ISC Class 12 Accountancy Board Exam Question Paper 2026 with Solutions

ISC Class 12 Accounts Board Exam Question Paper with Solutions

SECTION A (60 Marks)

Question 1

In subparts (i) to (v) choose the correct options and in subparts (vi) to (x) answer the questions as instructed. [10 Marks]

(i) Rishabh and Alex are partners in a firm sharing profits and losses in the ratio of 3:2. At the time of Manpreet's admission, the value of Motor Vehicle in the firm's Balance Sheet was Rs. 1,50,000. While doing the re-assessment, it was found overvalued by 25%.
Calculate the value of Motor Vehicle to be shown in the Balance Sheet of the reconstituted firm. [1 Mark]
(A) Rs. 1,12,500
(B) Rs. 1,20,000
(C) Rs. 1,87,500
(D) Rs. 2,00,000

Answer: (A) Rs. 1,12,500

Corrected Value = Rs. 1,50,000 - (25% of Rs. 1,50,000) = Rs. 1,50,000 - Rs. 37,500 = Rs. 1,12,500.

Teacher's Note:
a) When an asset is overvalued in the balance sheet, the excess amount must be deducted to find its true value for the reconstituted firm.
b) Students often mistakenly add the percentage instead of subtracting when the term 'overvalued' is given.

(ii) Malti, Bhumi and Salim were partners sharing profits and losses in the ratio of 3:3:4. Malti died on 31^st December 2024.
Following entry was passed for the adjustment of interim profit of Malti.
Date: 31.12.2024
Bhumi's Capital A/c Dr. Rs. 20,000
Salim's Capital A/c Dr. Rs. 20,000
To Malti's Capital A/c Rs. 40,000
(Being adjustment entry made for interim profit)
What will be the new profit-sharing ratio for the continuing partners? [1 Mark]
(A) 1:1
(B) 3:4
(C) 4:5
(D) 9:11

Answer: (A) 1:1

The gaining ratio of Bhumi and Salim is equal to Rs. 20,000 : Rs. 20,000 = 1:1. Since no other information is given, the new profit sharing ratio between continuing partners continues in their gaining/old ratio, which is 1:1.

Teacher's Note:
a) The ratio in which continuing partners bear the deceased partner's share is reflected by the amounts debited in the adjustment entry.
b) Be careful not to confuse the old profit-sharing ratio with the new ratio when specific adjustment entries are provided.

(iii) Ravi, is a shareholder at Sarang Ltd., holding 5,000 shares of Rs. 20 each. He paid only application money of Rs. 5 including premium of Re. 1. His shares were forfeited after the Final Call was made.
The maximum discount per share that can be offered by Sarang Ltd. to re-issue the forfeited shares is: [1 Mark]
(A) Re. 1
(B) Rs. 4
(C) Rs. 5
(D) Rs. 15

Answer: (B) Rs. 4

The maximum discount on re-issue of forfeited shares cannot exceed the amount forfeited on those shares. Amount forfeited per share = Application money paid excluding premium = Rs. 5 - Re. 1 = Rs. 4.

Teacher's Note:
a) The maximum discount allowed on re-issue is strictly limited to the forfeiture balance standing to the credit of Forfeited Shares Account for those specific shares.
b) Students must remember to exclude the securities premium amount if it was received and credited to Securities Premium Account, but here premium was due on application and included in Rs. 5, out of which capital received is Rs. 4.

(iv) At the time of dissolution, a firm did not provide any information regarding realisation of the following assets:
P - Freehold Premises
Q - Office Equipment
R - Goodwill
S - Furniture
Choose the assets to be realised at the book value of the firm. [1 Mark]
(A) P, Q, R
(B) P, Q, S
(C) P, R, S
(D) Q, R, S

Answer: (B) P, Q, S

Goodwill (R) is a fictitious/intangible asset that is not realised unless specifically sold, whereas tangible assets like Freehold Premises (P), Office Equipment (Q), and Furniture (S) must be realised at their book value if no information is given.

Teacher's Note:
a) According to the accounting rules for dissolution, all tangible assets transferred to Realisation Account must be realised at book value if no explicit instructions are provided.
b) Fictitious assets or purely intangible assets like Goodwill are generally considered as having zero value if no realization is mentioned.

(v) Assertion: Commission allowed to a partner is debited to Profit and Loss Appropriation Account.
Reason: Commission allowed to a partner is treated as a charge against profit.
Which one of the following is correct? [1 Mark]
(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) Assertion is true and Reason is false.
(D) Both Assertion and Reason are false.

Answer: (C) Assertion is true and Reason is false.

Commission allowed to a partner is an appropriation of profit (unless specified as a charge), hence debited to P&L Appropriation Account. The reason stating it is a charge is incorrect.

Teacher's Note:
a) Partner's salary, commission, and interest on capital are appropriations of profit unless stated otherwise in the problem.
b) Charges against profit are debited to Profit and Loss Account, not the Appropriation Account.

(vi) At the time of dissolution of a firm, Furniture appeared at Rs. 4,50,000 in the firm's Balance Sheet. One of the creditors to whom an amount of Rs. 4,00,000 was due, agreed to take over the Furniture at 20% less than the book value and the remaining amount by cheque.
Calculate the amount to be paid to the creditor by cheque. [1 Mark]

Answer:
Book value of Furniture taken over = Rs. 4,50,000.
Value at which furniture was taken over = Rs. 4,50,000 - (20% of Rs. 4,50,000) = Rs. 4,50,000 - Rs. 90,000 = Rs. 3,60,000.
Total amount due to creditor = Rs. 4,00,000.
Amount to be paid by cheque = Rs. 4,00,000 - Rs. 3,60,000 = Rs. 40,000.

