. On 31st Dec 1998 Land and Building were revalued at Rs. 5,00,000, Plant and
Machinery at Rs. 3,00,000 and debtors at 10% less. In view of the nature business, it is considered 10% is a reasonable return on
investment. Calculate the value of company’s shares, valuing goodwill at five years purchase of the annual super profit.

Solution:
a) Calculation of Capital Employed:
Assets Rs. Rs.
Land and Buildings 5,00,000
Plant and Machinery 3,00,000
Stock 7,00,000
Debtors 2,70,000 17,70,000
(-) Liability
Creditors 1,80,000
Provision for tax 1,00,000
Proposed dividend 1,50,000 4,30,000
Capital Employed 13,40,000

b) Calculation of Average Profit:

Year Rs.
1994 1,70,000
1995 1,92,000
1996 1,80,000
1997 2,00,000
1998 1,90,000
Total 9,32,000

Average Profit = Total profit/No of years = 9,32,000/5= Rs.1,86,400

c) Calculation of Normal profit:
Normal Profit = Capital Employed x Normal Rate of Return
= 13,40,000 x 10%
= Rs. 1,34,000
d) Calculation of Super Profit:
Super Profit = Average Profit – Normal Profit
= 1,86,400 – 1,34,000
= Rs. 52,400
e) Calculation of Goodwill:
Goodwill = Super Profit x No of years of purchase
= 52,400 x 5
= Rs. 2,62,000
f) Calculation of Net Assets After Goodwill:
Net Assets After Goodwill = Net Assets Before Goodwill + Value of Goodwill
= 13,40,000 + 2,62,000
= Rs. 16,02,000
g) Calculation of value of shares:
Value of Shares = Net Assets/ No. of Equity Shares
= 16,02,000/10,000 shares
= Rs. 160.20

45. From the following details calculate the value of each equity share and preference share:
Balance sheet as at 31.3.1998
Liabilities Rs Asset Rs

Share capital: 8,00,000 Land & building at cost

80,000 equity shares of Rs.10 each Plant & Machinery at cost 3,00,000
4,000 7% preference shares of Rs.100 each 4,00,0000 Stock at market value 5,00,000
General reserve Book debts 5,00,000
Profit & Loss A/c 1,00,000 Cash at bank 2,40,000
Workmen's savings A/c 80,000 Prepaid expenses 1,50,000
Provident fund 40,000 30,000
Depreciation fund 50,000
Creditors 1,60,000
90,000
17,20,000 17,20,000
Additional information:

● Goodwill is valued at Rs. 1,60,000

● Depreciation fund is excess to the extent of Rs. 60,000.
● Debtors of Rs. 20,000 are likely to prove bad.
● There is a disputed liability of Rs. 30,000 (not provided in the accounts) out of which Rs. 20,000 is likely to
materialise.
● On liquidation preference shareholders have a right to participate in surplus.

ANS:
Assets
Band & Build
3,00,000
Plant & Machines
5,00,000
Stock
5,00,000
Drs
2,20,000
Bank
1,50,000
P.P expense
30,000
Gw 18,60,000
1,60,000
(-) Liabilities
WS
40,000
Provident Fund
50,000
Depreciation Fund
1,00,000
Creditors
90,000
Disputed Liability 3,00,000
20,000

15,60,000
12,00,000
(-) Preferred shares

3,60,000
Ratio = 8:4 = 2:1
Preferred = 1,20,000
Es = 2,40,000
ES = 8,00,000 + 2,40,000 = 10,40,000
Value = 10,40,000/80,000 = Rs. 13
Preferred Shares = 4,00,000 + 1,20,000 = 5,20,000
Value = 5,20,000 x 4,000 = Rs. 130

46. From the following Balance Sheet of Y Co. Ltd, as on 31st Dec 1998, Calculate the value per equity share under the asset
backing method:
Liabilities Rs. Assets Rs.

Share capital: Goodwill 6,00,000

18,000 6% preference shares of Rs. 100 each 18,00,000 Land & Building 3,00,000
3,00,000 equity shares of Rs. 1 each Plant & Machinery 7,50,000
Capital reserves 3,00,000 Furniture 2,40,000
General reserves 60,000 Investment in govt. securities 3,00,000
Profit & Loss A/C 1,50,000 Stock 3,00,000
5% debentures 1,50,000 Debtors 2,70,000
Sundry creditors 3,00,000 Cash at bank 1,20,000
Provision for taxation 1,20,000 Preliminary expenses 60,000
60,000
29,40,000 29,40,000

Preference dividends are in arrears for three years. There is a dispute liability of Rs. 30,000 not shown in the above balance sheet
and Rs. 24,000 is likely to materialise. There is also liability of Rs. 6000 which remains unrecorded. Goodwill is worth the same
figure and 5% of the debtors are considered doubtful.
Solution:
a) Calculation of Net Assets:
Assets Rs. Rs.
Goodwill 6,00,000
Land & Buildings 3,00,000
Plant & Machinery 7,50,000
Furniture 2,40,000
Investment on govt. securities
Stock 3,00,000
Debtors 2,56,500
Cash at bank 1,20,000 28,66,500
(-) Liability
5% Debentures 3,00,000
Creditors 1,20,000
Provision for taxation 60,000
Dispute Liability 24,000
Unrecorded Liability 6,000 5,10,000
Net Assets 23,56,500
b) Computation of net assets for equity shareholders:
Rs. Rs.
Net assets
23,56,500
(-) Preference share capital
18,00,000
Preference dividend for 3
years (18,00,000 x 6% x 3
years)
3,24,000 (-) 21,24,000

Net assets for equity shareholders 2,32,500

c) Calculation of Intrinsic value per equity share

Intrinsic value per equity share = Net assets for equity shareholders/No. of equity shares
= 2,32,500/ 3,00,000 equity shares
= Rs. 0.775
Working notes:
Debtors = 2,70,000
(-) 5% Doubtful debts = 2,70,000x5/100 = 13,500
= 2,70,000 – 13,500
= Rs. 2,56,500

47. Raman holds 5,000 equity shares in Raghavan Ltd. The paid-up capital of which is 30,000 equity shares of Re. I each. It is
ascertained that:
(a) The normal net profit of such company is Rs. 5,000 and
(b) The normal return for the type of business carried out by the company is 8%
Raman requests you to value his shares based upon the above figures.
ANS:

Yield value = expected rate of return x paid up value

Normal rate of return
Expected ROR = Profit available for equity division x 100
Paid up equity capital
= 5,000 x 100 = 16.67%
30,000
Yield value = 16.67 x 1 = Rs. 2.08
8
Raman;s holiday share = 5,000 x 2.08
= Rs. 10,400

48.Mr. Share Wallah holds 12,000 equity shares in Bharath Ltd. the nominal and paid up capital of which consists of:
(a) 40,000 equity shares of Re. 1 each
(b) 10,000 preference shares of Re. I each, rate of dividend 8%.
(c) Preference shares do not further participate in profits.
(d) Usual transfer to Reserve 10% of the profits.
It is ascertained that:
(i) Normal annual profit is Rs. 12,00
(ii) Normal rate of return 15%.
Mr. Share Wallah requests you to value his holdings based upon the above figures.

ANS:
Expected rate of return = Profit available for equity dividend x100
Paid up equity capital
Expected rate of return = 12,000 x 100 = 30%
40,000
Yield Value = Expected Rate of Return x 100
 Annual Rate of Return

Yield Value = 30/15 x 1 = Rs. 2

Mr. Share Wallah’s shareholding = 12,000 x 2
= Rs. 24,000
(OR)
Profit available = 12,000 – 800 = 11,200
Expected rate of return = 11,200 x 100 = 28%
40,000
Yield value = 28/15 x 1 = Rs. 1.86
Shareholding = Rs. 22,320

49. X Ltd. has 10,000 equity shares of Rs. 10 each, Rs. 8 paid and 1,00,000 preference shares of Rs. 10 each fully paid. The
company has a practice of transferring 20% of the profit to the general reserve every year. If the expected profit (based on past
years' performance) before tax is Rs. 2,00,000 and the rate of tax is 50%. You are required to calculate the value of equity share.
It may be assumed that the normal dividend is 20%.
ANS:
Profit before tax = 2,00,000
(-) Tax = 1,00,000
(-) Reserve = 20,000
(-) Preferred share div = 60,000
Profit available for div = 20,000
Expected Rate of Return = Profit available for equity dividend x100
Paid up equity capital

Expected Rate of return = 20,000 x 100 = 25%

80,000
Yield value = Expected Rate of Return x 100
Annual Rate of Return

Yield value = 25/20 x 8 = Rs. 10

Share Holding = 10,000 x 10
= 1,00,000

50. From the following information calculate the value of an equity share
(a) The subscribed share capital of a company consists of 10,000, 14% preference shares of Rs. 100 each and 2,00,000 equity
shares of Rs. 10 each. All the shares are fully paid up.
(b) The average annual profits of the company after providing depreciation bur before taxation are Rs. 25,00,000. It is considered
necessary to transfer Rs. 1,25,000 to general reserve before declaring any dividend. Rate of serration is 50%
(c) The normal return expected by investors on equity shares from the type of business carried on by the company is 20%.

Solution:
Profit before tax = 25,00,00
(-) Tax =12, 50,000
12,50,000
(-) Transfer to reserve = 1,25,000
(-) preference dividend = 1,40,000
Profit available = 9,85,000

Expected Rate of Return = Profit available for equity dividend x100

Paid up equity capital
= 9,85,000 x 100
20,00,000
= 49.25%
Yield value = Expected Rate of Return x Paid up share value
Actual rate of return
= 49.25 x 10
20
= Rs. 24.63

52. A Company has, as its capital 1,00,000. 'A' equity shares of Re. I each, fully paid, 1,00,000 'B' equity shares of Re. 1 each, 75
paise paid up and 1,00,000 'C' equity share of Re. 1 each, 50 paise paid up. The normal average net profit less tax, of the
company is estimated to be Rs. 36,000 and the estimated rate of capitalization is 8% calculate the value of each class of share.

