ISC Class 12 Accountancy Board Exam Question Paper 2024 with Solutions

ISC Class 12 Accounts Board Exam Question Paper with Solutions

SECTION A (60 MARKS)

Question 1
In subparts (i) to (iv), choose the correct option and in subparts (v) to (x) answer the questions as instructed.

(i) On the date of admission of Ajay as a partner, the Balance Sheet of the firm of Nita and Rita showed a balance of Rs. 80,000 in the Workmen Compensation Reserve.
Choose the correct option to record the effect of a workmen compensation claim of Rs. 90,000 on the accounts of the partnership firm. [1 Mark]
(A) The Revaluation Account to be credited with Rs. 10,000.
(B) The Revaluation Account to be debited with Rs. 10,000.
(C) The Capital Accounts of Nita and Rita to be debited with Rs. 90,000.
(D) The Capital Accounts of Nita and Rita to be credited with Rs. 90,000.

Answer: (B) The Revaluation Account to be debited with Rs. 10,000

Excess claim over reserve of Rs. 10,000 is debited to Revaluation Account as a loss.

Teacher's Note:
a) When the claim exceeds the reserve, the excess amount is a loss debited to the Revaluation Account.
b) Students often confuse liability creation with direct partner capital adjustment.

(ii) Credit Access Grameen Ltd., a listed NBFC (Micro Finance Institution), is all set to enter the bond market next week to raise upto Rs. 1,000 crore in non-convertible debentures, as it looks to diversify its liability profile.
(Source: Economic Times, 20 August, 2023)
According to the provisions of the Companies Act, 2013, what is the maximum amount of these non-convertible debentures which Credit Access Grameen Ltd. will redeem out of its capital? [1 Mark]
(A) Rs. 100 crore
(B) Rs. 150 crore
(C) Rs. 900 crore
(D) Rs. 1,000 crore

Answer: (D) Rs. 1,000 crore

Listed NBFCs are exempt from creating a Debenture Redemption Reserve (DRR) and can redeem 100% of their debentures out of capital.

Teacher's Note:
a) Under SEBI and Companies Act guidelines, listed NBFCs do not require DRR for privately placed or public debentures.
b) Remember that unlisted companies still have strict DRR requirements.

(iii) Choose the correct order in which a partnership firm, at the time of its dissolution, will apply the amount realised from the sale of its assets, including any amount contributed by the partners, towards the payment of:
P Partners' loan
Q Firm's debts
R Balance of partners' capital
S Surplus divided amongst the partners in their profit-sharing ratio [1 Mark]
(A) P, Q, R, S
(B) Q, P, S, R
(C) S, P, Q, R
(D) Q, P, R, S

Answer: (D) Q, P, R, S

Firm's outside debts are paid first, followed by partners' loans, partners' capital, and finally any surplus is distributed.

Teacher's Note:
a) Section 48 of the Indian Partnership Act governs the order of settlement of accounts on dissolution.
b) Third-party debts take absolute precedence over partner loans and capital balances.

(iv) Tulip Ltd. allotted 45,000 Equity shares of Rs. 10 each to the public. The first and final call of Rs. 2 per share was not received on 1,000 shares, which were forfeited by the company. Later, 600 of the forfeited shares were reissued at Rs. 7 fully paid up.
What is the Subscribed Capital of the company? [1 Mark]
(A) Rs. 4,49,200
(B) Rs. 4,50,000
(C) Rs. 4,40,000
(D) Rs. 4,46,000

Answer: (A) Rs. 4,49,200

Subscribed and fully paid = (45,000 - 1,000 + 600) × 10 = Rs. 4,46,000. Subscribed but not fully paid = 400 × 8 = Rs. 3,200. Total = Rs. 4,49,200.

Teacher's Note:
a) Subscribed Capital includes shares subscribed minus calls in arrears plus share forfeiture balance on un-reissued shares.
b) Always calculate paid-up value correctly after forfeiture and reissue.