Teacher's Note:
a) When a creditor accepts an asset in full or part settlement of their claim, only the agreed value of the asset is adjusted against the liability.
b) The remaining balance of the creditor's claim must be paid in cash or bank.

(vii) Bisco Ltd. issued 10,000, 9% Debentures of Rs. 100 each at a discount of 4%, redeemable at a premium of 8% after five years. The company had a balance of Rs. 80,000 in Securities Premium Account and Rs. 1,00,000 in Statement of Profit and Loss.
Give the journal entry to write off the Loss on issue of Debentures. [1 Mark]

Answer:

Teacher's Note:
a) Total loss on issue of debentures includes discount on issue (10,000 × Rs. 4 = Rs. 40,000) plus premium on redemption (10,000 × Rs. 8 = Rs. 80,000), totaling Rs. 1,20,000.
b) Securities premium is utilized first up to its available balance (Rs. 80,000), and the remaining loss of Rs. 36,000 is written off from Statement of Profit and Loss.

(viii) Karma Ltd., an unlisted manufacturing company, had 30,000, 9% Debentures of Rs. 100 each due for redemption on 31^st March, 2025.
Calculate the amount to be invested in Debenture Redemption Investment Account for the redemption of Debentures, as per the provisions of the Companies' Act, 2013. [1 Mark]

Answer:
Amount to be invested = 15% of face value of debentures to be redeemed
= 15% of (30,000 × Rs. 100)
= 15% of Rs. 30,00,000 = Rs. 4,50,000.

Teacher's Note:
a) As per Rule 18(7) of Companies (Share Capital and Debentures) Rules, 2014, unlisted companies must invest at least 15% of the nominal value of debentures maturing during the year.
b) Students should note that this investment must be made in specified securities on or before 30^th April preceding the redemption date.

(ix) On the date of Sahil's retirement as a partner from a firm, Goodwill was valued at Rs. 1,25,000 under Capitalisation of Super Profit method. Super Profit of the firm was Rs. 15,000.
Find the Normal Rate of Return that was used to ascertain the Goodwill of the firm. [1 Mark]

Answer:
Goodwill = (Super Profit × 100) / Normal Rate of Return
Rs. 1,25,000 = (Rs. 15,000 × 100) / NRR
NRR = (15,00,000 / 1,25,000)% = 12%.

Teacher's Note:
a) Under the Capitalisation of Super Profit method, Goodwill is calculated by dividing the Super Profit by the Normal Rate of Return expressed as a percentage.
b) Rearranging the formula correctly allows finding the unknown rate when goodwill and super profit are provided.

(x) 'Mindspace Business Parks REIT acquires three office assets from sponsor K Raheja Corp for Rs. 2916 crores.'
(Source: livemint.com 28 Nov, 2025)
Mention the heading and the sub-heading under which office assets of Mindspace Business Parks REIT will be shown in the Balance Sheet as per Schedule III of the Companies' Act, 2013. [1 Mark]

Answer:
Heading: Non-Current Assets
Sub-heading: Property, Plant and Equipment and Intangible Assets (Property, Plant and Equipment).

Teacher's Note:
a) Office assets (real estate/buildings) held by a company or REIT are treated as tangible assets under Property, Plant and Equipment.
b) Strict adherence to the exact terminology prescribed in Schedule III is required to score full marks.

Question 2

On 1^st July, 2024, Udaan Ltd. issued 20,000, 7% Debentures of Rs. 100 each at a premium of 5%, redeemable after 5 years at a premium of 10%.
According to the terms of issue of debentures, interest on debentures was payable yearly on 31^st March.
You are required to:

(i) Pass necessary journal entries in the books of Udaan Ltd. on the date of issue of debentures. [2 Marks]

(ii) Prepare Interest on Debentures Account for the year 2024-25. [1 Mark]

OR

During the year 2024-25, IP Ltd. issued:
- 10,000, 7% Debentures of Rs. 50 each at a discount of 5% to the promoters of the company.
- 2,000, 7% Debentures of Rs. 50 each at par to BL & Co. for the settlement of their underwriting commission.
You are required to record the necessary journal entries in the books of IP Ltd. for the issue of debentures. (Ignore writing off capital losses and interest on debentures) [3 Marks]

Answer: (i) & (ii)

Journal Entries in the books of Udaan Ltd.

Interest on Debentures Account

Teacher's Note:
a) Interest is calculated from the date of issue (1^st July 2024) to the end of the accounting year (31^st March 2025), which is 9 months (Rs. 20,00,000 × 7% × 9/12 = Rs. 1,05,000).
b) Loss on issue of debentures includes the premium payable on redemption since it is a future liability recognized at the time of issue.

OR

Answer:

Journal Entries in the books of IP Ltd.

Teacher's Note:
a) Debentures issued to promoters for formation services are debited to Incorporation Costs or Goodwill/Formation Expenses Account.
b) Issue of debentures to underwriters settles the commission payable directly without cash transaction.

Question 3

Meena, Ricky and Vicky were partners in a firm sharing profits and losses in the ratio of 6:3:1. On 31^st March, 2025, Meena retired from the firm and the continuing partners decided to share profits and losses in the ratio of 3:2.
On the date of Meena's retirement, the firm's Balance Sheet showed the following items:

The continuing partners decided to record the effect of the above items without disturbing the book value of the General Reserve.
You are required to record the necessary journal entries to show the above adjustments. [3 Marks]

OR

Kamal, Anwar and Sam were equal partners in a firm. On 1^st April, 2025, Sam's capital stood at Rs. 1,05,000 in the books of the firm.
On 31^st July, 2025, Sam died. As per the provisions of the Partnership Deed, Interest on Capital was allowed @ 10% per annum and Interest on Drawings was charged @ 6% per annum.
Till his death, Sam had withdrawn Rs. 20,000. His interim profit amounted to Rs. 12,000 and the firm's Goodwill was valued at Rs. 90,000.
You are required to prepare Sam's Capital Account. [3 Marks]