ANS:
Expected Rate of Return = Profit available for equity dividend x100
Paid up equity capital
Expected Rate of Return = 36,000 x 100 = 16%
2,25,000
A’s yield = 16 / 8 x 1 = 2
B’s yield = 16 / 8 x 0.7s = 1.5
C’s yield = 16 / 8 x 0.50 = 1

53. The authorized and paid-up capital of a company consists of 1,000, 5% preference shares of Rs. 100 each and 20,000 equity
shares of Rs. 15 each, all fully called up and paid up. A person holds 300 preference and 2,000 equity shares. Find out the value
of equity shares held by the person assuming that the normal annual profit of the company is Rs. 40,000 and the normal annual
return on similar equity shares is 8% per annum. Assume that the company transfers 25% of the profit to general reserve and the
profit above is profit after tax.

Solution:
Profit = 40,000
(-) Transfer to = 10,000 (25% of 40,000)
General reserve
(-) Preference dividend= 5,000 (1,000 x 100 x 5%)
Profit Available = 25,000

Expected Rate of Return = Profit available for equity dividend x100

Paid up equity capital
= 25,000 x 100
3,00,000
= 8.33 %
Yield Value = Expected Rate of Return x 100
Annual Rate of Return
= 8.33 x 100
8
= Rs. 15.6

54.The profits of a company, Limited by Shares, for the year ended 31st March, 1999 were Rs.6,00,000. After setting apart
amount for interest on borrowings, Taxation and other provisions, the net surplus available to shareholders is estimated at
Rs.1,50,000. The company’s capital consisted of:
a) 10,000 equity shares of Rs.100 each, Rs.50 per share paid up, and
b) 2,500 12% Redeemable Preference shares of Rs.100 each fully paid up.
Enquiries in the stock market revel that shares of companies engaged in similar business and declaring a dividend of 15% on
equity shares are quoted at a premium of 10%.
On the basis of yield method, compute the value of the equity share.

SOLUTION
Profit available = 1,50,000 – 30,000 (preference dividend) = 1,20,000
Expected Rate of Return = Profit available for equity dividend x100
Paid up equity capital
Expected Rate of Return = 1,30,000 x 100
5,00,000
= 24%
Normal Rate of Return = 15 x 100
110
= 13.63
Yield Value = Expected Rate of Return x 100
Annual Rate of Return
Yield value = 24 x 50
13.63
= Rs.88

55) From the following particulars, calculate the value of equity shares from the viewpoint of
(i) majority holdings and
(ii) minority holdings
•Share capital: 40,000 equity shares of Rs.10 each fully paid
•Profits (after deduction of tax) for the last 3 years: Rs.90,000; Rs.1,20,000 and Rs.1,14,000
•Dividend paid for the last 3 years: 12%; 17% and 16%
•Normal rate of return: 12%

Ans
(i) Majority
Average Profit = = 1,08,000
Expected Rate of Return = Profit available for equity dividend * 100
Paid up equity capital

Expected Rate of Return = = 27

Yield value per share = Expected Rate of Return * Paid up value per share
Normal Rate of Return
Yield value = = 22.50

(ii) Minority
Average Rate of Dividend = = 15 %

Value of equity shares = = 12.50

56.The paid up capital of a company consists of 20,000, 5% participating preference shares of Rs. 10 each and 40,000 equity
shares of Rs. 10 each. The preference shares are entitled to participate in the profits to the extent of a further 5% after payment of
a dividend of 12% to the equity shareholders. Any further excess is available for equity shareholders. The normal average profit
(after tax) of the company is Rs. 1,00,000 per annum. The normal return applicable to this type of Company is 10% on the
nominal value of equity shares and 8% on the preference shares which are participating. Calculate the value of each of the classes
of shares.

SOLUTION:
Profit after tax = 1,00,000
(-) Preference dividend = (10,000) (20,000 x 10 x5%)
(-) Equity Dividend = (48000) (40,000 x 10x12%)
(-) Excess 5% Preference Dividend = 40,000
 32,000
Profit available for equity dividend = 1,00,000 – 20,000 (10,000 + 10,000)
= 80,000
Expected Rate of Return = Profit available for equity dividend x100
Paid up equity capital
Expected Rate of Return = 80,000 x 100 = 20%
400000
Yield value = 20 x 10 = 20
10
Preference shares = 20,000 x 100 = 10%
2,00,000
Yield Value = Expected Rate of Return x 100
Annual Rate of Return
Yield Value = 10 x 10 = Rs. 12.5

57. The following is the balance sheet of Jaya Co. Ltd. As on 31st Dec. 1998.
Liabilities Rs. Assets Rs.
Share capital: Land & Buildings 10,00,000
9000 equity shares of Rs. 100 each 9,00,000 Plant and Machinery 14,00,000
21,000 8% preference shares of Rs. 100 each 21,00,000 Stock in trade 6,00,000
Profit & Loss A/c 3,00,000 Sundry debtors 6,00,000
Sundry creditors 4,50,000 Cash at bank 1,50,000
37,50,000 37,50,000

The net profits of the company for the past five years before providing for taxation were:
1994 – Rs. 5,40,000; 1995 – Rs. 6,00,000; 1996 – Rs. 5,40,000.
1997 – Rs. 4,50,000 and 1998 - Rs. 3,00,000.
Another company engaged in the same type of business pays a dividend of 10% and its shares are quoted on the stock exchange
at Rs. 100. Assuming taxation at 50% and appropriation of 10% of the balance to reserves, calculate the value of each equity
share.
Valuation of shares under both intrinsic value and yield value

ANS:
Profit after tax = 1,00,000
(-) preference dividend = 10,000
(-) Excess 5% Preference dividend = 10,000
Profit available for equity dividend = 80,000

Expected Rate of Return = Profit available for equity dividend x100

Paid up equity capital
= 80,000 x 100
4,00,000
= 20%
Yield Value = Expected Rate of Return x 100
Annual Rate of Return
=20 x 10
10
= Rs.20

Preference shares = 20,000 x 100

2,00,000
= 10%
Yield value = 10 x 10
8
 = Rs. 12.5

58. On 31st Dec. 1995, the balance sheet of a limited company disclosed the following position:
Liabilities Rs. Assets Rs.
Issued capital in Rs. 10 shares 4,00,000 Fixed assets 5,00,000
Reserves 90,000 Current assets 2,00,000
Profit & Loss A/c 20,000 Goodwill 40,000
5% debentures 1,00,000
Current liabilities 1,30,000
7,40,000 7,40,000

On 31st Dec. 1995, the fixed assets were independently valued at Rs. 3,50,000 and the goodwill at Rs. 50,000. The net profits for
the three years were:
1993 – Rs. 51,600; 1994 – Rs. 52,000 and 1995 – Rs. 51,650 of which 20% was placed to reserve, this proportion being
considered reasonable in the industry in which the company is engaged and where a fair investment return may be taken at 10%.
Compute the value of the company’s share by (a) the net assets method and (b) the yield method.
ANS:
Particulars Rs.
Assets
FA
GW
3,50,000
CA
50,000
(-) Liabilities 6,00,000
2,00,000
Debtors
Current liabilities
1,00,000
2,30,000
1,30,000
Net Assets

3,70,000

Intrinsic Value = net assets / No of equity share

Intrinsic Value = 3,70,000 / 40,000
= 9.25
AP = 51,600 + 52,000 + 51,650 = 51,750
3
(-) Reserve = 10,350
41,400

Expected Rate of Return = Profit available for equity dividend * 100

Paid up equity capital
Expected Rate of Return = 41,400 x 100 = 10.35%
4,00,000
Yield Value = Expected Rate of Return * Paid up value per share
Normal Rate of Return
Yield Value = 10.35 x 10 = Rs. 10.35
10

59. The Balance Sheet of Ganesh Ltd. As on 31.3.1995 was as under:

Liabilities Rs. Assets Rs.
 2,000 equity shares of Rs. 100 each 2,00,000 Land & Buildings 1,25,00
General reserve 50,000 Machinery 75,000
Profit & Loss A/c 25,000 Investments at cost (Market value Rs.37,500) 45,000
Creditors 45,000 Debtors 50,000
Provision for taxation 20,000 Stock 37,000
Provident fund 17,500 Cash at bank 25,000
3,57,000 3,57,000

Additional information:

● Land & Buildings and Machinery are values at Rs. 1,37,500 and Rs. 55,000 respectively.
● Of the total debtors, Rs. 2,500 are bad.
● Goodwill is to be taken at Rs.25,000.
● The normal rate of dividend, declared by such type of companies is 15% on the paid up capital.
● The average rate of dividend, declared and paid by this company is 18% on its paid up capital. Calculate the
fair value of the equity share of the company.

ANS:
Rs.
Particulars Rs.