(v) Assertion: A revaluation account is prepared at the time of dissolution of a partnership.
Reason: A revaluation account is prepared to determine the net gain / loss on realisation of assets and settlement of liabilities. [1 Mark]
Which one of the following is correct?
(A) Both Assertion and Reason are true and Reason is the correct explanation for Assertion.
(B) Both Assertion and Reason are true but Reason is not the correct explanation for Assertion.
(C) Both Assertion and Reason are false.
(D) Assertion is true but Reason is false.

Answer: (C) Both Assertion and Reason are false.

A Realisation Account is prepared on dissolution, while a Revaluation Account is prepared on reconstitution.

Teacher's Note:
a) Revaluation Account is used for admission, retirement, and death.
b) Realisation Account is used exclusively for dissolution of a firm.

(vi) A firm having a debtor of Rs. 30,000 from whom the amount was due on 30th June, 2023, gets dissolved on 31st March, 2023. The debtor cleared his dues on the date of dissolution of the firm at a discount of 4% per annum.
Give the journal entry passed by the firm to realise the payment from the debtor. [1 Mark]

Answer:

Teacher's Note:
a) Discount = 30,000 × 4/100 × 3/12 = Rs. 300.
b) Amount realised = 30,000 - 300 = Rs. 29,700.

(vii) Xylo Ltd. issued 9,000, 7% Debentures of Rs. 100 each at a certain rate of discount. After writing off the discount on the issue of debentures, the company was left with a balance of Rs. 35,000 in its Securities Premium out of the original amount of Rs. 71,000.
At what rate of discount did the company issue these Debentures? [1 Mark]

Answer: 4%

Total discount = 71,000 - 35,000 = Rs. 36,000 on Rs. 9,00,000 face value. Rate = (36,000 / 9,00,000) × 100 = 4%.

Teacher's Note:
a) Total Securities Premium utilized equals total discount on issue of debentures.
b) Always compute the discount percentage on the total nominal value of debentures issued.

(viii) The Annual Report of ITC Ltd., for the financial year 2021-22, showed Claims against the Company not acknowledged as debts of Rs. 880.58 crores including Third party claims arising from disputes relating to contracts aggregating Rs. 29.22 crores.
(Source: Annual Report of ITC Ltd. 2021-22)
Mention the heading and the sub-heading under which this item would have been shown in the Notes to Accounts accompanying the Balance Sheet of ITC Ltd. as at 31st March, 2022. [1 Mark]

Answer: Heading: Contingent Liabilities and Commitments; Sub-heading: Contingent Liabilities.

Teacher's Note:
a) Claims against the company not acknowledged as debt are disclosed under Contingent Liabilities.
b) This is reported as a note to accounts, not included in the main balance sheet totals.

(ix) Deepa and Pia are in partnership sharing profits and losses in the ratio of 3:2. They admit Charu as a partner for 1/5 share in the profits. The capitals of Deepa and Pia, before adjusting the loss of Rs. 5,000 on revaluation of assets and liabilities, are Rs. 30,000 and Rs. 20,000 respectively.
It is decided that Charu will contribute 25% of the combined capitals of Deepa and Pia.
What is Charu's capital contribution? [1 Mark]

Answer: Rs. 11,250

Adjusted Deepa's capital = 30,000 - 3,000 = Rs. 27,000. Adjusted Pia's capital = 20,000 - 2,000 = Rs. 18,000. Combined = Rs. 45,000. Charu's capital = 25% of 45,000 = Rs. 11,250.

Teacher's Note:
a) Always adjust revaluation profits or losses before calculating partners' adjusted capital bases.
b) Ensure correct profit-sharing proportions are applied for the revaluation loss distribution.

(x) The Balance Sheet of Anjum Ltd. as at 31st March, 2022, had outstanding 1,000, 8% Debentures of Rs. 100 each. These debentures were to be redeemed by the company on 31st March, 2023.
Give the journal entry for the amount due to the Debenture holders on 31st March, 2023, including the interest on debentures due to them. [1 Mark]

Answer:

Teacher's Note:
a) Interest is calculated on the face value of debentures for the full year (1,00,000 × 8% = Rs. 8,000).
b) Both principal due and interest due are credited to the Debenture Holders' Account.