Answer:

Journal Entries

Working Notes:
1. Fall in Investments = Book Value (Rs. 50,000) - Market Value (Rs. 40,000) = Rs. 10,000. Remaining IFF of Rs. 20,000 distributed in 6:3:1.
2. Old Ratio = 6:3:1. New Ratio = 3:2.
Meena's share = 6/10. Ricky's new share = 3/5 = 6/10 (Sacrifice/Gain = nil). Vicky's new share = 2/5 = 4/10 (Gain = 4/10 - 1/10 = 3/10).
Adjustment for General Reserve (Rs. 1,80,000) = Vicky gains 3/10 share. Vicky's share = Rs. 1,80,000 × 3/10 = Rs. 54,000? Wait, let's recalculate gaining ratio: Ricky new = 3/5, old = 3/10 (Gain = 3/5 - 3/10 = 3/10). Vicky new = 2/5, old = 1/10 (Gain = 2/5 - 1/10 = 3/10). Total gain = Meena's share (6/10). Ricky gains 3/10, Vicky gains 3/10. So entry: Ricky's Capital A/c Dr. Rs. 54,000, Vicky's Capital A/c Dr. Rs. 54,000, To Meena's Capital A/c Rs. 1,08,000. Let's verify with standard calculation: General reserve adjustment = Rs. 1,80,000 × Meena's share (6/10) = Rs. 1,08,000 shared by Ricky and Vicky in gaining ratio (1:1). Thus Ricky = Rs. 54,000, Vicky = Rs. 54,000.

Teacher's Note:
a) When reserves are not to be disturbed in the books, a single adjustment entry is passed via partners' capital accounts in their gaining/sacrificing ratio.
b) Investment fluctuation fund is first utilized against actual fall in investments, and the balance is distributed among all partners in their old profit-sharing ratio.

OR

Answer:

Sam's Capital Account

Working Notes:
1. Interest on Capital = Rs. 1,05,000 × 10% × 4/12 = Rs. 3,500.
2. Interest on Drawings = Rs. 20,000 × 6% × 4/12 = Rs. 400 (since date of drawing not given, assumed in middle or average period of 4 months).
3. Sam's share of goodwill = Rs. 90,000 × 1/3 = Rs. 30,000, contributed by Kamal and Anwar equally (Rs. 15,000 each).

Teacher's Note:
a) All adjustments up to the date of death including interest on capital, interest on drawings, share of goodwill, and interim profit must be credited/debited to the deceased partner's capital account.
b) The final balance is transferred to the Deceased Partner's Executor's Account.

Question 4

On 1^st April, 2022, RR Ltd., a listed manufacturing company issued 15,000, 8% Debentures of Rs. 100 each, due for redemption on 31^st March, 2025 at a premium of 10%. The issue was fully subscribed. The debentures were redeemed on the due date.
On 1^st April, 2024, the company invested the required amount in the Debenture Redemption Investment Account, earning an interest @ 6% per annum.
You are required to pass necessary journal entries in the books of RR Ltd. for the redemption of debentures for the year 2024-25. (Ignore Interest on Debentures) [3 Marks]

Answer:

Journal Entries in the books of RR Ltd.

Teacher's Note:
a) The DRI must be created for at least 15% of the face value of debentures maturing during the financial year (15% of Rs. 15,00,000 = Rs. 2,25,000).
b) Listed manufacturing companies are exempt from creating a Debenture Redemption Reserve (DRR), but they must comply with the DRI investment requirement.

Question 5

Rani and Mani are partners in a firm sharing profits and losses in 3:2 ratio.
On 1^st April, 2025 they admit Jasmine as a partner. Rani sacrifices 1/3^rd of her share and Mani sacrifices 1/2 of his share. As per the provisions of the Partnership Deed, Goodwill is to be valued, on the basis of two years' purchase of previous three years' weighted average profit.
Weights applicable as 1, 2 and 3 for the years 2022-23, 2023-24 and 2024-25 respectively.
Profits for the previous three years are as follows:

During the year 2023-24, closing stock was undervalued by Rs. 5,000.
On the date of Jasmine's admission, you are required to:

(i) Calculate firm's Goodwill. [2 Marks]

(ii) Calculate the new profit-sharing ratio of Rani, Mani and Jasmine. [1 Mark]

Answer:

(i) Calculation of Weighted Average Profit and Goodwill:
Adjusted Profits:
- 2022-23: Rs. 56,000
- 2023-24: Rs. 72,000 + Rs. 5,000 (undervaluation of closing stock increases profit) = Rs. 77,000
- 2024-25: Rs. 85,000 (opening stock of 24-25 also affected? Since closing stock of 23-24 was undervalued, opening stock of 24-25 is undervalued, so 2024-25 profit is reduced by Rs. 5,000. Let's adjust 2024-25 profit: Rs. 85,000 - Rs. 5,000 = Rs. 80,000).
Let's check calculation of weighted products:
- 2022-23: Rs. 56,000 × 1 = 56,000
- 2023-24: Rs. 77,000 × 2 = 1,54,000
- 2024-25: Rs. 80,000 × 3 = 2,40,000
Total Products = 56,000 + 1,54,000 + 2,40,000 = Rs. 4,50,000.
Total Weights = 1 + 2 + 3 = 6.
Weighted Average Profit = Rs. 4,50,000 / 6 = Rs. 75,000.
Goodwill = Weighted Average Profit × Number of Years' Purchase = Rs. 75,000 × 2 = Rs. 1,50,000.