Assets
Land and Building 137500
Machinery 55000
Investment 37500
Debtors 47500
Stock 37500
Cash 25000
Goodwill 25000 365000

(-) Liabilities
Creditors 45000
Provision for tax 20000
Provident Fund 17500 82500
282500

Intrinsic value = Net assets for equity shareholders / No of equity shares

=282500/2000
=141.25
Yield value = Expected rate of return / Normal rate of return x 100
=18/15 x 100 = Rs.120
Fair share value = 141.25 + 120
2
= Rs .130 .63

60) The following is the summarized balance sheet of ABC Ltd. as at 31.12.98
Liabilities Rs Assets Rs
100000 equity shares of Rs. 10 each 1000000 Plant & machinery 480000
Securities premium 200000 Furniture 200000
General reserve 478800 Stock 1240000
Profit & Loss A/c 315200 Debtors 412000
Sundry creditors 818800 Cash at bank 874800
 Provision for taxation 394000
TOTAL 3206800 TOTAL 3206800

The company transfers 20% of its profits (after tax) to general reserve.Net profits before taxation of the last three years have been
as follows :
1996 – Rs.670000; 1997 – Rs.732000; and 1998 – Rs.788000
Machinery is valued at Rs.640000.
Average yield in this type of business is 20%
The rate of tax is 50%
Find out the value of each equity share on the basis of (a) net asset method , (b) yield method

Solution :
Average profit= 670000 + 732000 + 788000 = 2190000 =Rs. 730000
3 3
Profit = 730000
(-) Tax 50% = 365000
365000
(-) Reserve 73000
Profit available =292000

Expected Rate of Return = Profit available for equity dividend * 100

Paid up equity capital
Expected Rate of Return = 292000 * 100 = 29.2%
1000000
Yield Value = Expected Rate of Return * Paid up value per share
Normal Rate of Return
Yield Value= 29.2 * 10 = Rs. 14.60
20

Assets = 640000+200000+1240000+412000+874800= Rs. 3366800

Liabilities = 818800+394000 = Rs. 1212800
Net Assets Available =2154000

Intrinsic Value= 2154000 = Rs. 21.54

100000

61) The following is the summarised balance sheet of Shakthi Co. Ltd as on 31.12.1998
LIABILITIES Rs ASSETS Rs
20,000 eq.sh of Rs.10 each, fully paid up 2,00,000 Fixed assets (-) depreciation 3,34,000
20,000 eq.sh of Rs.10 each, Rs.7.50 per share called up & paid up 1,50,000 Current Assets 4,66,000
20,000 eq.sh of Rs.10 each, Rs.5 per share called up & paid up 1,00,000 Preliminary Expenses 18,000
General Reserve 2,70,000 Commission on issue of shares 12,000
Current Liabilities 1,10,000
8,30,000 8,30,000

It is estimated that the normal profit less tax of the company will be maintained at Rs.72000 and the expected rate of
capitalisation purpose is 8%. Calculate the value of each type of share by the Asset backing method (excluding goodwill) and
also by the earning capacity method. Assumed dividends are declared on paid up capital.

Fixed Assets 3,34,000

Current Assets 4,66,000
(-) Liabilities: Current Liabilities (1,10,000)
Net Assets 6,90,000
Intrinsic value = = 1.533

Intrinsic value of Rs.10 paid up = 1.53 * 10 = Rs 15.33

Intrinsic value of Rs.7.5 paid up = 1.53 * 7.5 = Rs 11.50
Intrinsic value of Rs.5 paid up = 1.53 * 5 = Rs 7.65

Average Profit = Rs. 72,000

Expected Rate of Return = Expected Profits * 100

Equity paid up capital

Expected Rate of Return = = 16

Yield value per share = Expected rate of return * Paid up value per share
Normal rate of return

Yield value of Rs.10 paid up = 16/8 * 10 = Rs 20

Yield value of Rs.7.5 paid up = 16/8 * 7.5 = Rs 15
Yield value of Rs.5 paid up = 16/8 * 5 = Rs 10

62) The following is the balance sheet of Murray Co Ltd as on 31.3.98

Liabilities Rs Assets Rs
3000 8% preference shares of Rs.100 each fully
300000 Building less depreciation 390000
paid
6000 equity shares of Rs.100 each fully paid 600000 Machinery less depn. 260000
General reserve 330000 Furniture 60000
Investment in 6% Govt. securities (face value
Profit & Loss A/c 120000 270000
Rs.300000)
Sundry creditors 300000 Stock 300000
Debtors 195000
Less : Provision for bad debts 180000
Cash at bank 60000
Preliminary 30000
TOTAL 1650000 TOTAL 1650000

Additional Information:

● Companies doing similar business show profit earning capacity of 10% on market value of their shares.
● The present value of building is rs. 540000 and that of machinery is rs 240000.
● The average annual profit after 50% tax of last 3 years is Rs. 144000
● The company has held 6% Government securities for the last three years and the interest is liable to tax
● Goodwill of the company is to be valued at 5 years’ purchase of super profit
● It is considered necessary to transfer Rs. 30000 to the General Reserve before declaring any dividend.

Calculate the fair value of the share of the company.

Solution:
Goodwill = Super profit * No of Years of purchase
Super Profit = Average Profit - Normal Profit
Normal Profit = Capital Employed- Normal Rate of Return
Capital Employed = Assets - Liabilities
=540000+240000+60000+300000+180000-300000
=1080000
Normal Profit = 1080000*10% = Rs. 108000
Average Profit = 288000-18000(int on securities)
=270000
(-) Tax 50% =135000
135000

Super Profit =135000- 108000 = Rs. 27000

Goodwill = 27000*5= Rs. 135000

Assets = 135000+540000+240000+60000+270000+300000+180000+60000= 1485000

Liabilities = 300000
Net Assets Available = 1185000

Intrinsic Value = 1185000 = Rs. 197.5

6000

Profit = 120000-30000= 90000

Expected Rate of Return = Expected Profits * 100
Equity paid up capital
Expected Rate of Return = 90000 * 100 = 15%
600000
Yield value per share = Expected rate of return * Paid up value per share
Normal rate of return

Yield Value = 15 * 100 = Rs. 150

10
Fair Share Value = 197.5 + 150 = Rs. 173.75
2
 UNIT 5

1. ALTERATION OF SHARE CAPITAL AND INTERNAL

RECONSTRUCTION
 ALTERATION OF SHARE CAPITAL AND

INTERNAL RECONSTRUCTION

1. Given below is the balance sheet of a company as on 31-3-2002.

Liabilities Rs Assets Rs
Share capital: 200000 Goodwill 120000
2000 preference shares of rs
100 each
3000 ordinary shares of rs 300000 Fixed assets 250000
100 each

Securities premium 50000 Current assets 180000

Other liabilities 150000 Preliminary expenses 15000
P&L a/c 135000
700000 700000

During 2002-03 the following resolutions were implemented:

a) To reduce the face value of the preference and equity shares to rs 50 each .

b) To write off other assets except real assets by utilizing securities premium to the required extent.

Prepare the balance sheet after the reconstruction and also the journal entries there on.

Solution:

PARTICULARS DEBIT(Rs) CREDIT (Rs)

Preference Share Capital a/c Dr 200000
To Preference Share Capital a/c 100000
To Capital Reduction a/c 100000
(Being conversion of shares and balance transferred to Capital
Reserve)

Ordinary Share Capital A/c Dr 300000

To Ordinary Share Capital A/c 150000
To Capital Reduction a/c 150000
(Being conversion of shares and balance transferred to Capital
Reserve)

Capital Reduction a/c Dr 250000

Securities Premium Reserve a/c Dr 20000
To Goodwill a/c 120000
 To Preliminary Expenses a/c 15000
To P/L a/c 135000
(Being losses written off and balance transferred to SPR a/c)

Balance Sheet as at 31-3-02

I Equity and Liabilities

1. Shareholder’s funds
Equity Share Capital 150000
Preference Share Capital 100000 250000
2. Reserves and Surplus – SPR 30000
3. Current Liabilities – Other current Liabilities 150000
Total 430000
II Assets
1. Fixed Assets 250000
2. Current Assets 180000
Total 430000

2. Vijay Lakshmi Co Ltd. Was floated with a capital of rs 2000000 in 100000 equity shares of rs 10
each and 100000 preference shares of rs 10 each and the capital was fully subscribed and paid.
The preference shares carried cumulative preference rights as to dividend but not as to capital
repayment. The company was unsuccessful and sustained trading losses amounting to rs
300000. In addition, the majority of the patents acquired by the company proved to be
worthless. It was resolved to write off Rs 100000 zero of the subscribed capital by reducing each
class of shares by rs 5 per share and to reduce the assets correspondingly by
1) Wiping out the debit balance of the profit and loss AC of rs 300000
2) Writing down goodwill to the extent of rs 300000
3) Writing of patents by RS 300000 and preliminary expenses account of rs 100000
Pass the journal entries to give effect to the above transactions.

Solution:

PARTICULARS DEBIT(Rs) CREDIT (Rs)

Preference Share Capital a/c Dr 1000000
To Preference Share Capital a/c 500000
To Capital Reduction a/c 500000
(Being conversion of shares and balance transferred to Capital
Reserve)

Equity Share Capital A/c Dr 1000000

To Equity Share Capital A/c 500000
To Capital Reduction a/c 500000
(Being conversion of shares and balance transferred to Capital
Reserve)
Capital Reduction a/c Dr 250000
To Goodwill a/c 300000
To Preliminary Expenses a/c 100000
To P/L a/c 300000
To Patents Written off 300000
(Being losses and intangible assets written off )
 INTERNAL RECONSTRUCTION

3. A scheme of capital reduction approved on 31 31990 of A Co Ltd. is as

follows: Share Capital:
10000 Equity shares of rupees 100 each (RS 90 per share paid up) Amount uncalled
on these shares is to be cancelled now and the paid-up value is to be reduced by
RS20 per share.
5000 8% cumulative preference shares of rs 100 each fully paid-up shares. (These
shares are now to be converted into non-cumulative and in exchange for one share of rs
100, 9 shares of rs 10 are to be given. Against their accrued but not declared dividend of
rs 80000 at the rate of one share per every dividend of rs 100 8% non-cumulative
preference shares of rs 10 each are to be given)
Included in the assets are:
Buildings Rs 200000 (original cost Rs 250000 less depreciation fund rs 50000) debit
balance of profit and loss AC rs 70000, Goodwill rs 30000 and preliminary expenses rs
15000. The value of the building is to be reduced by RS 50000 and its depreciation
fund is to be increased by RS 10000. Intangible and fictitious assets are to be written
off completely. Give necessary journal entries to give effect to the above scheme.