Question 2
The Balance Sheet of Hari, Jacob and James as at 31st, March, 2023, stood as follows: [3 Marks]

Jacob died on 30th June, 2023.
His drawings from 1st April, 2023, upto the date of his death amounted to Rs. 1,00,000.
According to the partnership deed, Jacob was:
(a) To be charged with interest on drawings @4% per annum.
(b) Entitled to his share of interim profits for which his capital account was credited with Rs. 1,10,000.
(c) Entitled to his share in the non-purchased goodwill of the firm.
The firm's non-purchased goodwill on the date of Jacob's death had no value.
The final amount due to Jacob by the firm was transferred to his executor's loan account.

You are required to prepare the Interim Balance Sheet of the reconstituted firm as at 30th June, 2023.

OR
Kamal, Ali and John are partners in a firm. On Kamal's retirement from the firm on 30th June, 2023, his capital account stood at 40,000 after all adjustments.
The partners decided that Kamal be paid 50% of the amount due to him immediately and the balance, along with interest @ 6% per annum, be paid on 30th June, 2024.
The firm closes its books on 31st March every year.
You are required to prepare Kamal's Loan Account till it is finally closed. [3 Marks]

Answer:

Balance Sheet of Hari and James as at 30th June, 2023

Working Notes:
1. Jacob's Capital Balance = Rs. 1,90,000 + Share of Profit Rs. 1,10,000 - Drawings Rs. 1,00,000 - Interest on Drawings Rs. 1,000 = Rs. 1,99,000 transferred to Executor's Loan.
2. Bank balance = 1,50,000 - 1,00,000 (drawings) = Rs. 50,000.

OR Answer:

Kamal's Loan Account

Teacher's Note:
a) In case of death, profit share is debited to Profit and Loss Suspense Account if profit-sharing ratio is not altered.
b) Interest on loan must be calculated carefully for the exact period from the date of retirement to closure/payment date.

Question 3
On 1st April, 2022, Harbour Ltd. issued 50,000, 6% Debentures of Rs. 100 each to the public at a discount of 5% to be redeemed after three years at a premium of 7%.
On this date, the company also issued 1,00,000 Equity shares of Rs. 10 each at a premium of Rs. 2 per share.
Both the issues were fully subscribed.
You are required to prepare the following accounts for the year 2022-23 in the books of Harbour Ltd.:
(i) 6% Debentures Account.
(ii) Loss on issue of debentures Account. [3 Marks]

Answer:

Dr.                               6% Debentures A/c                               Cr.

Dr.                   Loss on Issue of Debentures A/c                     Cr.

Teacher's Note:
a) Loss on issue of debentures includes both discount on issue and premium payable on redemption.
b) Securities Premium Reserve can be utilized for writing off the loss on issue of debentures.

Question 4
On 1st April, 2022, the following balances appeared in the books of Alpha Pvt. Ltd.
9% Debentures (redeemable on 31 st March, 2023, at a premium of 2%)     Rs. 50,00,000
Debenture Redemption Reserve     Rs. 5,00,000
The Debenture Redemption Investment 1st April, 2022, was realised at 101% on the date of redemption and the debentures were redeemed on the due date.
You are required to prepare the following accounts in the books of Alpha Pvt. Ltd.
(i) Debenture holders' Account.
(ii) Debenture Redemption Investment Account. [3 Marks]

OR
On 1st April, 2022, Resorts Ltd. (a listed construction company) had 60,000, 5% Debentures of Rs. 100 each due for redemption at par on 31st March, 2023.

Answer:

Dr.                         Debenture Holders' Account                       Cr.

Dr.               Debenture Redemption Investment Account               Cr.

OR Answer:

Journal Entries in the books of Resorts Ltd.

Teacher's Note:
a) DRI must be invested at least 15% of the face value of debentures maturing during the year.
b) Listed construction companies are exempt from creating DRR but must comply with investment requirements.

