Answer in one sentence only (Weightage 5 Marks)
1. Partnership Final Account
1) What is Fluctuating Capital?
Ans: When the capital balances of the partners go on changing every year due to transactions of partners with the firm, it is known as Fluctuating Capital.
2) Why is Partnership Deed necessary
Ans: Partnership Deed is necessary to prevent disputes or misunderstandings among the partners in future.
3) If the Partnership Deed is silent, in which ratio, the partners will share the profit or loss?
Ans: If the Partnership Deed is silent, partners will share profits and losses in equal ratio.
4) What is the Fixed Capital Method?
Ans: Fixed Capital Method is one in which capital balances of the partners remains same at the end of every financial year unless any amount of additional capital is introduced or part of the capital is withdrawn by the partner from the business.
5) How many partners are required to form a partnership firm?
Ans: Minimum two persons are required to form a partnership firm.
6) What is Partnership Deed?
Ans: A partnership deed is a written agreement duly stamped and signed document containing the terms and condition of the partnership.
7) What are the objectives of the Partnership Firm?
Ans: To earn maximum profit is the main objective of the partnership firm.
8) What rate of interest is allowed on partner’s loan in the absence of an agreement?
Ans: 6 % is the rate of interest to be allowed on partner’s loan in the absence of an agreement.
9) What is the minimum number of partners in a partnership firm according to Indian Partnership Act 1932?
Ans: Minimum two persons are required number of partners in a partnership firm according to Indian Partnership Act 1932.
10) What is liability of a partner?
Ans: Liability of a partner (except minor partner) is unlimited.
11) In the absence of Partnership Deed, what is the rate of interest on loan advanced by a partner to the firm is allowed?
Ans: In the absence of Partnership Deed, 6 % is the rate of interest on loan advanced by partner to the firm
12) What do you mean by pre-received income?
Ans: Income which is received by the partnership firm before it is due is called pre received income.
13) What is the effect of the adjustment of provision for discount on debtors in the final accounts of partnership?
Ans: The effects of the adjustment of provision for discount on debtors in the final accounts of partnership are as follows : Debit Profit and Loss A/c and deduct the amount of provision for discount on debtors from the amount of debtors.
14) When is Partners Current Account is opened ?
Ans: When Fixed Capital Method is adopted by the firm, Partners Current Account is opened.
15) As per which principle of accounting, closing stock is valued at cost price or at market price whichever is less?
Ans: As per Conservatism principle of accounting, closing stock is valued at cost price or at market price whichever is less.
16) What is the provision of Indian Partnership Act with regard to Interest on Capital?
Ans: As per provision of Indian Partnership Act, Interest on Capital is not to be allowed.
17) Why is Balance Sheet prepared?
Ans: Balance Sheet is prepared to know the financial position of the business in the form of its assets and liabilities on a particular date.
18) Why wages paid for installation of machinery are not shown in Trading Account?
Ans: Wages paid for installation of machinery is a capital expenditure and it is not to be recorded in Trading Account.
19) What do you mean by indirect incomes?
Ans: All incomes other than direct incomes are called indirect incomes. [e.g. Interest received on investments, Incomes like discount, commission, dividend, rent etc. received].
20) Why partners’ capital is treated as long-term liability of business?
Ans: Partner’s Capital is not refunded during the existence of partnership firm unless partner is retired or expired.
2. Not for Profit’ Concern
1) What do you mean by ‘Not for Profit’ Concern?
Ans: A concern or organisation which is formed and established to serve its members and society or general public by undertaking various activities without any profit motive is called a ‘Not for Profit’ concern.
2) Which organisations prepare Income and Expenditure Account?
Ans: ‘Not for profit’ concern prepares Income and Expenditure Account.
3) What is Receipts and Payments Account?
Ans: An account which is prepared by a ‘Not for Profit Concern’ to record a summary of all types of cash receipts and cash payments inclusive of bank transactions is called receipts and Payments Account.
4) Why Income and Expenditure Account is prepared?
Ans: Income and Expenditure Account is prepared to ascertain, whether the concern has sufficient incomes to meet its expenses, or not.
5) What is Capital Fund?
