Explore topic-wise InterviewSolutions in Current Affairs.

False

Explanation: All assets except the cash or bank balances are transferred to the Realisation Account. Therefore, the given statement is incorrect.

The main legal provisions with regards to dissolution a of partnership firms are as follows :

(1) Legal provision for loss of firm : Here, from the profits of the firm and if profits is not . sufficient the loss of the firm is written off against the capital of the partners. If capitals are insufficient, the loss will be borne by the partners in their profit and loss ratio and will be paid by selling of their own assets.

(2) Legal provision for the payment of liabilities of the firm and partners : The partners have unlimited liabilities and liabilities of the firm are to be paid off by assets of the firm but because of unlimited liabilities of the partners, firm’s remaining liabilities are to be paid of from their personal assets.

(3) Payment of loan to the firm by the partners : First of all liabilities of the firm will be paid ‘ by realising the asses of the firm. After paying the external liabilities of the firm, loan of partner’s will be paid. If more than one partner has loaned to the firm and if the partners are not in a position to make up deficit, the loans are to be paid proportionately.

(4) Payment of loan given by the partners’ wife : Wife’s loan to the firm will be rapid like payment to a third party. But if wife of a partner has given it from the fund of her husband, it will be treated as loan of that partner.

(5) Payment of liabilities of a partner : Liabilities of the partners are unlimited and if any of partners is declared insolvent on dissolution, the solvent partners are liable to pay the liabilities of the firm as the insolvent partner/s will not be able to meet his/their share.

(6) Legal provision for distribution of the realised assets of the firm : The payment for the liability from the realisation of assets will be made in following manner.

(i) First pay the dissolution expenses.
(ii) After that, liabilities of third parties will be paid.
(iii) Then, the loan of partner/s is to be paid.
(iv) Payment towards partners capital and current accounts.
(v) If any surplus, it will be distributed among the partners in the profit-loss sharing ratio.

This statement is False.

At the time of dissolution of the partnership, the cash account and Bank A/c are not transferred to Realisation A/c. Similarly, if an asset is taken over by a partner or by any creditor then that asset is transferred to the concerned person’s account and not to the Realisation Account.

Correct option is (D) Partners’ capital A/c

Correct option is (D) Excess of capital account

Correct option is (A) Dissolution expense

Generally dissolution expense of a firm has to borne by the firm itself, but in the most of the cases partner has to bear dissolution expense.

During dissolution of partnership firm, the workmens compensation fund account is closed and trnasferred to credit side of realisation account under the heading sundry liability.

During dissolution of partnership firm, if the balance remains after paying out partners capital then the balance amount is distributed among the partners in their profit-loss sharing ratio.

i. Realisation

ii. Contingent Liabilities

iii. Unrecorded Assets

iv. Realization A/c

v. Dissolution/Realisation Expenses

During dissolution of partnership firm if there is no information of the realised value of an asset then, if it is a fixed asset, it is taken at book value and if it is intangible assets like goodwill, patents and trademark etc. it has to be considered that no value has been realised for them.

The dissolution expense are paid first from the money realised during the dissolution of partnership firm.

Yustin’s claim is valid as according to section 48 (b) of partnership Act, partners loan are to be paid before any amount is paid to partners on account of their capitals. 

Correct option is (D) No effect

During dissolution of partnership firm the recorded creditors and recorded asset is already transferred to realisation account, so the accounting of both is already done. So no more accounting effect is needed.

Interest on Moli’s Drawing 

= Total Drawings x \(\frac{Rate}{100}\) x \(\frac{13}{2 \times 12}\)

= 12,000 x 12% x \(\frac{13}{2 \times 12}\) = 780.

Interest on Golu’s Drawing 

= Total Drawings x \(\frac{Rate}{100}\) x \(\frac{11}{2 \times 12}\)

= 12,000 x 12% x \(\frac{11}{2 \times 12}\) = 600.

The application  money should not be less than at least 5% of the nominal value of shares or such other percentage as may be specified by Securities Exchange Board of India (SEBI).

i. No, Company cannot ask Mr. John for further payment, because, he has already paid the full amount of face value.

ii. ‘Limited Liability is a feature, which is referred to in this example.

iii. As per ‘Limited liability’ member of the company is not liable to debts of the company. Member is liable only up to the unpaid amount of share capital. Members’ personal property will not be used for the liability of a company.