Question 5
On 1st April, 2020, Anish started a business with a capital of Rs. 3,00,000.
During the three years ending 31st March, 2023, the results of his business were:
Year                               (Rs.)
2020-21         Loss       20,000
2021-22         Profit     34,000
2022-23         Profit     46,000
From the year 2020-21 to the year 2022-23, Anish withdrew Rs. 30,000 from the firm for his personal use.
On 1st April, 2023, he admitted Danish into partnership on the following terms:
(a) Goodwill of the firm to be valued at two years' purchase of the average profits of the last three years.
(b) Danish to have 1/4 share in the future profits.
(c) Danish's capital to be equal to 1/4 of Anish's capital determined on 1st April, 2023, after the goodwill compensation has been taken into account.
You are required to give:
(i) The formula to calculate goodwill by the Average Profit Method.
(ii) The value of self-generated goodwill of the firm.
(iii) Danish's capital contribution. [3 Marks]

Answer:
(i) Goodwill = Average Profit × Number of years' purchase
Where, Average Profit = Total profits / No. of years
(ii) Average Profit = (-20,000 + 34,000 + 46,000) / 3 = 60,000 / 3 = Rs. 20,000
Self-generated goodwill of the firm = 20,000 × 2 = Rs. 40,000
(iii) Adjusted capital of Anish as at 31st March, 2023:
3,00,000 - 30,000 (drawing) - 20,000 (loss) + 34,000 (profit) + 46,000 (profit) = Rs. 3,30,000
Goodwill compensation = 40,000 × (1/4) = Rs. 10,000
Anish's capital after goodwill = 3,30,000 + 10,000 = Rs. 3,40,000
Danish's capital = (1/4) of 3,40,000 = Rs. 85,000

Teacher's Note:
a) Average profit is computed by adding all profits and subtracting all losses across the given years.
b) Capital adjustments for drawings, profits, and goodwill must precede the incoming partner's capital calculation.

Question 6
The following balances have been extracted from the books of Meadow Ltd. as at 31st March, 2023. [6 Marks]

Additional information:
- The company had issued 1,25,000 Equity shares of Rs. 10 each which were all applied for and allotted to the public. These shares were fully called up by the company.
- There were calls-in arrears @ Rs. 2 per share on 15,000 shares out of which 5,000 shares were forfeited by the company.
You are required to:
(i) Show the Share Capital in the Notes to Accounts.
(ii) Give the amount for each of the following:
(a) Short-term borrowings
(b) Current Assets
(c) Property, Plant and Equipment and Intangible Assets
(d) Property, Plant and Equipment

Answer:

In the books of Meadow Ltd.
An Extract of Notes to Accounts

(ii) (a) Amount of Short-term borrowings = Bank overdraft + Mature Debenture = 40,000 + 60,000 = Rs. 1,00,000
(b) Current Assets = Short-term loans and advances + Cash and bank balances + Bills Receivables - Provision for bad debts + Sundry Debtors + Inventories = 50,000 + 1,60,000 + 20,000 + 90,000 - 10,000 - 30,000 (Note: inventory is 30k) = Rs. 3,40,000
(c) Property, Plant and Equipment and Intangible Assets = Net PPE (5,00,000) + Land and Building (6,80,000) + Patents (80,000) = Rs. 12,60,000
(d) Property, Plant and Equipment = Plant and Machinery (6,00,000 - 1,00,000) + Land and Building (6,80,000) = Rs. 11,80,000

Teacher's Note:
a) Current maturities of long-term debt (1/5th of 3,00,000 = Rs. 60,000) are classified under Short-term borrowings.
b) Share forfeiture balance on forfeited shares not yet reissued is added back to subscribed capital.

Question 7
Amay and Sujoy are partners sharing profits and losses in the ratio of 3:1. Their Balance Sheet as at 31st March, 2023, is given below. [6 Marks]

On 1st April, 2023, they admit Malay as a new partner for 1/4 share in the profits on the following terms:
(a) Malay to bring his share of capital of Rs. 1,20,000 and to pay Rs. 10,000 in cash for his share of goodwill.
(b) Stock worth Rs. 45,000 to be taken over by Amay at Rs. 25,000.
(c) Bills Payable of Rs. 20,000 to be honoured by Sujoy, for which he is not to be reimbursed.
(d) The capitals of Amay and Sujoy to be adjusted on the basis of Malay's Capital and his share in the profits, any surplus to be readjusted through current account and deficiency through cash.
You are required to prepare the Partners' Capital Accounts.