Ans: Excess of Assets over Liabilities is known as Capital Fund which also consists of contributions, subscriptions, entrance fees, surplus income, etc.
6) What is a Subscription?
Ans: Subscription is the periodical payment made by the members to the ‘Not for Profit’ concern for maintaining his membership.
7) What is ‘Legacy ?
Ans: Any asset, property or amount of cash which ‘Not for Profit’ concern receives as per the provisions made in the will of the donor after his death is called Legacy.
8) What is Surplus?
Ans: Excess of income over expenditure shown by Income and Expenditure Account represents Surplus for the financial year.
9) What do you mean by Non Recurring Expenses ?
Ans: Non recurring Expenses are the expenses which is made for acquisition of fixed asset which gives benefits for a long period.
10) To which account ‘Surplus’ or ‘Deficit’ is transferred?
Ans: ‘Surplus’ or ‘Deficit’ is transferred to Balance Sheet by adding it or subtracting it from Capital Fund.
3. Admission of Partner
1) What is a Revaluation Account?
Ans: An account opened and operated by any partnership firm for recording changes in the value of assets and liabilities and to ascertain profit or loss made on revaluation of assets and liabilities is called Revaluation Account.
2) What is meant by the Reconstitution of Partnership?
Ans: Reconstitution of partnership means a change in the relationship between/among partners and in the form of partnership.
3) Why is a new partner admitted?
Ans: A new partner is admitted to the existing partnership firm to increase the capital resources of the firm and to secure advantages of a new entrant’s skill and business connections, i.e. goodwill.
4) What is the sacrifice ratio?
Ans: A ratio that is surrendered or given up by the old partners in favour of a newly admitted partner is called sacrifice ratio.
5) What do you mean by raising the goodwill at the time of admission of a new partner?
Ans: Raising the Goodwill at the time of admission of a new partner means debiting Goodwill Account up to the value it is raised and crediting. Old partners Capital Accounts in their old ratio in the books of the firm.
6) What is the super profit method of calculation of goodwill?
Ans: Super profit method of calculation of Goodwill is a method in which Goodwill is valued at a certain number of years purchases of the super profit of the partnership firm.
7) When is the ratio of sacrifice calculated for the distribution of goodwill?
Ans: The ratio of sacrifice is calculated when the benefits of goodwill contributed by a new partner in cash is to be transferred to existing partners’ Capital/Current Account.
8) What is the treatment of accumulated profits at the time of admission of a partner?
Ans: Accumulated profits at the time of admission of a partner are transferred to old partners’ Capital/ Current Accounts in their old profit sharing ratio.
9) State the ratio in which the old partner’s Capital A/c will be credited for goodwill when the new partner does not bring his share of goodwill in cash?
Ans: When the new partner does not bring his share of goodwill in cash, Goodwill is raised up to a certain value and credited to old partners’ Capital/Current A/c in their old profit sharing ratio.
10) What does the excess of debit over credits in the Profit and Loss Adjustment Account indicate?
Ans: The excess of debit over credits in Profit and Loss Adjustment Account indicates a loss on the revaluation of assets and
liabilities
4. Retirement of Partner
1) What is meant by Retirement of a Partner?
Ans: Retirement of a partner refers to a process in which a partner leaves the firm or severs his relations with other partners on account of his old age, continued ill health, loss of interest in the firm, misunderstanding amongst the partners, etc.
2) What is the Benefit Ratio?
Ans: Profit sharing ratio which is acquired by the continuing partners on account of retirement or death of a partner is called Benefit ratio or Gain ratio.
3) What is New Ratio?
Ans: The ratio in which profits or losses are shared by the continuing partners after retirement of a partner is called New Profit Sharing ratio.
4) How is the amount due to the retiring partner settled?
Ans: The amount due to a retiring partner is settled as per the terms of partnership agreement or otherwise mutually agreed upon either in lumpsum or in instalments.
5) How is Gain Ratio calculated?
Ans: Gain ratio is calculated at the time of retirement of a partner by deducting old ratio from new ratio.
6) Why is a retiring partner’s capital account credited with goodwill?
Ans: Goodwill is an intangible assets or benefits accrued to the firm and its benefits are transferred to retiring partner’s Capital A/c by giving credit.