Goodwill = Super profit x No. of years purchase. 

Super profit = Actual /Average profit – Normal Profit 

Average profit = \(\frac{36,000+38,000+31,000}{3}\)= 35,000 

Normal profit = Interest on capital + Partner’s salary

Interest on capital = 75,000  x \(\frac{15}{100} = 11,250\)

Normal profit = 11,250 + 10,000 = 21,250

Super profit =  35,000 - 21,250 = 13,750

Goodwill = 13,750 x 2 = 27,500

Rahul = 20,00,000 × 5% =Rs. 1,00,000

Rohit = 18,00,000 × 5% = Rs. 90,000 .

Karan = 18,00,000 × 5% = Rs. 80,000

(d) Share holders (members)

If minimum  subscription is not received within the period specified then the application money shall be refunded within 15 days from closure of issue.

If minimum subscription is not received within specified period, application money shall be repaid within 15 days from closure of issue.

A company is a voluntary association of persons.

• Such companies are controlled by holding companies. 
• Holding company purchases more than half of the total share capital of the Subsidiary company. 
• Holding Company has the power to appoint or remove all or a majority of its directors. 
• A subsidiary company is just the opposite of a Holding company.

Inter-relationship obtained by comparing different figures shown in financial statements in known as accounting ratio.

New ratio = Balance share x old ratio 

Anju’s new share = \(\frac{3}{4} \times \frac{2}{3} = \frac{6}{12}\)

Manju’s new share = \(\frac{3}{4} \times \frac{1}{3} = \frac{3}{12}\)

Sanju’s share of profit = \(\frac{1}{4} = \frac{3}{12}\)

New ratio = 6:3:3 = 2:1:1 

Total capital of the new firm = 20,000 x \(\frac{4}{1}\) = 80,000 

Anju’s new capital = 80,000 x \(\frac{2}{4}\) = 40,000 

Manju’s new capital = 80,000 x \(\frac{1}{4}\) = 20,000 

The existing capital of Anju = 45000 

Excess (Anju) = 5000 

The existing capital of maju = 15,000 

Journal Entries

Deficit (Maju) = 5000

Journal Entries

The presentation of ratios can be done in different ways. These forms are as under:

• In terms of proportion
• In terms of presentage
• In terms of times
• In terms of fraction
• In terms of days/weeks/months.

If the company does not have the common seal, the authorization of any document shall be made by two directors or by a director and the Company Secretary  if appointed by the company.

• The liability of members of such a company is unlimited. 
• The members are liable to pay the debts of the company. 
• Private property may be used to pay the companies debts. 
• Private company Public companies and even One Person, a private company may be formed as unlimited Liability company.

(i) The liability of shareholders of the company is limited.

(ii) The member of the Joint Hindu family business is called as co-parceners.

(iii) A Joint Stock Company is an artificial person created by law.

(iv) Co-operative Society is governed by the Cooperative Societies Act, 1960.

(v) The joint Stock company enjoys a separate legal entity.

(vi) A subsidiary company is opposite to a Holding company.

A company perpetual has succession.

A company not having any limit on the liability of its members is called an Unlimited Liability company It can be either a private company or a public company or a one-person company.

The liability of the members of the company is generally limited to the extent of unpaid value of the share held by them.

The maximum number of members in a private limited company is  200.

The existence of the company can be terminated only by the law.

Definition of Joint Stock Company:

• As per Section 2(20) of the Companies Act, 2013: “Company means a company incorporated under this Act or under any previous company law’.
• According to Prof. H.L.Haney: “A Joint Stock company is a voluntary association of individuals for profit, having it’s capital divided into transferable shares, the ownership of which is the condition of membership”.

Types of Companies on the basis of liability of members:

(i) Companies Limited by Shares: Such companies are formed as per Section 2(22) of the Companies Act, 2013. Such companies have to share capital and their members have limited liabilities up to unpaid part of the face value of shares held by them. At the time of winding up of the company, the personal property of shareholders is not used.

(ii) Company Limited by Guarantee: As per Section 2(21) of Companies Act, 2013 such companies may or may not have share capital. Every Member promises to pay a specific amount for liabilities and debts of the company on liquidation. Such amount is mentioned in the Memorandum of Association. Members give guarantees and they carry a specific amount of liability. Generally, such companies work for the promotion of sports, art, culture, charity, etc.