OR
Mitu and Ritu are partners sharing profits and losses in the ratio of 2:3. An extract of their Balance Sheet as at 31st March, 2023, is given below.

On 1st April, 2023, they admit Nitu as a new partner for 1/5 share in the profits on the following terms regarding the treatment of the reserves and the accumulated losses:
(a) Accumulated losses, if any, to be written off.
(b) A workmen compensation claim of Rs. 10,000 to be adjusted against the Workmen Compensation Reserve. The balance of the reserve is not to be distributed.
(c) Any loss in the value of investments to be adjusted against the Investment Fluctuation Reserve. The balance of the Investment Fluctuation Reserve is to be distributed.
(d) Provision for doubtful debts to be created to the extent of 10% of the debtors from the General Reserve. The remaining amount in the General Reserve is to be distributed.
You are required to pass necessary journal entries to record the above adjustments at the time of Nitu's admission. [6 Marks]

Answer:

Dr.                   Revaluation A/c                   Cr.

Dr.                       Partners' Capital A/c                       Cr.

Working Notes:
Malay's capital of Rs. 1,20,000 is for 1/4 share. Total capital of firm = 1,20,000 × 4 = Rs. 4,80,000.
Amay's new capital = 4,80,000 × (9/16) = Rs. 2,70,000.
Sujoy's new capital = 4,80,000 × (3/16) = Rs. 90,000.

OR Answer:

Journal Entries

Teacher's Note:
a) Partner capital readjustments require matching the total firm capital based on the incoming partner's share.
b) Un-distributed reserves or adjustments like IFR and WCR must be meticulously routed through partner capital or current accounts.

Question 8
Adit and Shiv were partners sharing profits and losses in the ratio of 5:4. They dissolved their partnership firm on 31st March 2023, when their Balance Sheet showed the following balances: [6 Marks]

On the date of dissolution of the firm:
(a) The firm suffered a loss of Rs. 18,000 upon realisation of assets and settlement of liabilities.
(b) The expenses of dissolution of Rs. 3,000, to be borne by Shiv, were paid by the firm on his behalf.
(c) The firm had furniture of Rs. 15,000. Adit took over some pieces of the furniture at Rs. 9,000 (being 10% less than the book value). Shiv took over the remaining furniture at 80% of its book value.
You are required to prepare the Partners' Capital Accounts.

Answer:

Dr.                       Partners' Capital A/c                       Cr.

Teacher's Note:
a) Current account balances and accumulated losses must be transferred to Partners' Capital Accounts before final settlement.
b) Asset takeovers by partners are debited to their capital accounts at agreed values.

Question 9
Tanuj and Ravi are partners in a business with capital balance of Rs. 1,50,000 and Rs. 1,00,000 respectively on 1st April, 2022.
(d) Any partner taking a loan from the firm to be charged interest on it @ 8% per annum.

Their partnership deed contains the following clauses:
(a) Interest on capital to be allowed @ 10% per annum.
(b) Interest on drawings to be charged @ 4% per annum.
(c) Tanuj to be allowed a commission @ 5% of the trading profit after charging commission.
(d) Ravi to be allowed an annual commission of Rs. 10,000.
(e) 20,000 from his capital.
During the year 2022-23:
- Tanuj withdrew Rs. 6,000 at the end of every quarter.
- The trading profit of the firm was Rs. 84,000.
- The firm's divisible profit was Rs. 46,360.
- On 1st October, 2022, Ravi permanently withdrew Rs. 20,000 from his capital.
You are required to do the following:
(i) Pass the journal entries to record:
(a) The permanent withdrawal made by Ravi.
(b) The distribution of the divisible profits between the partners.
(c) The adjusting entry for commission due to Ravi.
(ii) Calculate the interest on capital allowed to: (a) Tanuj     (b) Ravi [2 Marks]
(iii) Calculate the commission allowed to Tanuj. [1 Mark]
(iv) Calculate the interest on drawings charged from Tanuj. [1 Mark]

OR
Amit and Iqbal are partners in a business. Their partnership deed contained the following clauses:
(a) Interest on drawings to be charged @ 6% per annum.
(b) Amit to get a salary of Rs. 1,000 per month.
(c) Iqbal to get an annual commission of Rs. 10,000.