5. Death of Partner
1) What is the gain ratio?
Ans: The profit-sharing ratio which is acquired by the surviving or continuing partners on account of the death of any partner is called gain ratio or benefit ratio.
2) In which ratio General Reserve is distributed on death of a partner?
Ans: General reserve is distributed on the death of a partner in their old profit sharing ratio.
3) To whom you distribute General Reserve on the death of a partner?
Ans: On death of a partner general reserve is distributed among all partners in their old profit and loss ratio.
4) How the death of a partner is a compulsory retirement?
Ans: After the death of a partner, business is not able to get any kind of services from a deceased partner and so we can say that the death of a partner is like a compulsory retirement.
5) To which account Profit is to be transferred up to the date of his death?
Ans: Profit of the deceased partner, up to the date of his death, is transferred to his Legal Heir’s/Executor’s Account.
6. Dissolution of Partnership Firm
1) What is the dissolution of partnership firms?
Ans: Dissolution of the partnership firm means complete closure of business activities and stoppage of partnership relations among all the partners.
2) When is the Realisation Account opened?
Ans: Realization Account was opened at the time of the dissolution of the partnership firm.
3) Which accounts are not transferred to a Realisation account?
Ans: Cash/Bank balance, reserve funds, Profit and Loss A/c balance, Partners’ Loan accounts, etc. are not transferred to realisation Account.
4) Who is called an Insolvent person?
Ans: Whose capital A/c shows debit balance and who is not in a position to meet his capital deficiency even from his private property is called an insolvent person.
5) What is a capital deficiency?
Ans: The debit balance of an insolvent partner’s Capital Account which an insolvent partner cannot pay is called a capital deficiency.
6) In what proportion is the balance on Realisation Account transferred to Partners’ Capital / Current Accounts?
Ans: The balance on realisation Account is transferred to Partners’ Capital / Current Accounts in their profit sharing ratio.
7) Who should bear the capital deficiency of an insolvent partner?
Ans: The capital deficiency of insolvent partners should be borne by the solvent partners.
8) Which account is debited on repayment of Partner’s Loan?
Ans: Partner’s Loan Account is debited on repayment of partner’s loan.
9) Which account is debited on payment of dissolution expenses?
Ans: Realisation Account is debited on payment of dissolution expenses.
7. Bills of Exchange
1) What do you mean by bill of exchange?
Ans: A Bill of Exchange is a written order signed by the drawer, directing to a certain person to pay a certain sum of money on-demand or on a certain future date to a certain person or as per his order.
2) What are days of grace?
Ans: The three extra days allowed to the drawee or the acceptor of a bill for making payment on it are called Days of Grace.
3) What do you mean by discounting a bill of exchange?
Ans: Encashment of a bill of exchange with the bank for certain cash which is less than the face value of the bill, before its due date by its drawer or holder is called Discounting of a Bill of Exchange.
4) What is noting of the bill?
Ans: Noting of a Bill of Exchange is the recording the facts of its dishonour by a Notary public.
5) What are noting charges?
Ans: Noting Charges are the fees charged by the Notary public for noting the facts of dishonour on the face of the bill and in his official register.
6) What is relationship between Drawer and Drawee?
Ans: The relationship between the drawer and the drawee is that of the creditor and debtor.
7) Who is payee of the bill?
Ans: The Payee of a Bill is the person to whom the bill is made payable or in whose favour the bill is draw
8) What do you mean by rebate?
Ans: Any concession or discount in monetary terms given by the holder of the bill of exchange to the drawee or acceptor, when a bill is retired is called Rebate.
9) What is legal due date?
Ans: Date which is arrived at after adding three days of grace to nominal due date is known as Legal Due Date.
10) What is bills payable on demand?
Ans: When amount of bill is payable by a drawee on the presentation of a bill, in which time period is not mentioned and grace days are not allowed is known as Bills Payable on Demand.
8. Company Accounts – Issue of Shares
1) What is Preference shares?
Ans: Preference Shares is a type of a share which enjoys priority or preference over equity share for the repayment of dividend at a predetermined fixed rate and for the repayment of capital.
2) What is Registered Capital?
Ans: Registered Capital or Authorised Capital means maximum limit up to which a company is authorised to raise share capital.