Solution:
PARTICULARS DEBIT(Rs) CREDIT (Rs)
Preference Share Capital a/c Dr 500000
To Preference Share Capital a/c 450000
To Capital Reduction a/c 50000
(Being conversion of shares and balance transferred to
Capital Reserve)

Equity Share Capital A/c Dr 900000

To Equity Share Capital A/c 700000
To Capital Reduction a/c 200000
(Being conversion of shares and balance transferred to
Capital Reserve)

Capital Reduction a/c Dr 250000

To Goodwill a/c 30000
To Preliminary Expenses a/c 15000
To P/L a/c 70000
 To Depreciation Fund a/c 10000
To Building a/c 50000
To Preference Share Capital a/c 8000
To Capital Reserve 67000
(Being losses written off, assets reduced, shares issued for
arrears of dividend and balance transferred to Capital
Reserve)
 ALTERATION OF SHARRE CAPITAL AND INTERNAL
RECONSTRUCTION
(4) The following is the summarised balance sheet of Reckles Co. Ltd. As at 31 st
March,2007.
Liabilities Rs. Assets Rs.
5,000 equity shares of 5,00,000 Sundry Assets 2,02,800
Rs.100 each Profit & Loss A/c 2,97,200
5,00,000 5,00,000
The company has decided that the worst is over and hence it adopts a scheme of
reconstruction, reducing all its equity shares into an equal number of fully paid
equity shares of Rs.10 each. Pass journal entries and prepare the balance sheet
immediately after the reconstruction.
SOLUTION: Journal Entries
Particulars Debit (Rs.) Credit (Rs.)
(I)Equity share capital A/c (5,000X100) Dr 5,00,000
To New Equity share capital A/c (5,000X10) 50,000
To Capital Reduction A/c 4,50,000
(Being conversion of 5,000 shares of RS.100 each into
shares of Rs.10 each fully paid, balance transferred to
Capital Reduction A/c)
(II)Capital Reduction A/c Dr 4,50,000
To Profit and Loss A/c 2,97,200
To Capital Reserve A/c (b/f) 1,52,800
(Being losses written off, assets written off and
balance of Capital Reduction transferred to Capital
Reserve A/c)

Balance sheet in the books of Reckles Co. Ltd As at 31st March 2007
Rs.
I. Equity and liabilities
i. Shareholders funds:
Share Capital 50,000
Reserves and Surplus 1,52,800
Total 2,02,800
II. Assets
i.Non-Current Assets
Sundry Assets 2,02,800
Total 2,02,800
(5) The balance sheet of Gloomy Ltd. was as follows on 30th June 1978.
Liabilities Rs. Assets Rs
4,000 shares of Rs.100 Goodwill 60,000
each fully paid 4,00,000 Land & Buildings 1,00,000
6% Debentures 2,00,000 Plant and Machinery 4,00,000
Sundry Creditors 2,50,000 Stock 90,000
Sundry Debtors 60,000
Preliminary expenses 10,000
Profit& Loss A/c 1,30,000
8,50,000 8,50,000
In order to reconstruct the company, wiping off fictitious and intangible assets and
writing down Plant and Machinery to its proper figure of Rs. 3,00,000, the shares
were reduced to Rs. 20 each. Court`s approval was obtained. Draft the necessary
journal entries and show the balance sheet after the scheme is put through.

SOLUTION: Journal Entries

Particulars Debit (Rs.) Credit (Rs.)
(I)Share Capital A/c (4,000X100) Dr 4,00,000
To New Share Capital A/c (4,000X20) 80,000
To Capital Reduction A/c 3,20,000
(Being conversion of 4,000 shares of RS.100 each into
shares of Rs.20 each fully paid, balance transferred to
Capital Reduction A/c)
(II)Capital Reduction A/c Dr 3,20,000
To Goodwill A/c 60,000
To Plant and Machinery A/c 1,00,000
To Profit & Loss A/c 1,30,000
To Preliminary expenses A/c 10,000
To Capital Reserve A/c 20,000
(Being losses written off, assets written off and
balance of Capital Reduction transferred to Capital
Reserve A/c)
 Balance Sheet of Gloomy Ltd. as on 30th June 1978
Rs.
I. Equity and liabilities
i. Shareholders’ funds:
Share Capital 80,000
Reserves and Surplus 20,000
ii. Long term borrowings
6% Debentures 2,00,000
iii. Trade payables
Sundry creditors 2,50,000
Total 5,50,000
II. Assets
i.Tangible assets
Plant and Machinery 3,00,000
Land & Building 1,00,000
Stock 90,000
ii. Trade receivable
Sundry debtors 60,000
Total 5,50,000
 CORPORATE ACCOUNTING
ALTERNATION OF SHARE CAPITAL AND INTERNAL
RECONSTRUCTION

Sum no. 6
Balance Sheet of X Ltd.
Liabilities Rs. Assets Rs.
Issued and paid-up share Goodwill 10,000
capital Other fixed assets 90,000
10,000 equity share Stock-in-trade 25,000
of Rs. 10 each fully Debtors 30,000
paid 1,00,000 P&L A/c 45,000

10,000 7%
preference share of
Rs. 10 each fully
paid 1,00,000

2,00,000 2,00,000

It was resolved that equity share capital of Rs. 10 each be

reduced to fully paid 7.5% shares of Rs. 6 each and 7%
preference share of Rs. 10 each be reduced to fully paid
preference share of Rs. 7 each. Number of shares in each
case remained the same. It was further resolved that amount
so available be used for writing off the debit balance of the
Profit and Loss account and goodwill account and other fixed
assets to the extent possible. There were arrears of
preference dividend for the last three years and it was
decided that they be cancelled. Draft the journal entries and
prepare the revised balance sheet.

Answer
Particulars Dr. Cr.
Equity share capital A/c Dr 1,00,000
To Equity share capital (new) A/c 60,000
To Capital Reduction A/c 40,000
[Being conversion of 10,000 share of Rs.
10 fully paid into Rs. 6 fully paid balance
transferred to capital reduction]

Preference share capital A/c Dr 1,00,000

To Preference share capital (new) A/c 70,000
To Capital Reduction A/c 30,000
[Being conversion of 10,000 share of Rs.
10 fully paid into Rs. 7 fully paid balance
transferred to capital reduction]

Capital Reduction A/c Dr 70,000

To Profit & Loss A/c 45,000
To Goodwill A/c 10,000
To Fixed Asset A/c 15,000
[Being various losses written off and
assets written down as per scheme of
capital reduction]
 Balance Sheet of X Ltd.
Particulars Notes Rs.
I. Equity and Liabilities
1) Shareholders’ funds
 Share capital 1. 1,30,000

1,30,000
II. Assets
1) Non-current assets
 Fixed asset 75,000
2) Current assets
 Trade receivables 2. 30,000
 Inventories 3. 25,000

1,30,000

Notes to accounts
Particulars Rs.
1. Share capital
10,000 equity shares of Rs. 6 each fully paid 60,000
10,000 7% preference share of Rs. 7 each
fully paid 70,000
1,30,000

2. Trade receivables
Debtor 30,000
3. Inventories
Stock-in-trade 25,000
55,000
 Sum no. 7
The following is the Balance Sheet of Weak Ltd. On 31-3-2003
Liabilities Rs. Assets Rs.
20,000 equity share of Patents 40,000
Rs. 10 each 2,00,000 Buildings 2,00,000
500 10% preference Machinery 1,30,000
share of Rs. 100 each 50,000 Stock 80,000
8% Debentures 1,00,000 Debtors 55,000
Creditor 3,30,000 P&L A/c 1,95,000
Outstanding Expenses 20,000

7,00,000 7,00,000

With a view to reconstruct the company, it is proposed:

I. To reduce Equity share paid up amount by Rs. 9 each.
II. To reduce 10% Preference shares by Rs. 40 each.
III. To reduce 8% Debentures by 10%
IV. To reduce Trade Creditors’ claim by one Third.
V. To reduce Machinery by Rs. 60,000
VI. To reduce Inventory by Rs. 10,000
VII. To provide Rs. 15,000 for bad debts
VIII. To Write off all the intangible assets
Pass Journal entries to give effect to the above scheme and
show the company’s Balance Sheet after reconstruction.

Answer
Particulars Dr. Cr.
Equity share capital A/c Dr 2,00,000
To Equity share capital (new) A/c 20,000
To Capital Reduction A/c 1,80,000
[Being conversion of 20,000 share of
Rs. 100 fully paid into Re. 1 fully paid
balance transferred to capital
reduction]

Preference share capital A/c Dr 50,000

To Preference share capital (new) A/c 30,000
To Capital Reduction A/c 20,000
[Being conversion of 500 share of Rs.
100 fully paid into Rs. 60 fully paid
balance transferred to capital
reduction]

8% Debentures A/c Dr 10,000

To Capital Reduction A/c 10,000
[Being 8% debentures reduced by 10%]

Creditor A/c Dr 10,000

To Capital Reduction A/c 10,000
[Being creditors reduced by 1/3]

Capital Reduction A/c Dr 3,20,000

To Profit & Loss A/c 1,95,000
To Patents A/c 40,000
To Machinery A/c 60,000
To Inventory A/c 10,000
To Bad Debts A/c 15,000
[Being various losses written off and
assets written down as per scheme of
capital reduction]

Balance Sheet of X Ltd.

Particulars Notes Rs.
I. Equity and Liabilities
1) Shareholders’ funds
 Share capital 1. 50,000
2) Reserves & Surplus -
3) Non-current liabilities
 Long term liabilities 2. 90,000
4) Current liabilities
 Trade payables 3. 2,20,000
 Other current liabilities 4. 20,000
3,80,000
II. Assets
5) Non-current assets
 Tangible asset 5. 2,70,000
6) Current assets
 Trade receivables 6. 40,000
 Inventories 7. 70,000

3,80,000

Notes to accounts
Particulars Rs.
1. Share capital
20,000 equity shares of Re. 1 each fully paid 20,000
 500 7% preference share of Rs. 60 each
fully paid 30,000
2. Long term liabilities
10% Debentures 90,000

3. Trade payables
Creditor 2,20,000

4. Other current liabilities

Outstanding Expense 20,000
3,80,000
5. Tangible assets
Building 2,00,000
Machinery 70,000
2,70,000

6. Trade receivables
Debtor 40,000

7. Inventories
Stock 70,000
3,80,000
CHAPTER: 9 INTERNAL RECONSTRUCTION

8. The following is the balance sheet of Rackless Co.Ltd, as on 31.03.2006

Liabilities Assets

Subscribed share capital: Leasehold premises 1,30,000

7,500 preference shares of Rs. 100 Plant 42,000
Each fully paid 7,50,000 Patents 8,50,000
5,000 equity shares of Rs. 100 Stock 55,000
Each fully paid 5,00,000 Debtors 76,000
Sundry creditors 30,000 Cash 500
Bank overdraft 20,000 Preliminary expenses 12,000
Discount on issue of shares 18,000
P & L A/C 1,15,000

13,00,000 13,00,000

As the company was not doing well, the following scheme of reconstruction was adopted.
(a) The preference shares are reduced to an equal number of fully paid shares of rs. 50 each.
(b) The equity shares are reduced to an equal number of shares of Rs 25 each.
(3) The amount available be used to write off the fictitious assets fully, Rs 30,800 off the
leasehold premises, Rs 15,000 off stock,20% off plant and debtors and the balance available
off parents. Journalise and prepare the balance after the construction has been carried out.