Answer:

In the books of Tanuj and Ravi
Journal Entries

(ii) Calculation of interest on capital allowed to:
(a) Tanuj = 1,50,000 × (10/100) = Rs. 15,000
(b) Ravi = [1,00,000 × (10/100) × (6/12)] + [80,000 × (10/100) × (6/12)] = 5,000 + 4,000 = Rs. 9,000
(iii) Commission allowed to Tanuj:
Trading profit = 84,000
Commission = 84,000 × (5/105) = Rs. 4,000
(iv) Interest on Tanuj's drawings:
Average Period = (9 months + 0 months) / 2 = 4.5 months
Interest on drawings = (6,000 × 4) × (4/100) × (4.5/12) = 24,000 × (4/100) × (4.5/12) = Rs. 360

OR Answer:

Note: Interest on Amit's loan = 10,000 × (8/100) × (9/12) = Rs. 600.

Dr.                       Partners' Capital A/c                       Cr.

Hence, Opening Capital of Amit = Rs. 54,600; Iqbal = Rs. 2,650

Teacher's Note:
a) Interest on capital must be calculated proportionately for any capital additions or withdrawals during the year.
b) Average period formula for drawings made at the end of each quarter is (Time left after first drawing + Time left after last drawing) / 2.

Question 10
Gama Ltd. issued 20,000 Equity shares of Rs. 10 each to the public, payable as follows:
Rs. 2 on Application
Rs. 3 on Allotment (on 1st November, 2022)
Rs. 5 on First & Final Call (on 1st March, 2023)
Applications were received for 25,000 shares. The directors of the company accepted applications for 20,000 shares and refunded the application money on the remaining shares.
One shareholder who was allotted 30 shares paid the first and final call with allotment.
Another shareholder did not pay his allotment on 20 shares when due but paid it with the first and final call along with interest on calls-in-arrears.
The directors of the company charged interest on calls-in-arrears at the rate provided in Table F of the Companies Act, 2013. No interest was allowed on calls-in-advance.
You are required to pass journal entries to record the above transactions in the books of Gama Ltd. [10 Marks]

OR
(A) Roxy Ltd. issued Equity shares of Rs. 10 each payable as:
Rs. 4 on Application and Allotment; Rs. 2 on First Call; Rs. 4 on Second and Final Call. Following is an extract of the Journal of Roxy Ltd. [9 Marks]

You are required to complete the journal entries by filling up the missing information represented by '??', including the number of shares and narration, if any.

(B) Savt Ltd. forfeited 50 shares of Rs. 100 each issued at a premium of 10%, on which allotment money of Rs. 30 per share (including premium) and first and final call of Rs. 40 per share were not received.
What is the minimum amount per share at which the company can reissue these shares?

Answer:

In the books of Gama Limited
Journal Entries

OR Answer (A):

Journal of Roxy Ltd.

OR Answer (B):

The maximum discount allowed on reissue of shares is equal to amount of forfeiture. Here balance available in Share Forfeiture A/c = 50 × 40 = Rs. 2000.
Minimum amount at which these shares can be reissued = Rs. 5,000 - Rs. 2,000 = Rs. 3,000
Minimum amount per share = 3,000 / 50 = Rs. 60 per share

Teacher's Note:
a) Calls in advance do not carry interest unless specified, and table F rate for calls-in-arrears is 10% per annum.
b) Reissue price cannot be less than the face value minus the amount already forfeited per share.

SECTION B (20 MARKS)

Question 11
In subparts (i) and (ii) choose the correct options and in subparts (iii) to (v) answer the questions as instructed.