(ii) Calculation of New Profit-Sharing Ratio:
Rani's old share = 3/5. Rani's sacrifice = 1/3 of 3/5 = 1/5.
Mani's old share = 2/5. Mani's sacrifice = 1/2 of 2/5 = 1/5.
Jasmine's share = Rani's sacrifice + Mani's sacrifice = 1/5 + 1/5 = 2/5.
New share of Rani = 3/5 - 1/5 = 2/5.
New share of Mani = 2/5 - 1/5 = 1/5.
New Profit-Sharing Ratio (Rani : Mani : Jasmine) = 2/5 : 1/5 : 2/5 = 2:1:2.

Teacher's Note:
a) Undervaluation of closing stock in a year increases that year's profit when corrected, and correspondingly decreases the next year's profit due to higher opening stock.
b) When sacrifice is given as "1/3rd of her share", multiply the old share by that fraction to get the actual sacrifice.

Question 6

On 31^st March 2025, BIMA Ltd., showed the following balances:

Additional information:
- BIMA Ltd. incorporated with an authorised capital of 8,00,000 Equity Shares of Rs. 10 each, of which 5,00,000 shares were issued to the public. Shares were subscribed in full.
- 8% Bank loan was taken on 1^st April 2022, due for repayment on 31^st August, 2025.
You are required to:

(i) Prepare Notes to Accounts showing Share Capital. [2 Marks]

(ii) Give the amount for each of the following:

(a) Reserve and Surplus [1 Mark]

(b) Long term borrowings [1 Mark]

(c) Short term borrowings [1 Mark]

(d) Other Current liabilities [1 Mark]

Answer:

(i) Notes to Accounts:

Note 1: Share Capital

(ii) Amounts for specified heads:
(a) Reserve and Surplus: Securities Premium (Rs. 70,000) - Statement of Profit & Loss debit balance (Rs. 50,000) = Rs. 20,000.
(b) Long term borrowings: Nil (since 8% Bank Loan is due for repayment on 31^st August 2025, which is within 12 months from the balance sheet date, it is classified as current/short-term).
(c) Short term borrowings: Rs. 5,00,000 (8% Bank Loan due within 12 months).
(d) Other Current liabilities: Interest accrued but not due on debentures (Rs. 15,000) + Calls-in-Advance (Rs. 40,000) = Rs. 55,000.

Teacher's Note:
a) Bank loans maturing within 12 months from the date of the balance sheet are classified under short-term borrowings.
b) Debit balance of Statement of Profit and Loss is deducted from positive reserves under Reserves and Surplus.

Question 7

Sameer and Daulat, were partners sharing profits and losses in the ratio of 2:3. They decided to dissolve the firm on 31^st March, 2025. Their Balance Sheet was as under: [6 Marks]

Additional information:
The firm was dissolved subject to the following adjustments:
(a) Sameer took over closing stock for the settlement of his loan.
(b) Debtors of Rs. 15,000 proved bad.
(c) Land & Building was realised at 25% above the book value.
(d) Sameer paid realisation expenses of Rs. 15,000.

You are required to prepare the Realisation Account.

Answer:

Realisation Account

Working Notes:
1. Land & Building realised at 25% above book value = Rs. 3,20,000 × 1.25 = Rs. 4,00,000.
2. Debtors realised = Rs. 70,000 - Rs. 15,000 = Rs. 55,000.
3. Total credit side = 5,000 + 60,000 + 50,000 + 4,00,000 + 1,80,000 + 55,000 + 45,000 = Rs. 7,95,000? Let's re-add: 5000 + 60000 + 50000 + 400000 + 180000 + 55000 + 45000 = Rs. 7,95,000. Total debit side = 3,20,000 + 1,80,000 + 70,000 + 45,000 + 60,000 + 15,000 = Rs. 6,90,000. Profit = 7,95,000 - 6,90,000 = Rs. 95,000. Shared in 2:3 = Rs. 38,000 and Rs. 57,000.

Teacher's Note:
a) Partner's loan is a liability but is generally settled directly or transferred to realization only if specified; here Sameer's loan was settled by stock, which is recorded by crediting Realisation Account with the book value of stock/loan settled.
b) All external liabilities and assets at book value are closed to the Realisation Account.

Question 8

Ishita and Divya are partners in a firm sharing profits and losses in the ratio of 5:3.
Their Balance Sheet as at 31^st March, 2025, is as follows:

On 1^st April, 2025, they admit Abhinav as a new partner on the following terms:
(a) New profit-sharing ratio of Ishita, Divya and Abhinav to be 3:4:1.
(b) Divya's Current Account to be transferred to her Capital Account.
(c) 4% of the Debtors to be maintained as Provision for doubtful debts.
(d) Creditors of Rs. 20,000 are not to be paid, as they are untraceable.
(e) Abhinav to contribute Rs. 2,70,000 as his capital and Rs. 40,000 as his share of Goodwill.
You are required to do the following on the date of Abhinav's admission:

(i) Record the necessary journal entries in the books of the reconstituted firm. [5 Marks]

(ii) Calculate firm's Goodwill. [1 Mark]

OR

Ravi and Prakash are partners and losses in the ratio of 3:7.
The Balance Sheet of Ravi and Prakash as at 31^st March, 2025 is given below:

On 1^st April, 2025, they admit Nasir for 1/4^th share of profits on the following terms:
(a) Nasir to bring Rs. 50,000 as his capital and the necessary amount as his share of goodwill.
(b) Firm's Goodwill to be valued at Rs. 1,20,000.
(c) Liability for Workmen Compensation to be recorded as Rs. 15,000.
(d) Capital Accounts of Ravi and Prakash to be adjusted based on Nasir's capital and his share of profit. Any deficit or surplus in their capital to be adjusted by opening Current Account.
You are required to:

(i) Prepare Partners' Capital Account. [5 Marks]

(ii) Calculate the balance of Cash at bank on the date of Nasir's admission. [1 Mark]

Answer: (i) & (ii)

(i) Journal Entries in the books of the reconstituted firm:

(ii) Calculation of Firm's Goodwill:
Abhinav brings Rs. 40,000 for his 1/8th share (New ratio 3:4:1, total = 8).
Firm's Goodwill = Abhinav's share of goodwill × Reciprocal of his share = Rs. 40,000 × 8/1 = Rs. 3,20,000.

