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1.True 

2.False

1. True

2. True.

In shareholders’ funds

• Share capital and
• Reserves and surplus are included.

Artificial or legal persons means institutions or body of individuals, which are considered as person in the eyes of law. example : companies, school, banks, etc.

All living individuals are natural persons. 

Example: Rama’s a/c, Bhima’s a/c etc.

Transactions between two persons called personal account. Here one person give benefits and another one receives benefits.

The important classification of accounts under American system are : 

• Assets A/c 

• Liability A/c 

• Equity or Capital A/c 

• income A/c 

• Expenses A/c

During the normal curse of business, the amount due on account of goods sold or services rendered is called trade receivable.

The different types of person in personal account are : 

1. Natural person 

2. Artificial person 

3. Representative persons.

Financial statements tire called the historical statements becaues they are related to past period.

Correct option is (A) Section-129(1)

The figures stated in financial statements are expressed in terms of money.

1. If company gets less application than issued debenture then keeping number of application received into account, do all the necessary accounting entries.

2. If there is more application received than the debenture issued of the company then the additional money will be return to the debenture applicants.
Regarding this, debited Debenture application A/c and credited Bank A/c.
Then after do all the entries keeping allotment of the debenture into account.

3. In case of getting amount in advance from the debenture holders on allotment or calls of debentures:

• Regarding advanced received amount on allotment, credited to Debenture Allotment A/c and advance received amount on calls then credited to Calls in advance A/c
• When amount of call on debenture is actual received then it is debited to Bank A/c and Calls in advance A/c and credited Debenture calls A/c.

4. If any debenture holder is not paid the amount of allotment of debenture or calls on debenture in time then in such circumtances.

• Amount not received from debentureholders will be transferred to Calls-in-arrears A/c and credited to Debenture allotment A/c or Debenture calls A/c.
• If such amount is received from debentureholders in future then that amount is debited to Bank A/c and credited to Calls-in-arrears A/c.

5. Debentures are company’s debt so that if any debentureholder does not pay amount of installment then debenture can not be forfeited.

6. When the full amount of debenture is called up at the time of application, then debited to Bank A/c and credited to Debenture application and allotment A/c.

7. If debenture issued at premium then that amount of premium is transferred to “Security Premium Reserve A/c”. It is capital profit.

8. If company issued debenture at discount then this discount amount is debited to Debenture discount A/c. Debenture discount or amount of loss at the time of issuing debenture-is capital loss. Generally this amount is written off against Security premium Reserve A/C dr Profit and loss statement.

9. When a company purchase any business and issue more debenture to vendor’s against purchase consideration then the difference amount is transferred to Goodwill A/c and if paid less amount then that difference amount is transferred to Capital Reserve A/c.
In short, Goodwill = Purchase consideration of business – Net assets
Capital Reserve = Net Assets – Purchase consideration

10. When debentures are redeemed at premium then that premium amount is debited to Loss on issue of debenture A/c and credited to Debenture redemption premium A/c. Debenture redemption premium is a debt of company:

11. As per the rule 18(7)(c) of the Companies rule 2014, company required to deposit or invest, a sum which shall not be less then 15% of the total face value of the debentures to be redeemed at the end of the year i.e. during the ending on 31st March, on or before 30th April, i.e. beginning of the year.

12. According to section 71(4) of the Companies Act, 2013 and as per the guideline of SEBI, it is necessary to create debenture redemption reserve account equivalent to fixed % of the total face value of issued debentures before redemption commence.

• When debentures are redeemable at the end of the financial year then, at the end of the year amount transferred to Debenture Redemption Reserve A/c from surplus in Statement of profit and loss of the respective year.
• If payment of redemption of debentures is to be done from capital then, an amount transferred from surplus in Statement of profit and loss to Debenture Redemption Reserve A/c is 25% and if it is to be done from profit then, an amount transferred from surplus in Statement of profit and loss to Debenture Redemption Reserve A/c is 100% of total face value or nominal value of redemption of debentures.
• When debentures are redeemable during any time in between the financial year then required amount is to be transferred from surplus in Statement of profit and loss of the previous year to Debenture Redemption Reserve A/c. The amount to be transferred to Debenture Redemption Reserve A/c.
• If there is no clarification regarding required amount of redemption of debentures which is out of capital or out of profit then, calculate with the assumption that company has paid out of capital.

13. Profit on redemption of debentures is capital profit which is transferred to capital reserve account and when investment in own debentures may be sold by company in open market then profit realised from it is treaded as revenue profit and transferred to Statement of profit and loss.

14. When debentures are converted into shares by the company then shares may be issued to debentureholders at par or at premium. These shares may not be issued at discount, otherwise it violates the provisions of Companies Act.

15. Company can redeem the debenture in different considerations:

• By Cash
• By Giving new equity share or preference share
• By Giving new debentures.

Profit and loss account shows the financial performance of the company.

On the Capital-Liabilities of balance sheet, Credit balance of suspense account will be shown in the final accounts.

Correct option is (C) 31st March of every year

Discount reserve on debtors is calculated on goods debtors.