(i) What is the difference between Total Assets and Current Liabilities? [1 Mark]
(A) Total Liabilities
(B) Shareholders' Funds
(C) Total Debt
(D) Capital Employed

Answer: (D) Capital Employed

Capital Employed refers to the total amount of capital invested in the business, which includes both equity and debt.

Teacher's Note:
a) Capital employed can be expressed as Total Assets minus Current Liabilities.
b) Alternatively, it is Non-Current Liabilities plus Shareholders' Funds.

(ii) While preparing its Cash Flow Statement, which of the following will be classified by a company as its Cash Outflow from Investing Activities? [1 Mark]
P Investment in Government Securities
Q Investment in bank deposits (having maturity of six months)
R Proceeds from redemption of liquid mutual fund units
S Proceeds from bank deposits with original maturity of less than three months
(A) P and Q
(B) R and S
(C) Only P
(D) Only R

Answer: (C) Only P

Investment in Government Securities is a long-term investment, hence an outflow under Investing Activities.

Teacher's Note:
a) Short-term deposits and liquid mutual fund units are treated as Cash and Cash Equivalents.
b) Only long-term investments fall under investing activities.

(iii) A company has a Quick Ratio of 1.8 : 1. Mention whether this ratio will improve / reduce / not change after it sells a machine worth Rs. 1,20,000 at a loss of Rs. 30,000. [1 Mark]

Answer: Improve

Selling a machine increases liquid assets (cash/bank) by Rs. 90,000 without affecting current liabilities, thereby improving the Quick Ratio.

Teacher's Note:
a) Quick Ratio = Quick Assets / Current Liabilities.
b) Cash realized from sale of non-current assets increases quick assets while current liabilities remain unchanged.

(iv) State whether creditors would prefer lending to a company with a high Debt-Equity Ratio or a low Debt-Equity Ratio. Give a reason. [1 Mark]

Answer: Creditors prefer a low Debt-Equity Ratio.

A lower debt-equity ratio indicates that the company relies less on debt financing and has a stronger equity position, providing higher safety for creditors.

Teacher's Note:
a) Debt-Equity Ratio measures financial risk.
b) High debt indicates high financial leverage and default risk.

(v) An extract of the Balance Sheet of Nova Ltd. shows: [1 Mark]

During the year 2022-23, the company raised its share capital by issuing bonus shares to the shareholders at the beginning of the year in the ratio of 1:5 (one bonus share was issued for every five equity shares). The balance shares were issued for cash to the public.
How many shares were issued for cash by the company?

Answer: 20,000 shares

Total proceeds from issue of shares = 8,00,000 - 5,00,000 = Rs. 3,00,000. Proceeds from bonus shares = 5,00,000 / 5 = Rs. 1,00,000. Cash shares = 3,00,000 - 1,00,000 = Rs. 2,00,000 / 10 = 20,000 shares.

Teacher's Note:
a) Bonus shares are issued free of cost out of reserves, while cash shares represent actual capital infusion.
b) Carefully separate bonus and cash components when analyzing share capital changes.

Question 12
Following is the Comparative Income Statement of Violet Ltd. for the years ending 31.3.2023 and 31.3.2022.
You are required to present the Comparative Income Statement in its complete form after calculating the missing information represented by "??". [3 Marks]

Comparative Income Statement of Violet Ltd.
For the year ending 31.3.2023 and 31.3.2022

Answer:

Comparative Income Statement of Violet Ltd.
For the year ending 31.3.2023 and 31.3.2022

Teacher's Note:
a) Absolute change = Current Year - Previous Year.
b) Percentage change = (Absolute Change / Previous Year) × 100.

Question 13
Based on the following information of Neon Ltd., answer the questions given below in relation to the Cash Flow Statement of the company for the year 2022-23.