Teacher's Note:
a) Revaluation profit or loss is transferred to old partners in their old profit-sharing ratio.
b) Gaining/sacrificing ratio is determined by comparing old and new shares; partners who gain compensate those who sacrifice.

OR

Answer: (i) & (ii)

(i) Partners' Capital Accounts

(ii) Calculation of Cash at Bank on admission:
Opening Cash/Bank = Nil (Bank Overdraft of Rs. 25,000 exists).
Cash brought in by Nasir (Capital Rs. 50,000 + Goodwill Rs. 36,000) = Rs. 86,000.
Less: Bank Overdraft paid/continued = Rs. 25,000.
Net Cash at Bank = Rs. 86,000 - Rs. 25,000 = Rs. 61,000 (or if overdraft remains, cash deposited is Rs. 86,000).

Teacher's Note:
a) Total capital of the firm is based on the new partner's capital and profit share (Rs. 50,000 × 4 = Rs. 2,00,000).
b) Deficits or surpluses in old partners' capitals after adjustment are transferred to Current Accounts as instructed.

Question 9

Sara Ltd. registered with 5,000,000 Equity Shares of Rs. 10 each.
The company offered 1,00,000 Equity Shares to the public for subscription at 50% premium, payable as:
On Application: Rs. 5
On Allotment: Rs. 7 (including premium)
On First and Final Call: Rs. 3
Applications were received for 1,50,000 shares. The company rejected the applications for 10,000 shares and refunded the amount immediately to the applicants. The remaining applications were allotted on pro-rata basis.
A shareholder, who had applied for 7,000 shares, failed to pay allotment and call money. His shares were forfeited by the company after First and Final Call. Half of the forfeited shares were re-issued at a discount of 20% as fully paid up.
You are required to pass the necessary journal entries in the books of Sara Ltd. [8 Marks]

OR

Skyline Ltd. invited applications for 20,000 shares of Rs. 10 each, payable as:
On 1^st June, 2024: Rs. 3 on Application
On 1^st July, 2024: Rs. 2 on Allotment
On 1^st September, 2024: Rs. 2 on First Call
On 1^st December, 2024: Rs. 3 on Second and Final Call
Shares were fully subscribed.
Vikram, a shareholder holding 2,000 shares, paid the entire money with the allotment.
As per the Articles of Association, Interest on Calls-in-Advance was allowed @ 12% per annum.
You are required to do the following during the year 2024-25:

(i) Pass the necessary journal entries in the books of Skyline Ltd. to record Interest on Calls-in-Advance. [3 Marks]

(ii) Prepare Share Capital Account. [4 Marks]

(iii) Prepare Calls-in-Advance Account. [1 Mark]

Answer:

Journal Entries in the books of Sara Ltd.

Working Notes:
1. Shares allotted to defaulting shareholder who applied for 7,000 shares = 7,000 × (1,00,000 / 1,40,000) = 5,000 shares.
2. Amount due on allotment for 5,000 shares = 5,000 × Rs. 7 = Rs. 35,000. Excess application money adjusted = 2,000 shares × Rs. 5 = Rs. 10,000. Arrears on allotment = Rs. 35,000 - Rs. 10,000 = Rs. 25,000 (plus premium included). Total arrears calculated as per pro-rata table.

Teacher's Note:
a) Pro-rata allotment requires adjusting excess application money towards allotment before calculating calls-in-arrears.
b) Forfeiture of shares called up at premium where premium is unpaid requires debiting Securities Premium Account with the unpaid premium amount.

OR

Answer: (i), (ii) & (iii)

(i) Journal Entries in the books of Skyline Ltd.:

(ii) Share Capital Account

(iii) Calls-in-Advance Account

Teacher's Note:
a) Interest on calls-in-advance is calculated from the date of receipt of advance to the date of call at the rate specified in Articles of Association (maximum 12% as per Table F).
b) Calls-in-advance is a liability and is credited when received and debited when the respective call becomes due.

Question 10

Julie, Jenny and Sadiq were partners in a firm. On 1^st April, 2024, the firm's book showed the following balances:

- On 1^st July, 2024, Julie gave a loan of Rs. 1,00,000 to the firm.
- On 1^st October, 2024, the firm took Jenny's premises on rental basis and agreed to pay Rs. 5,000 per month.
Their Partnership Deed provided the following:
(a) Interest on Capital to be allowed @ 8% per annum.
(b) Interest on Current Account to be allowed / charged @ 10% per annum.
(c) Interest on Drawings to be charged @ 6% per annum.
(d) 10% of the net profit to be transferred to General Reserve.
Jenny withdrew Rs. 4,000 at the end of each month starting from 30^th April, 2024 and Sadiq withdrew Rs. 4,000 at the beginning of each month starting from 1^st October, 2024.
After considering interest on Julie's loan and rent allowed to Jenny, the net profit of the firm for the year ended 31^st March, 2025, stood at Rs. 2,60,000.
You are required to:

(i) Prepare Profit and Loss Appropriation Account for the year ended 31^st March, 2025. [7 Marks]

(ii) Prepare Julie's Loan Account. [2 Marks]

(iii) Record the closing entry for rent allowed to Jenny. [1 Mark]

OR

(A) Baljeet and Jacob are partners sharing profits and losses in 4:1 ratio. On 1^st April, 2024, capital balances of Baljeet and Jacob were Rs. 2,30,000 and Rs. 3,20,000 respectively.
The net profit for the year 2024-25 of Rs. 1,20,000 was shared equally by the partners without:
- Allowing Interest on Capital @ 10% per annum.
- Charging Interest on Drawings @ 6% per annum.
During the year, Baljeet withdrew Rs. 30,000.
You are required to pass the necessary journal entries to rectify the errors made by the firm in distribution of profits. [5 Marks]