PARTICULAR L.F AMOUNT AMOUNT

Equity share capital A/c Dr 5,00,000

To equity share capital A/c 1,25,000

To capital reduction A/c 3,75,000

[Being equity share capital reduce

to Rs 25]
Preference share capital A/c Dr 7,50,000

To preference share capital A/c 3,75,000

To capital reduction A/c 3,75,000

[being preference share capital

reduce to Rs 50]

Capital reduction A/c Dr 7,50,000

To P&L A/c 1,15,000

To discount on issue of share A/c 18,000

To preliminary expenses A/c 12,000

To leasehold premises A/c 30,800

To stock A/c 15,000

To plant A/c 8440

To debtors A/c 15300

To patents A/c [Bf] 5,35,460

[Being P&L, discount on issue of

share,pre.exp,leasehold written off]

BALANCE SHEET
Particular Note.no Amount

Share capital liability

Shareholder fund

Equity share capital 1 1,25,000

Preference share capital 1 3,75,000

Trade payable

Sundry creditors 2 30,000

Short term borrowing

Bank overdraft 3 20,000

Total 5,50,000

Assets

Fixed asset

Tangible asset 4

Leasehold premises 1,00,000

plant 33,760

Stock 40,000

Debtors 61,200
 Cash & cash equivalent 5 500

Intangible asset

Patent(850000-535460) 3,14,540

total 5,50,000

9. Messrs Additya & co promoted a joint stock company in 1983. The working of the company
was not successful. On 31.12.1986 its balance sheet stood as follows.

Liabilities Assets

Nominal capital; Good will 1,00,000

30,000 shares of Rs. 100 each 30,00,000 Land & buildings 3,00,000
Machinery 6,50,000
Subscribed capital; Furniture 40,000
25000 shares of Rs 100 each Stock 4,75,000
fully paid 25,00,000 Debtors 2,50,000
Profit & loss A/c 10,60,000
Creditors 1,75,000
Aditya & co 2,00,000
. __________ __________
28,75,000 28,75,000
__________ __________

The company is to be reconstructed on the basis of the following scheme.

(a) 25,000 shares of Rs 100 each are to be reduced to an equal number of fully paid shares of
Rs 45 each.
(b) the debt of rs 2,00,000 due to Aditya & co is also to be reduced. They have agreed to accept
2,500 shares of 45 each fully paid in full settlement of the amount due to them.
(c) the amount thus rendered available by the reduction of capital and by the above
arrangement with aditya & co is to be utilised in whipping off the goodwill and profit & loss A/c
and in writing down the value of machinery.

Give journal entries in the books of the company necessitated by the above reconstruction and
show the new balance sheet of the company.
Particular L.F amount amount

Equity share capital A/C dR 25,00,000

To equity share capital A/c 11,25,000

To capital reduction A/c 13,75,000

[Being equity share capital has

reduced to rs 45]

Aditya & co A/c Dr 2,00,000

To equity share capital A/c 1,12,500

To capital reduction A/c 87,500

[aditya & co has reduced]

Capital reduction A/c Dr 14,62,500

To goodwill A/c 1,00,000

To p&l A/c 10,60,000

To machinery A/c (BF) 3,02,500

[Being good will,p&l,machinery

written off]

BALANCE SHEET

PARTICULAR NOTE.NO AMOUNT

Share capital & liabilities

shareholder fund 1

Equity share capital 12,37,500

Trade payable 2

creditor 1,75,000

total 14,12,500
Assets

Fixed assets

Tangible assets 3

Land & buildings 3,00,000

machinery 3,47,500

furniture 40,000

Inventories 4

stock 4,75,000

Trade receivable 5

debtors 2,50,000

total 14,12,500
10. Sick Ltd had the following balance sheet as on 31.3.2007

Liabilities Rs Assets Rs

6% preference share of rs 100 each 2,00,000 Goodwill 60,000

Equity shares of rs 100 each 4,00,000 Fixed assets 3,00,000
Debentures 1,00,000 Stock 1,50,000
Sundry creditors 1,50,000 Debtors 60,000
Discount on debentures 10,000
Bank 1,000
P & l a/c 2,69,000
850000 850000
The following reconstruction scheme was approved:

(a)preference shares be reduced to 8% preference shares of rs 60 each.

(b)Equity shares to be reduced by rs 80 each

(C) the amount thus made available to be utilized to write off fictitious assets including goodwill and
rs 50,000 from fixed assets

Give entries for the reconstruction and the final balance sheet

Solution:

Journal entries

Particular Debit Credit

6%preference share a/c. Dr 2,00,000

To preference capital a/c 1,20,000
To capital reduction a/c 80,000
(Preference share been reduced)
Equity share account a/c Dr 4,00,000
To Equity shares a/c 80,000
To capital reduction a/c 3,20,000
(Equity shares to be reduced)
Capital reduction a/c. Dr 4,00,000
To Goodwill a/c 60,000
To p&l a/c 2,69,000
To Fixed assets 50,000
To Discount on debentures 10,000
To capital reserve 11,000
(Utilized to write off fixed assets)

Balance sheet as on 31.3.2007

Rs
I. Equity and Liabilities:
• Shareholders fund
Share capital 80 000
 Preference capital 1,20,000
Reserve and surplus 11,000

• Non current Liabilities

Long term borrowing 1,00,000

• Current Liabilities
Trade payable 1,50,000
Total 4,61,000
II. Assets
• Non current assets
Fixed assets 2,50,000
• Current assets
Inventory 1,50,000
Trade receivables 60,000
Cash 1,000
Total 4,61,000

11. The balance sheet of Kavitha industries ltd as at 31.12.2008 was as follows

Liabilities Rs Assets Rs
Share capital Goodwill 15,000
2,000 preference shares of rs 100each2,00 000 Freehold properties 2,00,000
4,000 equity share of rs 100 each 4,00,000 Plant and machinery 3,00,000
5% mortgage 1,00,000 Stock 50,000
Bank overdraft 50,000 Debtors 40,000
Creditors 1,00,000 P&l a/c 2,45,000
8,50,000 8,50,000
The company got the following schemes of capital reduction approved by the court:

A. The preference shares to be reduced to rs 75 per share, fully paid up and the equity
shares to rs 37.50
B. The debentures holders took over the stock and book debts in full satisfaction of the
amount due to them
C. The Goodwill a/c is to be eliminated
D. The Freehold properties to be depreciate by 50%
E. The value of the plant and machinery to be increased by rs 50,000

Give journal entries for the above and prepare the revised balance sheet.

Solution:

Journal entries

Particular Debit Credit

Preference share capital. Dr 2,00,000
To preference share capital a/c 1,50,000
To capital reduction a/c 50,0000
(Preference shares to be reduced)
Equity share capital a/c 4,00,000
 To Equity share a/c 1,50,000
To capital reduction a/c 2,50,000
(Equity shares fully paid up)
Debentures a/c. Dr 1,00,000
To Stock a/c 50,0000
To Debtors a/c 40,000
To capital reduction a/c 10,000
(Amount due)
Capital reduction a/c. Dr 3,60,000
To Freehold properties a/c 1,00,000
To Plant and machinery a/c 2,45,000
To Goodwill a/c 15,000
(Goodwill is to eliminate)
Plant and machinery a/c. Dr 50,000
To capital reduction a/c 50,000
(Value to be increased)

Balance sheet as on 31.12.2008

Rs.
i. Equity and Liabilities:
• Share holders fund
Share capital 1,50,000
Preference share capital 1,50,000
• Short term borrowing
Creditors 1,00,000
Bank overdraft 50,000
Total 4 50,000
ii. Assets
• Non current assets
Freehold properties 1,00,000
Plant and machinery 3,50,000
Total 4,50,000
 HARDHRA.K
2013721042014
CORPORATE ACCOUNTING
INTERNAL RECONSTRUCTION
SUM-12
Give journal entries for the following transactions in
connection with internal reconstruction:
i. 30,000 equity shares of Rs.10 each fully paid
reduced to shares of Rs.5 each fully paid.
ii. 300, 9% debentures of Rs.1,000 each converted
into 1,500, 12% debentures of Rs.100 each.
iii. The debit balance of profit & loss account
Rs.1,50,000 and the preliminary expenses
Rs.30,000 were written off.
iv. The value of Plant & Machinery and Stock were
written down by Rs. 60,000 and Rs.30,000
respectively.

SOLUTION:
JOURNAL ENTRIES
S.NO PARTICULARS DEBIT CREDIT
1. Share Capital A/c Dr 30,000
 To. Share Forfeiture 21,000
A/c
To. Unpaid Calls A/c 9,000
(Being Shares forfeited
and balance amount
credited to unpaid
calls)
2. Bank A/c Dr 15,000
Share Forfeited A/c Dr 15,000
To. Share Capital A/c 30,000
(Being share forfeited
of Rs.15,000 )
3. Share Forfeited A/c Dr 6,000
To. Capital Reduction 6,000
A/c
(Shares forfeited has
been reduced to
Rs.6000)
4. Equity Share Capital 1,20,000
A/c Dr
To. New equity Share 84,000
A/c
To. Capital Reduction 36,000
A/c
(Being shares issued at
reduced value)
5. Provision for Tax 300
A/c Dr
 Capital Reduction 42,000
A/c (36,000+6,000) Dr
To. Goodwill A/c 10,000
To. Preliminary 1,500
Expenses A/c
To. Profit & Loss A/c 20,800
To. Machinery A/c 10,000
(Being Losses written
off and assets reduced
as per capital
reduction scheme)

BALANCE SHEET
NOTE Rs.
NO.
I. Equity & Liabilities:
(i) Shareholder’s fund
Share capital 84,000
Reserves & Surplus 3,700
(ii) Non-Current Liability
Creditors 15,425

TOTAL 1,03,125

II. Assets:
(i) Non-Current Assets
FIXED ASSETS
 *Land & Building 20,500
*Machinery 40,850
(ii) Current Assets
Stock 10,275
Bank 16,500
Debtors 15,000

TOTAL 1,03,125

SUM-13
The share capital of Zea Limited consisted of the
following:
(a) 10,000 6% preference shares of Rs.100
each and
(b) 50,000 equity shares of Rs. 10 each
The shares were fully paid. The company had
accumulated losses totalling Rs. 3,50,000
besides preliminary expenses Rs. 20,000. It was
also ascertained that fixed assets which stood
in the books at Rs. 14,00,000 were over-valued
to the extent of Rs.4,00,000. The following
scheme was adopted to write off the losses
and reduce the assets.
 (i) 6% preference shares were to be
converted into 7% preference shares of
Rs.60 each.
(ii) Equity shares were to be reduced to Rs.2
each. Journalise.