Correct option is (A) Intangible Assets

Correct option is (A) Tangible Assets

Correct option is (B) Long-term Provisions

Correct option is (C) Long-term Borrowings

Correct option is (A) First

Correct option is (A) Historical statement

Correct option is (C) Public Deposit

Financial statements are statements presenting accounting information in brief at the end of accounting process for an accounting period. As per section-2(40) of Companies Act 2013, financial statement in relation to company includes

• A profit and loss account or any activity not for profit then an income and expenditure account
• Balance sheet
• Cash flow statement
• A statement of changes in equity if applicable
• Notes related to the accounts.

Following are the main objectives of preparing final accounts of a partnership firm :

(1) To ascertain gross profit or loss : Through the preparation of trading account, a partnership firm can ascertain gross profit or loss.

(2) To ascertain net profit or loss : A partnership firm can ascertain net profit or net loss through the preparation of profit and loss account. The profitability of the firm can be seen from the profit and loss account.

(3) To ascertain divisible profit or loss : All personal transactions and provision of the partners with the firm can be ascertained through the preparation of profit and loss appropriation account.

(4) To know the financial status of the firm : To know the financial status of the firm balance sheet is prepared. It provides information about assets, receivables, payables and capital of the firm.

(5) For taxation purpose : To know the taxable income of the firm final accounts are prepared.

Bad debts reserve is calculated on doubtful debts.

Correct option is (A) gross profit

Correct option is (C) Balance sheet

Correct option is (B) purchase return

Correct option is (B) sales return

Correct option is (C) Intangible Assets

When there is a change in the ratio of profit and loss sharing of existing partners, a portion of profit of certain partners is increased. This increased portion of profit of a partner is known as ‘Gain Ratio’.

Gain ratio of a partner = New profit and loss ratio of a partner – Old profit and loss ratio of a partner.

Example for Tangible Fixed assets are : 

• Plant a/c 

• Motor vechicle a/c Example for intangible

Fixed assets are : 

• Goodwill a/c 

• Trademarks a/c

In the partnership firm all the economic transactions are firstly recorded in journal in subsidiary book. Then posting of all these transactions is done in the ledger and balance of every account is found out. All these accounts balances are recorded in the trial balance as on (particular) date.

Based on this trial balance balances and given adjustments/ other information to know financial results and financial position of business, final accounts of the business are prepared.

In the final accounts of partnership firm, following necessary accounts and a statement are prepared :

(1) Trading Account : In this account, transactions related to purchase and sales of goods, goods return, goods goes out by any means, purchase expenses and stock of goods are recorded and to find gross profit or gross loss . Trading A/c is to be prepared. Result of Trading A/c (gross profit or gross loss) is transferred to Profit and Loss A/c.

(2) Profit and loss Account : In the partnership firm, transactions of Revenue expenses and incomes are recorded in the Profit and Loss A/c to find net profit or net loss. On the debit side of profit and loss A/c, administrative exp., Selling-distribution exp., financial exp., and other exp. are recorded while on the credit side, revenue incomes are recorded. Net profit or net loss is to be transferred to Profit and Loss Appropriation A/c.

(3) Profit and Loss Appropriation Account : To show the distribution of profit and loss among the partners, a special account is prepared known as profit and loss Appropriation A/c, which is a part of profit and loss A/c on the debit side of this account partners’ interest on capital, interest on credit balance of current account, salary, bonus, commission, general reserve etc. amounts are shown. While on the credit side of this account, partners, interest on drawings, interest on debit balance of current account amounts are shown. From profit and loss Appropriation A/c, net divisible profit or loss can be known which is transferred to partners’ capital or current account.

(4) Partners Capital Accounts : To record the partners transactions with the firm, partners’ capital accounts are prepared. When fluctuating capital account method is adopted, all the transactions related to partners are recorded in this account and final balance is transferred to the balance sheet.

When fixed capital account method is adopted, opening balance and transactions due to permanent increase/ decrease take place in the capital are recorded. In the partners capital account while other transactions concern with partners are recorded in the partners current account. Final balance of this account is also transferred to the balance sheet.

(5) Balance sheet: At the end of the year to know financial position of the business, balance sheet is to be prepared. On the capital liability side of balance sheet, partner capital account balance, current account balance, reserves, current and non-current liabilities are shown. While on asset-receivable side, fixed assets,, intangible assets, investments, current assets, deferred revenue expenditure, debit balance of partners current-account, etc. are shown. Remember total of both the sides of balance sheet should be equal.

Correct option is (A) Trading A/c

Interest on investments of P.F shown in the trial balance will be shown on capital-liability side of Balance Sheet in the amount of providend fund.

Correct option is (B) Gross profit

Gain ratio = New ratio of profit and loss – Old ratio of profit and loss

Tangible Assets : Land, Building, Leasehold properties, Vehicles, machines, Furniture and fittings, Loose Tools.
Intangible Assets : Patent, Trademark, Copyright, Goodwill.

Correct option is (C) More

Cost of goods sold = Net sales – Gross profit OR
Cost of goods sold = Opening stock of goods + Net purchase + purchase exp. – closing stock of goods.

Negative answer of sacrifice ratio suggest gain for partner and negative answer of gain ratio suggest sacrifice for partner.

Adjusted purchase = Opening stock of goods + Purchase – Closing stock of goods