(B) Karim, Micky and Jai are partners sharing profits and losses in the ratio of 3:2:1. On 1^st April, 2024, their capital balances were Rs. 2,10,000, Rs. 1,20,000 and Rs. 1,00,000 respectively.
As per the Partnership Deed,
- Interest on Capital to be allowed @ 10% per annum.
- Salary to be allowed to Karim @ Rs. 2,000 per month.
- Jai to compensate the deficit in the net profit, if the net profit is less than Rs. 2,50,000 per annum.
The net profit for the year ended 31^st March, 2025 was Rs. 2,00,000 before allowing Interest on Capital but after allowing Karim's salary.
You are required to:

(i) Prepare Profit and Loss Appropriation Account for the year ended 31^st March, 2025. [4 Marks]

(ii) Find the balance of Jai's Capital after distribution of profits. [1 Mark]

Answer: (i), (ii) & (iii)

(i) Profit and Loss Appropriation Account

(ii) Julie's Loan Account

(iii) Closing Entry for Rent allowed to Jenny:
Rent A/c ... Dr. Rs. 30,000
    To Jenny's Current A/c (or Rent Payable) Rs. 30,000
(Being rent for 6 months from 1st October 2024 to 31st March 2025 recorded)

Working Notes:
1. Interest on Capital = Julie: 4,50,000 × 8% = 36,000; Jenny: 1,50,000 × 8% = 12,000; Sadiq: 2,50,000 × 8% = 20,000.
2. Interest on Current Accounts: Julie (Cr 50,000 × 10% = Rs. 5,000 credited); Jenny (Cr 20,000 × 10% = Rs. 2,000 credited); Sadiq (Dr 30,000 × 10% = Rs. 3,000 debited).
3. Interest on Drawings: Jenny (Rs. 4,000 per month for 12 months = Rs. 48,000; average period for end of month = 5.5 months @ 6% = Rs. 1,320); Sadiq (Rs. 4,000 per month for 6 months = Rs. 24,000; average period for beginning of 6 months = 3.5 months @ 6% = Rs. 300).

Teacher's Note:
a) Rent paid to a partner is a charge against profit and is debited to Profit and Loss Account before arriving at net profit.
b) Interest on current accounts must be treated as appropriation or charge as specified in the partnership deed.

OR

(A) & (B)

Answer for (A):

Journal Entry for Rectification:

Answer for (B):

(i) Profit and Loss Appropriation Account

(ii) Balance of Jai's Capital after distribution of profits:
Opening Capital = Rs. 1,00,000.
Add: Profit share = Rs. 26,167.
Less: Compensation paid for guarantee shortfall = Rs. 50,000.
Closing Balance = Rs. 1,00,000 + Rs. 26,167 - Rs. 50,000 = Rs. 76,167 (Dr balance or net Rs. 76,167).

Teacher's Note:
a) When profits are distributed incorrectly, an adjustment table is prepared to find the net effect on each partner's capital account.
b) Guarantee of minimum profit is borne by the guarantor partner as per the agreement.

SECTION B (20 Marks)

(Attempt either Section B or Section C)

Question 11

In subparts (i) and (ii) choose the correct options and in subparts (iii) to (v) answer the questions as instructed. [5 Marks]

(i) Which one of the following ratios is NOT a part of Solvency Ratio? [1 Mark]
(A) Debt-Equity Ratio
(B) Earnings Per Share
(C) Interest Coverage Ratio
(D) Debt to Total Assets Ratio

Answer: (B) Earnings Per Share

Earnings Per Share is a profitability/market test ratio, whereas Debt-Equity, Interest Coverage, and Debt to Total Assets are solvency ratios.

Teacher's Note:
a) Solvency ratios measure the long-term financial stability and debt-servicing capacity of a business.
b) Earnings per share evaluates profitability from an equity shareholder's viewpoint.

(ii) Bank overdraft of Asha Ltd. on 31^st March, 2024 and 31^st March, 2025 were Rs. 30,000 and Rs. 36,000 respectively.
How will the change in Bank overdraft be shown in the Cash Flow Statement of Asha Ltd. for the year ended 31^st March, 2025? [1 Mark]
(A) Add to Financing Activities
(B) Add to Operating Activities
(C) Interest Coverage Ratio
(D) Debt to Total Assets Ratio

Answer: (A) Add to Financing Activities

Bank overdraft is treated as a short-term financing activity (borrowing). An increase in bank overdraft represents cash inflow, hence added to Financing Activities.

Teacher's Note:
a) Under AS 3, bank overdrafts that are repayable on demand form part of cash and cash equivalents only if they fluctuate from positive to negative; otherwise, they are treated as financing activities.
b) Increase in financing borrowings results in cash inflow.

(iii) Silver prices scaled a new peak of Rs. 1,73,000 per kg on Monday after an unprecedented single-day gain of Rs. 11,000 per kg driven by increasing demand from investors amid a global shortage of the precious metal.
(Source(edited): livemint.com, 13 Oct, 2025)
Calculate the percentage change (up to two decimal places) in prices of silver. [1 Mark]

Answer:
Previous price = Rs. 1,73,000 - Rs. 11,000 = Rs. 1,62,000.
Percentage change = (Increase / Previous Price) × 100 = (11,000 / 1,62,000) × 100 = 6.79%.

Teacher's Note:
a) Percentage change is calculated by dividing the absolute change by the base/previous value.
b) Ensure rounding off is done correctly to two decimal places.

(iv) Under which activity, will an increase in value of Goodwill be recorded in Cash Flow Statement? [1 Mark]

Answer:
Investing Activity (purchase/acquisition of goodwill results in cash outflow).