SOLUTION:
JOURNAL ENTRIES
S.NO PARTICULARS DEBIT CREDIT
1. Equity Share Capital 1,20,000
A/c Dr
To. New Equity Capital 60,000
A/c
To. Capital Reduction 60,000
A/c
(Being conversion of
shares and balance
transferred to capital
reduction A/c)
2. Capital Reduction 15,000
A/c Dr
To. Profit & Loss 38,000
 A/c Dr
To. Machinery A/c 6,000
To. Stock A/c 30,000
(Being losses written
off and assets reduced
as per capital
reduction scheme)

BALANCE SHEET
NOTE Rs.
NO.
I. Equity & Liabilities:
(iii) Shareholder’s fund
Share capital 60,000
(iv) Non-Current Liability
Creditors 12,000

TOTAL 72,000

II. Assets:
(iii) Non-Current Assets
FIXED ASSETS
*Land & Building 30,000
*Machinery 10,000
(iv) Current Assets
Stock 16,000
Cash 10,000
Debtors 2,000

TOTAL 72,000
 CHAPTER 9: ALTERATION OF SHARE CAPITAL AND INTERNAL
RECONSTRUCTION

QUESTION: 14

Lal and Lal Co. Ltd. was promoted in the year 1980. The working of
the company was not successful. On 31st Dec, 1984, the company’s
balance sheet stood as under:

Liabilities Rs Assets Rs
Nominal capital: Land 1,00,000
20000 shares of Rs.100 Machinery 2,60,000
each 20,00,000 Furniture 20,000
Subscribed capital: Stock 3,70,000
19000 shares of Rs.100 Debtors 1,80,000
each fully paid 19,00,000 Goodwill 2,00,000
Creditors 1,00,000 Profit & Loss A/c 9,70,000
Balraj & Co. 1,00,000
21,00,000 21,00,000
The company is to be reconstructed on the basis of the following
scheme:

a) The 19000 shares of Rs.100 each are to be reduced to an equal

number of fully paid shares of Rs.40 each.
b) The debt of Rs.100000 due to Balraj & Co was also to be
reduced, the remaining 1000 unissued shares being issued to
them as fully paid up shares of Rs.40 each in full settlement of
the amount due to them.
c) The amount thus rendered available by the reduction of capital
and by the above arrangements with Balraj Co. is to be utilised
in wiping off goodwill and Profit & Loss A/c and in writing down
the value of machinery.

You are required to follow the scheme of reconstruction and prepare

the new balance sheet of the company.
 SOLUTION:

JOURNAL ENTRY

Sno. Particulars Debit Amt Credit Amt

Rs. Rs.
1. Equity share Capital A/c (19000x100) Dr. 19,00,000
To New Equity Share Capital A/c(19000x40) 7,60,000
To Capital Reduction A/c (19000x60) 11,40,000
[Being conversion of old equity shares into
new equity shares and balance transferred to
capital reduction]
2. Balraj & Co. A/c (1000x100) 1,00,000
To New Equity Share Capital A/c(1000x40) 40,000
To Capital Reduction A/c(1000x60) 60,000
[Being 1000 shares reissued to Balraj & Co.
and the balance transferred to capital
reduction]
3. Capital Reduction A/c Dr. 12,00,000
To Goodwill A/c 2,00,000
To Profit & Loss A/c 9,70,000
To Machinery A/c 30,000
[Being loss written off and assets written
down as per scheme of capital reduction]
 NOTES TO ACCOUNTS

Particulars Rs. Rs.

1.Share capital
Equity Share Capital 8,00,000
2. Trade Payables
Sundry Creditors 1,00,000
3. Tangible Assets
Land 1,00,000
Machinery 2,30,000
Furniture 20,000 3,50,000
4.Inventories
Stock 3,70,000
5.Trade Payables
Debtors 1,80,000
BALANCE SHEET OF LAL AND LAL CO.LTD AS ON 31st MARCH,1984.

Particulars Note No. Rs.

I.EQUITY AND LIABILITIES
1.Shareholders Funds
a) Share Capital 1 8,00,000
2. Current Assets
Trade Payables 2 1,00,000
9,00,000
II.ASSETS
1.Non-Current Assets
Tangible Assets 3 3,50,000
2.Current Assets
Inventories 4 3,70,000
Trade Payables 5 1,80,000
9,00,000
 ALTERATION OF SHARE CAPITAL AND INTERNAL RECONSTRUCTION

16. The following was the balance sheet of YLtd as on 31th March 1987:

PARTICULARS RS PARTICULARS RS
Share Capital 300000 Goodwill 60000
3000 7% preference shares of
Rs 100 each
4000 equity shares of Rs 100each
Profit prior to incorporation 400000 Land and building 150000
6% Debentures 10000 Patents 30000
Sundry Creditors 300000 Stock 220000
200000 Sundry Debtors 150000
Cash at bank 5000
Preliminary expenses 25000
P/L A/C 270000
Plant and machinery 300000
12,10,000 12,10,000

The following scheme of reconstruction was duly approved

(a) 7% preference shares be converted into 9% preference shares the amount being reduced to
30%
(b) Equity shares be reduced to fully paid shares of RS 50 each
(c) Land and building be appreciated by 20%
(d) Debentures be reduced by 20%
(e) All intangible assets, fictitious assets including patents and accumulated losses be written
off. Utilize profit prior to incorporation if necessary.
(f) Equity shareholders to subscribe equity shares of Rs 100000 the amount scheme to have
been put through

Give journal entries and prepare balance sheet

PARTICULARS L.F DR CR
7% Preference shares 300000
To Preference share capital 210000
To capital reduction 90000
(being reduction of capital as per special resolution)
Equity share capital 400000
To New equity share capital 200000
To Capital reduction 200000
(being reduction of capital as per special resolution
4000 preference shares@ Rs 50 per share)
6% debentures 300000
To 6% debentures 240000
To capital reduction 60000
 (being for reducing the claim of debentures holders and
transferring balance to capital reduction)
Land and building 30000
To capital reduction 30000
(being appreciation in land and building)
Profit prior to incorporation 5000
Capital Reduction 380000
To Goodwill 60000
To patents 30000
To preliminary expense 25000
To profit and loss 270000
(being shares issued for arrears of dividend and losses
written off)
Plant and machinery 100000
To Bank 100000
Bank 100000
To Equity shares capital 100000
(being receipt of equity share from equity share from equity
share holder for working capital)
Balance Sheet

Particulars Amt
1)EQUITY AND LIABILITY
i)Shareholders funds
a) Share capital
Equity share capital 200000
9% Preference share capital 210000
New equity share 100000
ii) Non-current liability
Long term borrowings 240000
iii) Current Liability
Profit prior to incorporation 5000
Trade payables 200000
955000
2) Assets
i)Non-current Asset
Tangible asset 580000
ii)Current Asset
Stock 220000
Debentures 150000
Cash 5000
955000

17. The Balance sheet of Sharma.Co Ltd as on 31 Dec 1988 was as follow:

Share Capital 1000000 Premises 480000

40000 preference shares of Rs 10 each
120000 equity shares of Rs 5 each
Reserve 2000 Plant 350000
9% debentures 240000 Loose Tools 100000
Creditors 400000 Stock 80000
Debtors 120000
Bills Receivables 40000
Bank 12000
Goodwill 280000
P/L A/c 180000
1642000 1642000
Upon revaluation of assets it was considered that the entire goodwill was worthless and assets
were overvalued as follows:

Premises Rs 80000; Plant Rs 50000; Loose Tools 60000; Debtors Rs 10000.

Scheme of rearrangement and reduction of capital was agreed to by the Court and the creditors
on the following lines:

(1) That the creditors should accept 9% debentures to the extent of half of their debts, the
balance to be settled by payment of cash at 90%
(2) That the preference shares to be reduced to shares of 5 Rs each fully paid
(3) That the equity shares to be reduced to Rs 1 each
(4) That the assets should be reduced to the revalued figures

Pass journal entries and prepare the balance sheet after rearrangement.