(iii) Unlimited Liability Companies: As per Section 2(92) of the Companies Act, 2013 such companies have members with unlimited liability. Members are fully liable to liabilities and debts of the company. It may be a private, public, or one-person company.

This ratio discloses the relation between gross profit and total net sales. We can know that how much precentage of gross profit we earn on sales.
Gross Profit Ratio =  \(\frac{ Gross \,Profit}{ Total\, Net \,Sales } × 100\)

• Gross Profit = Net sales – Cost of goods sold
• Net Sales = Total sales – Sale return
• Total Sales = Total cash sales + Total credit sales
• Cost of goods sold = Cost of goods consumed + Wages + Factory expenses
• Cost of goods consumed = Opening stock of raw material + Purchase of raw material + Purchase expenses – Closing stock of raw material
• Cost of goods sold = Sales – Gross profit OR Sales + Gross loss
• On the basis of gross profit ratio, gross profitability of a unit can be determined.
• This is income based ratio so its increasing trend indicates enhancement ¡n profitability

1.True, 

2. True

A company is a legal entity quite distinct and separate from its members.

(i) Invalid I In the absence of partnership agreement, no interest on capital, interest on drawings, salary, commission is to be allowed to partners

(ii)Invalid Interest on partners loan to be allowed @ 6% pa,

(iii)Valid Profit and losses are to be shared equally.

(iv)Invalid No interest on capital is to be allowed to partners.

Current ratio shows the relation between current assets and current liabilities. We can know the short term solvency of the business unit.

Current Ratio =  \(\frac{Current \,Assets}{  Current\,Liabilities }\)

• Current Assets = Stock (except loose tools) + Trade receivables (After deducing bad debts reserve from Debtors and bills receivable) + Current investments + Cash on hand + Bank balance + Cheque and Draft on hand + Short-term lending and advances + Expenses paid in advance + Outstanding incomes.
• Current Liabilities = Trade payables (bills payable + Creditors) + Short-term borrowings + Interest payable on long-term liabilities + Due but not paid liability + Due but not paid interest + Outstanding expenses + Uncalled dividend + Instalments and income received in advance.
• On the basis of current ratio we can know the capacity of business unit to pay current liabilities and also about the cash and liquid situation of the business.
• Generaly 2: 1 proportion of this ratio is considered to be an ideal.

This ratio discloses relationship between operating profit and sales. This ratio shows the proportion of operating profit to sales.
Operating Profit Ratio =  \(\frac{Operating \,Profit}{  Net \,Sales  }× 100\)
OR
Operating Profit Ratio = 100% – Operating Ratio.

• Operating Profit = Sales – Operating cost
• Operating Cost = Cost of goods sold + Operating expenses
• This ratio indicates that how much is profit erarend by the unit from the business in which unit deals.
• This ratio is income based ratio, so its increasing trend indicates the enhancement in profit.

Financing activities means changes in owner’s capital and borrowed capital of business. Financing activities have relation with increase or decrease of equity share capital, preference share capital, debenture, loan ect. It means that the increase in long-term owner’s capital and borrowed capital shows cash inflow and their reduction shows cash outflow of financing activities. Calculation of cash flow of financing activities is depends upon

• Capital and Liability side of balance sheet and
• Appropriation of profit of profit of loss statement.

Cash Flow From Financing Activities

The statement showing balance of cash and cash equivalent and cash inflow and cash outflow of different activities of a business unit during the year.

(i) Not valid 

(ii) Not valid 

(iii) Not valid 

(iv) Not valid

 (i)

(ii)

E W. Taylor presented principle of scientific management; very first. Hence, he is known as father of scientific management. Instead of use – of traditional method rule of thumb, Taylor presented new concept with scientific approach, which is known as scientific management.

(a) Science not rule of thumb: Taylor believed that there was only one best method to maximise efficiency. This method can be developed through scientific study and analysis of each element of a job and should substitute 'Rule of Thumb'. This standard method then should be followed throughout the organisation.

(b) Time Study : Time study is the technique of observing and recording the standard time required to perform each detailed task of an industrial portion. The purpose of time study is to determine the number of workers, labour cost, and to frame suitable incentive schemes.