Note: Dividend proposed in the years 2021-22 and 2022-23 were Rs. 30,000 and Rs. 40,000 respectively.
Additional information:
During the year 2022-23, the company:
(a) Provided Rs. 75,000 for tax.
(b) Issued 7% Debentures at a discount of 5%.
(c) Purchased Plant & Machinery for Rs. 40,000.
(i) What is the amount of tax paid by the company? [1 Mark]
(ii) Give the reason for the opening book value and closing book value of Plant & Machinery being the same, despite the purchase of a machine during the year. [1 Mark]
(iii) What is the inflow of cash from the issue of 7% Debentures? [1 Mark]
(iv) Give the company's outflow of cash for dividend paid to the shareholders. [1 Mark]
(v) State with reason whether Neon Ltd. will consider the decrease in the amount of land as an Operating Activity or as an Investing Activity, while preparing its Cash Flow Statement. [2 Marks]

OR
From the following Balance Sheets of Halogen Ltd., you are required to prepare a Cash Flow Statement (as per AS 3) for the year 2022-23. [6 Marks]

Answer:
(i) Tax Paid = Rs. 45,000
(ii) Depreciation of Rs. 40,000 was charged during the year.
(iii) Inflow = Rs. 4,75,000 (95% of Rs. 5,00,000)
(iv) Dividend Paid = Rs. 24,000 (30,000 - 6,000 unclaimed)
(v) Decrease in land is considered an Investing Activity because land is a non-current asset representing non-operating investing operations.

Teacher's Note:
a) Tax paid is derived using the Provision for Taxation account.
b) Sale or purchase of non-current assets like land always falls under investing activities.

Question 14
Answer any three of the following questions. [6 Marks]

(i) From the following particulars of Hind Ltd., calculate the preference dividend paid by the company.

Answer: Rs. 3,00,000

Tax = 20,00,000 × 30% = Rs. 6,00,000. Net profit after tax = 20,000,000 - 6,00,000 = Rs. 14,00,000. Number of equity shares = 40,00,000 / 10 = 4,00,000. Total earnings available to equity shareholders = 4,00,000 × 2.75 = Rs. 11,00,000. Preference dividend = 14,00,000 - 11,00,000 = Rs. 3,00,000.

Teacher's Note:
a) EPS represents earnings available strictly to equity shareholders per share.
b) Preference dividend is deducted from Profit After Tax to arrive at earnings for equity shareholders.

(ii) Calculate the Current Ratio (up-to two decimal places) of Windlas Biotech Ltd. from the following extract of its Annual Report of 2021-22.

Answer: 4.08 : 1

Current Assets = 389.85 + 197.24 + 3,229.23 = Rs. 3,816.32 million. Current Liabilities = Rs. 936.52 million. Current Ratio = 3,816.32 / 936.52 = 4.08 : 1.

Teacher's Note:
a) Current Assets include closing inventories and all other current assets.
b) Current Ratio = Total Current Assets / Total Current Liabilities.

(iii) For the year 2022-23, the Return on Investment of Yolo Ltd. was 20%; its Capital Employed being Rs. 50,00,000.
(a) You are required to give the formula used by Yolo Ltd., to calculate the Return on Investment.
(b) You have been provided with two components for calculating Return on Investment. Calculate the missing third component.

Answer:
(a) Return on Investment = (Net Profit Before Interest, Tax and Dividend / Capital Employed) × 100
(b) Missing component (Net Profit Before Interest, Tax and Dividend) = 20% of 50,00,000 = Rs. 10,00,000.

Teacher's Note:
a) ROI measures the overall profitability of total capital employed.
b) Always use profit before interest and tax in the numerator.

(iv) Calculate the Working Capital Turnover Ratio of Moonlight Ltd., (up-to two decimal places) from the following particulars.

Answer: 1.5 times

Revenue from Operations = 12,00,000 + 25% of 12,00,000 = Rs. 15,00,000. Current Assets = 10,00,000 + 3,00,000 + 2,00,000 = Rs. 15,00,000. Current Liabilities = Rs. 5,00,000. Working Capital = 15,00,000 - 5,00,000 = Rs. 10,00,000. Turnover Ratio = 15,00,000 / 10,00,000 = 1.5 times.

Teacher's Note:
a) Working Capital Turnover Ratio = Revenue from Operations / Working Capital.
b) Working Capital equals Current Assets minus Current Liabilities.