Particulars L.F DR CR
Preference share capital 400000
To new preference share capital 200000
To capital reduction 200000
(being reduction of capital as per special resolution)
Equity share capital 600000
To equity share capital 120000
To capital reduction 480000
(being reduction of capital as per special resolution)
Creditors 400000
To 9% debentures 200000
To Cash 180000
To Capital reduction 20000
Capital reduction 700000
To Premises 80000
To Plant 50000
To Loose tools 60000
To debtors 10000
To capital reserves 40000
To Profit and loss 180000
(being shares issued for arrears of dividend and losses
written off)
 Balance Sheet

PARTICULARS AMT
1)Equity and Liability
i)Shareholders fund
a) Share capital
Preference share capital 120000
Equity share capital 200000
b) Reserve and surplus
Reserve 42000
ii)Non-current liability
9% Debentures 440000
iii)Current Liability
Bank overdraft 168000
970000
2) Asset
i)Non-current asset
Tangible asset
Premises 400000
Plant 300000
Loose tools 40000
ii)Current Asset
Stock 80000
Debtors 110000
Bills Receivables 40000
970000
 2013721042017
Harsitha s

18. The following is the balance sheet of Weak Co. Ltd. As on 31st March1995
Liabilities Rs. Assets Rs.
1,00,000 equity shares of Rs. 10 10,000,000 Land 1,00,000
each 10,0
Sundry Creditors 1,73,000 Plant & Machinery 2,30,000
Furniture & Fittings 68,000
Stock 1,50,000
Debtors 70,000
Cash at Bank 5,000
Profit & Loss 5,50,000
total 11,73,000 total 11,73,000

The approval of the court was obtained for the following scheme of reduction ofcapital:
i. The equity shares to be reduced to Rs. 4 per share
ii. Plant & machinery to be written down to Rs. 1,50,000
iii. Stock to be revalued at 1,40,000
iv. The provision on debtors for doubtful debts to be created Rs. 2,000
v. Land to be revalued at Rs. 1,42,000
Pass journal entries to give effect to the above arrangement and also preparereconstruction A/c.

Answer:
Journal entries:
S.no Particulars Rs. Rs.
1. Equity share capital a/cDr 10,00,000
To new equity share capital a/cTo 4,00,000
capital reduction a/c
( equity shares have been issued at a lowerprice) 6,00,000

2. Land & building a/cDr 42,000

To capital reduction a/c 42,000
(the revalued amount is transferred to
capital reduction)
3. Capital reduction a/cDr 6,42,000
To profit & loss a/c 5,50,000
To plant and machinery a/cTo 80,000
PBDD a/c 2,000
To stock a/c 10,000
(the amount is written off under the
scheme)
 2013721042017
Harsitha s

Reconstruction A/c
Particulars Rs. Particulars Rs.
To profit & loss a/c 5,50,000 By equity share capital 6,00,000
To plant & machinery 80,000 By land & building 42,000
To PBDD 2,000
To stock 10,000
Total 6,42,000 Total 6,42,000

19. Given below is the balance sheet of slow success Ltd. As on 31st Dec. 1986

Liabilities Rs. Assets Rs.

share capital: Land & buildings 1,00,000

4,000 equity shares of Rs. 100 each 4,00,000 Machinery 4,00,000

fully paid
Motor vans 40,000
1,000 equity shares of Rs. 100 each 50,000
Rs. 50 paid

Development rebate reserve 1,50,000 Furniture 10,000

Loan (unsecured) 6,40,000 Investments (MV Rs. 40,000) 50,000

Creditors (including Rs.10,000 2,60,000 Stock 1,00,000

holding lien on some assets)

Debtors 1,90,000

Bank Balance 10,000

Profit & Loss A/c 6,00,000

Total 15,00,000 Total 15,00,000

The company having turned corner, a scheme of reconstruction was preparedand
approved as under:
a) To revalue land & buildings to its present market value of Rs. 1,50,000
b) Equity shares to be reduced to Rs. 10 per share but the face value to remain at
Rs. 100
c) A call of Rs. 50 to be made to equity shareholders to provide funds forworking
capital
d) Unsecured loans to be paid immediately to the extent of Rs. 1,00,000
e) Unsecured creditors to be paid immediately to the extent of 10% of theirclaims and
they accept a remission of 20% of their claims.
f) Development rebate reserve being no longer required, to be transferredto P & L
 2013721042017
Harsitha s

a/c.
g) Investments to eb brought to their market value and
h) Amount available as a result of the scheme to be used to write off thedebit
balance on profit & loss a/c
Pass the necessary journal entries to give effect to be used to the abovescheme and
prepare the reconstructed balance sheet.

Answer:
Journal entries:
S.no Particulars Rs. Rs.
1. Share final call a/cDr 50,000
To share capital 50,000
(share final call money called up)

2. Bank a/c 50,000

Dr 50,000
To share final call
(share money received)
3. Equity share capital a/cDr 4,00,000
To new equity share capital a/cTo 40,000
capital reduction 3,60,000
(equity shares issued at a reduced priceand
the remaining is transferred to capital
reduction a/c)
4. Equity share capital a/cDr 50,000
To new equity share capital a/cTo 10,000
capital reduction 40000
(another set of equity shares have been issued
at a lower price and the remainingis transferred
to capital reduction a/c)

5. Bank a/c (4000*50+1000*50)Dr 2,50,000

To equity share capital a/cTo 2,00,000
A equity share capital 50,000
( share money received)

6. Loan a/c 1,00,000

Dr 1,00,000
To bank a/c
( loan amount being paid off)
7. Creditors a/c 75,000
Dr 25,000
To bank a/c 50,000
To capital reduction
(creditors claim to be paid off)
 2013721042017
Harsitha s

8. DRR a/c 1,50,000

Dr 1,50,000
To capital reduction
(DRR amount transferred to profit andloss
a/c)
9. Land & building a/cDr 50,000
To capital reduction (Revalued 50,000
amount to be transferred tocapital
reduction)

10. Capital reduction a/cDr 6,50,000

To profit & loss a/cTo 6,00,000
capital reserve 40,000
To assets (included in creditors)(the 10,000
amount available to be written off according to
the scheme)

Balance sheet:
balance sheet as on

I. Equity and liabilities

1. shareholder's funds
share capital 3,00,000
2. non - current liabilities
3. current liabilities
unsecured loan 5,40,000
trade creditors 2,25,000
Total 10,65,000

II. Assets
1. non - current assets
tangible assets 6,40,000
2. current assets:
inventory 1,00,000
trade receivables 1,90,000
bank balance 1,35,000
Total 10,65,000
 ALTERATION OF SHARE CAPITAL AND INTERNAL RECONSTRUCTION

20. The following is the balance sheet of unibex ltd as on 31 dec 2021

LIABLITIES RS ASSETS RS
Paid up capital 7,00,000 goodwill 1,40,000
70000 equity shares of rs 10 each
10% debentures 4,00,000 Land and buildings 4,00,000
creditors 2,00,000 Plant and machinery 4,40,000
Bank overdraft 2,50,000 stock 1,30,000
Bills payable 50,000 debtors 80,000
Bills receivables 1,70,000
Preliminary expenses 40,000
Profit and loss a/c 2,00,000
16,00,000 16,00,000
The directors decided to reduce the equity share capital to rs. 2,80,000 and all the fictitious and
intangible assets were to be wiped off. It was decided to write down plant and machinery by rs. 40,000.
Give journal entries to record the effect of the above scheme of reductions of share capital and prepare
balance sheet after the reconstruction has been carried out. (note: error in question, the question
should state 70000 equity shares instead of 7000 equity shares)

SOLUTION:

JOURNAL ENTRIES

PARTICULARS RS RS
Equity share capital A/C DR 6,00,000
TO equity share capital(new) A/C 2,00,000
TO capital reduction A/C 40,000
Capital reduction A/C DR 4,20,000
TO goodwill A/C 1,40,000
TO plant & machinery A/C 40,000
TO preliminary expenses A/C 40,000
TO profit & loss A/C 2,00,000
NOTES TO ACCOUNTS

PARTICULARS RS
1. Shareholders funds
Equity share capital 70000 shares of rs 4 each 2,80,000
2. long term borrowings
10% debentures 4,00,000
3. short term borrowings
Bank overdraft 2,50,000
4. trade payables
Creditors 2,00,000
Bills payables 50,000
5. fixed assets
Land and building 4,00,000
 Plant and machinery 4,00,000
6. inventories
Stock 1,30,000
7. trade receivables
Debtors 80,000
Bills receivables 1,70,000

BALANCE SHEET

PARTICULARS NOTE. RS
NO
EQUITY AND LIABLITIES
(i)Shareholders funds
Equity share capital (70000 equity shares rs 4 each each) 1 2,80,000
(ii)Non- current liabilities
Long term borrowings 2 4,00,000
(iii) current liabilities
Short term borrowings 3 2,50,000
Trade payables 4 2,50,000
TOTAL 11,80,000
ASSETS
(i)non current assets 5 8,00,000
fixed assets
(ii) current assets
Inventories 6 1,30,000
Trade receivables 7 2,50,000
TOTAL 11,80,000

2. On 31st dec 2011, the balance sheet of the failure company stood as under

LIABILITIES RS ASSETS RS
Authorized capital Land and buildings 1,80,000
10000 shares of rs 100 each 10,00,000

Paid up capital
8000 shares of rs 100 each 8,00,000
Loan from apex ltd. 2,00,000 machinery 3,00,000
2,00,000 furniture 10,000
Stock 90,000
debtors 80,000
goodwill 50,000
cash 10,000
Profit and loss A/C 4,80,000
12,00,000 12,00,000
After carrying out the necessary formalities, the following scheme has been agreed upon by the persons
concerned
 • The rs 100 shares are to be reduced to be rs 50 each
• The 2000 shares which are unissued are now to be issued as fully paid to apex ltd in full
settlement of their loan
• The creditors accept rs 1,50,000 in fully paid debentures in full settlement of their debts
• The amount thus rendered available is to be utilized towards writing off goodwill, profit and loss
account entirely and the balance to be used for writing down the machinery account

Give journal entries to carry out the above scheme and prepare the balance sheet of the company after
the completion of the scheme.