Teacher's Note:
a) An increase in goodwill generally signifies purchase of intangible assets, which is an investing cash outflow.
b) Amortization of goodwill is added back under operating activities as a non-cash expense.

(v) Debt Equity Ratio of JP Ltd. is 1.8:1.
Mention whether this ratio will improve / reduce / not change after issue of 5,000, 6% Debentures of Rs. 100 each. [1 Mark]

Answer:
Reduce.

Teacher's Note:
a) Debt-Equity Ratio formula is Debt / Equity. Issuing debentures increases both debt and equity (or increases debt while debt-equity ratio is greater than 1, causing the ratio to decrease/reduce towards 1).
b) Specifically, when initial ratio is greater than 1 (1.8:1), adding equal amounts to numerator and denominator decreases the ratio.

Question 12

Prepare a Common size Balance Sheet of Robert Ltd. as at 31^st March, 2025 from the following information: [3 Marks]

Answer:

Common Size Balance Sheet of Robert Ltd. as at 31^st March, 2025

Teacher's Note:
a) In a common size balance sheet, each item is expressed as a percentage of Total Assets (or Total Equity and Liabilities).
b) Ensure that asset totals and liability totals are correctly used as the base for computing percentages.

Question 13

From the following Balance Sheet of Raj Ltd. and the additional information given below, you are required to prepare a Cash Flow Statement (as per AS 3) for the year 2024-25. [6 Marks]

Notes to Accounts:

Additional information:
During the financial year 2024-25, the company:
- Issued additional Debentures on 1^st April, 2024 at a premium of 5%.
- Sold Plant & Machinery at a loss of Rs. 20,000, the book value of which was Rs. 80,000.
- Purchased additional Plant & Machinery for Rs. 3,50,000.
OR

(A) From the following information of HM Ltd., you are required to calculate Cash flow from Operating Activities for the year 2024-25. [3½ Marks]

Additional information:
- Balance of Provision for Tax on 31^st March, 2025 was Rs. 45,000 which was increased by Rs. 5,000 as compared to previous year.
- Trade Receivables were increased by Rs. 11,000 as compared to previous year.

(B) From the following extract of the Balance Sheet of KK Ltd. and the additional information, you are required to calculate Cash and Bank Balance as at 31^st March, 2025. [2½ Marks]

Additional information:
During the year 2024-25:
- Cash flow from Operating Activities was Rs. 1,02,000
- Cash used in Financing Activities was Rs. 52,000
- Interest received on Non-Current Investments was Rs. 45,000

Answer for Main Question 13:

Cash Flow Statement of Raj Ltd. for the year ended 31^st March, 2025

Teacher's Note:
a) Plant and machinery account and accumulated depreciation account (if any) must be prepared to find missing figures like purchases or sales.
b) Short-term investments are treated as Cash and Cash Equivalents under AS 3.

OR

Answer for (A) & (B):

(A) Calculation of Cash Flow from Operating Activities:
Net Profit before tax = Rs. 2,42,000 + Tax provided (Rs. 40,000) + Interim Dividend (Rs. 36,000) = Rs. 3,18,000.
Add: Depreciation (Rs. 48,000) + Interest on Bank Loan (Rs. 24,000).
Less: Profit on Sale of Land (Rs. 26,000).
Operating Profit before working capital changes = Rs. 3,64,000.
Less: Increase in Trade Receivables (Rs. 11,000).
Cash generated from operations = Rs. 3,53,000.
Less: Tax paid = Rs. 35,000.
Net Cash from Operating Activities = Rs. 3,18,000.

(B) Calculation of Cash and Bank Balance as at 31^st March, 2025:
Cash flow from Operating Activities = Rs. 1,02,000.
Cash flow from Investing Activities: Sale of Non-Current Investments (Rs. 6,00,000 - Rs. 4,00,000 = Rs. 2,00,000) + Interest received (Rs. 45,000) = Rs. 2,45,000.
Cash flow from Financing Activities = - Rs. 52,000.
Net Increase in Cash and Cash Equivalents = 1,02,000 + 2,45,000 - 52,000 = Rs. 2,95,000.
Closing Cash and Cash Balance = Opening Balance (Rs. 1,48,000) + Net Increase (Rs. 2,95,000) = Rs. 4,43,000.

Teacher's Note:
a) Interest received on non-current investments is an investing cash inflow.
b) Net increase in cash and equivalents added to opening cash gives the closing cash balance.

Question 14

Answer any three of the following questions: [6 Marks]

(i) Calculate the value of Closing Inventory of Lily Ltd. from the particulars given below: [2 Marks]

Answer:
Gross Profit = 20% of Rs. 5,50,000 = Rs. 1,10,000.
Cost of Revenue from Operations (Cost of Goods Sold) = Revenue from Operations - Gross Profit = Rs. 5,50,000 - Rs. 1,10,000 = Rs. 4,40,000.
Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory
4 = 4,40,000 / Average Inventory
Average Inventory = Rs. 1,10,000.
Average Inventory = (Opening Inventory + Closing Inventory) / 2
1,10,000 = (1,00,000 + Closing Inventory) / 2
Closing Inventory = (Rs. 2,20,000 - Rs. 1,00,000) = Rs. 1,20,000.

Teacher's Note:
a) Cost of Goods Sold is obtained by subtracting Gross Profit from Revenue from Operations.
b) Using the Inventory Turnover Ratio formula, Average Inventory is determined first, followed by Closing Inventory.

(ii) Calculate the Quick Ratio (up to two decimal places) of TXT Ltd. from the particulars given below: [2 Marks]

Note: Current Assets include Inventory of Rs. 20,000.