SOLUTION

JOURNAL ENTRIES

PARTICULARS DR CR
Equity share capital A/C DR 8,00,000
TO equity share capital A/C (new) 4,00,000
TO capital reduction A/C 4,00,000
Loan from Apex ltd DR 2,00,000
TO equity share capital A/C 1,00,000
TO capital reduction a/c 1,00,000
Creditors A/C DR 2,00,000
TO Debentures A/C 1,50,000
TO capital reduction A/C 50,000
Capital reduction A/C DR 5,50,000
TO Goodwill A/C 50,000
TO profit and loss A/C 4,80,000
TO machinery A/C 20,000
NOTES TO ACCOUNTS

PARTICULARS RS
1. Share capital
Equity shares 10000 shares of rs 50 each 5,00,000
2. long term borrowings
Debentures 1,50,000
3. fixed assets
Land and building 1,80,000
Machinery 2,80,000
Furniture 10,000
4. inventories
Stock 90,000
5. trade receivables
Debtors 80,000
6. cash and cash equivalents
cash 10,000
BALANCE SHEET

PARTICULARS NOTE RS
NO
 I. EQUITIES AMD LIABILITIES
(I) shareholders funds
Share capital 1 5,00,000
(ii) non current liabilities
Long term borrowings 2 1,50,000
TOTAL 6,50,000
II . ASSETS
(I)non current assets 3 4,70,000
fixed assets
(ii) current assets
inventories 4 90,000
Trade receivables 5 80,000
Cash and cash equivalents 6 10,000
TOTAL 6,50,000
 22. SP. Co . Ltd resolved to write off one half of its subscribed capital by reducing each Rs. 100 share
,both preference and equity to Rs.50 fully paid up and to reduce the debit book figures of its assets
by an equivalent amount by wiping out the goodwill and the debit balance on the profit and loss
account and by writing down land and building by Rs. 15000 , plant and machinery by Rs. 10,000 and
providing and balance for bad debts.

The balance sheet of the company before the reduction of capital is as under:

Liabilities RS Assets RS
Authorised capital: Goodwill 1,00,000

3000preference share of Land and building 1,10,000

Rs 100 each 3,00,000 plant and machinery 90,000

5000 equity share of Rs.100 5,00,000 stock 80,000

Subscribed capital: Sundry creditors 90,000

2000 peref.share of Rs. 100 2,00,000 cash 10,000

3000 equity share of Rs. 100 3,00,000 profit and loss a/c 1,20,000

Sundry creditors 1,00,000

6,00,000 6,00,000

ANS:

JOURNAL ENTRIES:

Equity shares a/c Dr 3,00,000

To new capital a/c 1,50,000
To capital reduction a/c 1,50,000
( being reduction of capital as per resolution)
Preference shares a/c Dr 2,00,000
To new capital a/c 100,000
To capital reduction a/c 100,000
(being preference share transferred capital
reduction)
Capital reduction a/c 2,50,000
To goodwill a/c 1,00,000
To profit and loss a/c 1,20,000
To land a/c 1,50,000
To planta/c 10,000
To bad debts a/c 5,000
(being assets written off as per scheme of capital
reduction)
BALANCE SHEET:

Particulars Rs
Equity and liability
Equity shares 1,50,000
Preference shares 1,00,000
creditors 1,00,000
Assets 3,50,000
Land and building 95000
Plant 80,000
Stock 80,000
Debtors(- bad debts) 85,000
cash 10,000
3,50,000

23. The following balance sheet of pp Ltd. On 31.03.2012

Liabilities Rs Assets Rs
Share capital: goodwill 2,00,000

1,00,000 equity share of machinery 10,00,000

Rs.10 each fully 10,00,000 stock 2,50,000
2000, 10% cumulative prefe debtors 2,00,000
Shares of Rs.100 each fully paid 2,00,000 bank 50,000
Sundry liabilities 10,00,000 profit and loss a/c 5,00,000
22,00,000 22,00,000

Preference share dividends are in arrears are in arrears for the last four years and the following
scheme of reconstruction is passed by the shareholders and approved by the court.

a) The 1,00,000 equity share of Rs. 10 each are to be reduced to an equal number of equity of
Rs 10 each.
b) 50% of the preference dividend in arrears is to be paid in cash immediately and preference
shareholders have agreed to forego the balance.
c) Plant and machinery are to be depreciated by 5% and a provision for doubtful debts is to be
created at 10% on debtors .
d) All intangible assets and fictious assets are to be written off.

Pass journal entries to implement the above scheme and draft the reconstructed balance
sheet.

ANS: JOURNAL ENTRIES

Equity share capital a/c 10,00,000

To equity share capital a/c 100,000

To capital reduction a/c 9,00,000
( being reduction of capital as per special resolution)
Capital reduction a/c 9,00,000
To goodwill a/c 2,00,000
To plant and machinery a/c 50,000
To provision for dd a/c 20,000
To preliminary expense a/c 50,000
To capital reserve a/c 90,000
To preference share cap a/c 40,000
(being assets written off as per scheme of capital
reduction)

BALANCE SHEET

Particulars Rs Rs
I equity and liability
1.Preference share capital 2,00,000
Equity share capital 1,00,000
2.Reserves 90,000
3. short term pro 10,00,000 13,90,000
II assets
1.Fixed asset: machinery 9,50,000
2.current asset: stock 2,50,000
Debtors 1,80,000
bank 10,000 13,90,000
 INDHRA.N
2013721042020
ASSIGNMENT
CH-9 ALTERATION OF SHARE CAPITAL & INTERNAL RECONSTRUCTION

Q24. The balance sheet of M Khaitan Ltd. as on 31st March 2012 stands as under:
Liabilities Rs Asset Rs
Share capital: Fixed asset:
8000 equity share capital of 8,00,000 Asset at cost 14,30,000
Rs.100 each
6% Debenture 13,80,000 Stock 80,000
Current liabilities: Sundry debtors 30,000
For goods supplied 4,50,000 Investments 17,000
For income tax 10,000 Cash at bank 13,000
Profit & Loss A/c 10,70,000
Total 26,40,000 26,40,000

The company being in bad shape, an arrangement on the following lines has been mutually
agreed upon:
i) The equity shareholders are prepared to have their capital reduced to 5% of their
present holding.
ii) The debenture holders are agreeable to have their claim reduced to 50% which is
to be satisfied half by the issue of 7% Mortgage Debentures, and the other half by
the issue of 8% preference shares of Rs.100 each.
iii) The unsecured creditors are prepared to forego 20% of their dues in exchange for
equity share of the like amount.
iv) The assets are to be reduced to the revalued figures under:
Fixed asset 11,00,000 Stock 30,000
Debtors 20,000 Investments 7,000
Give journal entries for the completion of the scheme and prepare the final balance sheet.
[Ans: Total capital reduction- rs.14,50,000
Balance sheet total- rs.11,90,000]
Solution:
Sno Particulars Debit Credit
1. Equity share a/c Dr 8,00,000
To new equity share capital a/c 40,000
To capital reduction a/c 7,60,000
(8,000 equity share of rs 100 each is reduced
to 5% and balance is transferred to capital
reduction a/c)
2. 6% Debentures a/c Dr 13,80,000
To capital reduction 6,90,000
To 7% Debenture a/c 3,45,000
To 8% preference share a/c 3,45,000
(half of the 6% debenture is reduced to 50 and
the other half by the issue of 8% preference
shares of Rs.100 each. And the balance to
capital reduction a/c)

3. Creditor a/c Dr
To new equity share capital a/c 90,000
90,000
(unsecured creditors are prepared to forego
20% of their dues in exchange of equity
shares )

4. Capital reduction a/c Dr 14,50,000

To fixed asset a/c 3,30,000
To debtors a/c 10,000
To stock a/c 30,000
To investment a/c 10,000
To profit & loss a/c 10,70,000
(asset being written off as per scheme of
capital reduction)

Balance Sheet
Particulars Rs. Rs.
I Equity and liabilities
1. Shareholders fund
Equity share capital 1,30,000
Preference share capital 3,45,000
2. Reserves & surplus
3. Non-current liabilities
Debentures 3,45,000
4. Current liabilities
Goods supplied 3,60,000
Income tax 10,000
11,90,000
II Asset
Fixed asset 11,00,000
Investment 7000
Current asset
Stock 50,000
Debtors 20,000
Bank 13,000 83,000
11,90,000
Q25. Below is given the balance sheet of Sick Ltd. as on 31st March 2012.
Liabilities Rs. Asset Rs.
Share capital Leasehold premises 4,50,000
Authorised : Plant 80,000
10,000 preference shares of 5,00,000 Debtors 1,00,000
Rs.50 each
10,000 equity shares of Rs.50 5,00,000 Stock 70,000
each
10,00,000 Preliminary expenses 50,000
Subscribed capital: Profit & loss a/c 1,24,000
8000 preference shares of 4,00,000 Cash at bank 1,000
Rs.50 each fully paid
8000 equity shares of rs.50 4,00,000
each fully paid
Sundry creditors 40,000
Bank overdraft 35,000
8,75,000 8,75,000

Due to heavy losses, the company decided upon the following scheme of reconstruction:
i) The preference shares were to be reduced to value of Rs.30 each. The equity
shares were also to be reduced to the value Rs.30 each.
ii) The balance available was to be used to write off the debit balance of the Profit &
loss account, Rs.20,000 from stock and full amount of the preliminary expenses
account . A provision of Rs. 30,000 was to be made against sundry debtors. The
leasehold premises were to be reduced by Rs.66,000 and the plant account to be
reduced to Rs.50,000.
You are required to journalise the above transactions and prepare the reconstructed
balance sheet.
[Ans: total capital reduction- Rs.3,20,000; balance sheet total-Rs.5,55,000]
Solution:
Sno Particulars Debit Credit
1. Preference share capital a/c Dr 4,00,000
To preference share capital a/c 2,40,000
To capital reduction a/c 1,60,000
(8000 preference share of rs.50 each reduced
to value of rs.30 each)

2. Equity share capital a/c Dr 4,00,000

To equity share capital a/c 2,40,000
To capital reduction a/c 1,60,000
(8000 equity share of rs.50 each reduced to
value of rs.30 each)
3. Capital reduction a/c Dr 3,20,000
To profit & loss 1,24,000
To stock 20,000
To preliminary expenses 50,000
To provision for doubtful debts 30,000
To leasehold premises 66,000
To plant 30,000
(asset being written off as per scheme of
capital reduction)

Balance sheet
Sno Particulars Rs Rs
I Equity and liabilities
1. Shareholders fund
Equity share capital 2,40,000
Preference share capital 2,40,000 4,80,000
2. Short term borrowings
Sundry creditors 40,000
Bank 35,000 75,000
5,55,000
II Asset
1. Fixed asset
Leasehold premises 3,84,000
Plant 50,000 4,34,000
2. Current asset
Debtors 70,000
Stock 50,000
Cash 1,000 1,21,800
5,55,000