Answer:
Working Capital = Current Assets - Current Liabilities
80,000 = Current Assets - 50,000
Current Assets = Rs. 1,30,000.
Quick Assets = Current Assets - Inventory = Rs. 1,30,000 - Rs. 20,000 = Rs. 1,10,000.
Quick Ratio = Quick Assets / Current Liabilities = 1,10,000 / 50,000 = 2.20:1.

Teacher's Note:
a) Quick Assets are computed by subtracting inventory (and prepaid expenses) from total Current Assets.
b) Current Assets are derived by adding Working Capital and Current Liabilities.

(iii) Calculate the Interest Coverage Ratio (up to two decimal places) of BT Ltd. from the particulars given below: [2 Marks]

Answer:
Interest on 8% Debentures = 10,00,000 × 8% = Rs. 80,000.
Interest on 6% Bank Loan = 1,50,000 × 6% = Rs. 9,000.
Total Interest on Long-term Debts = Rs. 80,000 + Rs. 9,000 = Rs. 89,000.
Profit before Interest and Tax (PBIT) = Profit before Tax + Total Interest = Rs. 5,34,000 + Rs. 89,000 = Rs. 6,23,000.
Interest Coverage Ratio = PBIT / Total Interest = 6,23,000 / 89,000 = 7.00 times.

Teacher's Note:
a) Interest Coverage Ratio measures how many times interest on long-term debt is covered by operating profits before interest and tax.
b) Profit before tax must have interest added back to obtain Profit before Interest and Tax.

(iv) Bloom Hotels posts Rs. 357 crore revenue in FY25. Bloom's EBIDTA (Earnings Before Interest, Taxes, Depreciation and Amortization) stood at Rs. 75.01 crore and its Profit After Tax (PAT) was Rs. 15.20 crore in FY25.
(Source: ...)
Calculate the Net Profit Ratio (up to two decimal places) of Bloom Hotels from the above information. [2 Marks]

Answer:
Net Profit Ratio = (Profit After Tax / Revenue from Operations) × 100
= (15.20 / 357) × 100 = 4.26%.

Teacher's Note:
a) Net Profit Ratio is calculated using Net Profit After Tax and Revenue from Operations (Net Sales).
b) Extra financial figures like EBIDTA given in the problem act as distractors and should be ignored.

SECTION C (20 Marks)

(Attempt either Section B or Section C)

Question 15

In subparts (i) and (ii) choose the correct options and in subparts (iii) to (v) answer the questions as instructed. [5 Marks]

(i) Which one of the following functions in MS Excel is used to count the number of cells that meet a specific criterion? [1 Mark]
(A) COUNT()
(B) COUNTA()
(C) COUNTIF()
(D) SUMIF()

Answer: (C) COUNTIF()

COUNTIF function counts the number of cells within a range that meet the specified condition/criterion.

Teacher's Note:
a) COUNT counts numbers, COUNTA counts non-empty cells, and COUNTIF evaluates a given condition.
b) Familiarity with basic spreadsheet formulas is essential for computer applications in accounting.

(ii) Which function returns the remainder after a number is divided by a divisor in MS Excel? [1 Mark]
(A) DIV()
(B) MOD()
(C) REMAINDER()
(D) QUOTIENT()

Answer: (B) MOD()

The MOD function returns the remainder after division.

Teacher's Note:
a) Syntax for MOD is =MOD(number, divisor).
b) QUOTIENT returns the integer portion of a division.

(iii) What is the purpose of the VLOOKUP function in a spreadsheet? [1 Mark]

Answer:
VLOOKUP is used to search for a value in the leftmost column of a table, and then return a value in the same row from a column you specify.

Teacher's Note:
a) VLOOKUP stands for Vertical Lookup.
b) It is widely used in computerized accounting for fetching item prices, employee details, or account codes.

(iv) State the shortcut key to paste copied content in MS Excel. [1 Mark]

Answer:
Ctrl + V

Teacher's Note:
a) Ctrl + C is used for copying and Ctrl + V is used for pasting.
b) Standard keyboard shortcuts improve efficiency in data processing.

(v) Define the term 'Data Validation' in spreadsheets. [1 Mark]

Answer:
Data Validation is a feature used to control the type of data or the values that users enter into a cell.

Teacher's Note:
a) It helps prevent incorrect data entry in accounting spreadsheets.
b) Criteria can be set to allow only numbers within a specific range or from a drop-down list.

Question 16

Explain any three features of Computerised Accounting System (CAS). [3 Marks]

Answer:
1. Speed and Accuracy: CAS processes large volumes of financial data rapidly and eliminates manual calculation errors.
2. Automatic Generation of Reports: Financial statements, ledger accounts, and trial balances are generated automatically once entries are passed.
3. Scalability and Storage: Electronic storage allows efficient archiving, easy retrieval, and scaling of data as the business grows.

Teacher's Note:
a) Computerised accounting systems rely on the database approach where transaction entry updates all connected accounts instantaneously.
b) Key benefits include speed, reliability, and security of financial records.

Question 17

Differentiate between Manual Accounting System and Computerised Accounting System on the basis of any three points. [3 Marks]

Answer:

Teacher's Note:
a) Tabular differentiation should always clearly contrast corresponding points across both systems.
b) Focus on speed, report generation, and security as core points of difference.

Question 18

Describe the application of spreadsheets in financial analysis. [4 Marks]

Answer:
1. Ratio Analysis: Spreadsheets enable automatic calculation of liquidity, solvency, and profitability ratios using built-in formulas.
2. Budgeting and Forecasting: Financial models and what-if analyses can be constructed to project future cash flows and revenues.
3. Graphical Presentation: Data can be easily converted into charts and graphs for visual trend analysis.
4. Comparative and Common Size Statements: Financial statements can be structured and analyzed across years with automated percentage computations.

Teacher's Note:
a) Spreadsheets offer powerful computational tools that simplify complex financial modeling.
b) Formulas and functions form the backbone of automated financial analysis.