3) What is Reserve Capital?
Ans: Reserve Capital is that part of the subscribed capital which is reserved to be called-up only at the time of winding up or liquidation of the company.
4) What is over subscription of shares?
Ans: When a company received more applications of shares than those actually offered or issued to the public, known as Over Subscription of Shares.
5) Which account is debited when share first call money is received?
Ans: Bank accounts will be debited when share first call money is received.
6) When are shares allotted on a pro-rata basis?
Ans: Shares are said to be allotted on a pro-rata basis when the applications are received for more shares than the number of shares issued and shares are allotted in proportion to the number of shares applied for.
7) What is Forfeiture of Shares?
Ans: When a shareholder fails to pay the call money or premium on the shares in spite of repeated reminders and warnings, the company forfeits the shares of such defaulters known as forfeiture of shares.
8) What is Calls-in-Arrears?
Ans: Non-payment of allotment or call money by the applicants in spite of repeated reminders are called Calls-in-Arrears.
9) What do you mean by Shares Issued at Premium?
Ans: When shareholders are supposed to pay a price higher than the face value of the shares, then shares are said to be issued at premium.
10) What is Paid-up Capital?
Ans: Part of the called-up capital which is actually paid by the shareholders is called Paid-up Share Capital.
9. Analysis of Financial Statements
1) Mention two objectives of comparative statement?
Ans: Objectives of comparative statements are :
(i) Compare financial data at two points of time and
(ii) Helps in deriving the meaning and conclusions regarding the changes in financial positions and operating results.
2) State three examples of cash inflows?
Ans: Examples of cash inflows are :
(1) Interest received,
(2) Dividend received,
(3) Sale of asset/investment,
(4) Rent received.
3) State three examples of cash outflows?
Ans: Examples of cash outflows are :
(1) Interest paid,
(2) Loss on sale of asset,
(3) Dividend paid,
(4) Repayment of short-term borrowings.
4) Give the formula of Gross Profit Ratio?
Ans: Gross profit ratio = (Gross profit / Net sales) x 100
Where Gross profit = Net sales – Cost of goods sold
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
Net sales = Sales – Sales return.
5) Give the formula of gross profit?
Ans: Gross profit = Net sales – Cost of goods sold.
Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
Net sales = Sales – Sales return.
6) Give any three examples of current assets?
Ans: Cash or cash equivalent short-term lending and advances,
Expenses paid in advance,
Taxes paid in advance, etc.
are the examples of current assets.
7) Give the formula of current ratio?
Ans: Current ratio = Current assets / Current liabilities
8) Give the formula of quick assets?
Ans: Quick assets = Current assets – (Stock + Prepaid expense)
9) State the formula of Cost of goods sold?
Ans: Cost of goods sold = Opening stock + Purchase – Purchase return + Direct expense – Closing stock
10) State the formula of Average Stock?
Ans: Average stock = (Opening stock of goods + Closing stock of goods) / 2
10. Computer In Accounting
1) What is CAS?
Ans: CAS means Computerized Accounting System which helps business firms to implement accounting processes and makes it user friendly with automation.
2) Write the steps to create a ledger account in tally?
Ans: Steps to create ledger account in tally are as follows :
(1) From Gateway of Tally Screen, click on account info.
(2) Path gateway to Tally – Accounts Info – Ledgers – Single ledger – Choses create.
3) How to view reports in tally?
Ans: For viewing accounting reports in accounting software click on report option and select the Display option.
4) Explain the various types of voucher?
Ans: Following are the various voucher types:
1) F4 Contra voucher – For cash deposited in the bank and cash withdrawn from bank, Transfer from one cash A/c to other Cash A/c and Bank to Bank transfer
(2) F5 Payment voucher – For all types of payments are recorded through this voucher type (Cash and Bank) Cash or Bank
(3) F6 Receipt voucher – For Cash and Bank receipts
(4) F7 Journal voucher – For non-cash transactions
(5) F8 Sales voucher – For cash as well as credit sales
(6) F9 Purchase voucher – For cash as well as credit purchase.
5) Write the steps to create a company?
Ans: Following are the steps to create a company:
(1) After entering into Accounting software Tally, double click on the option, create company, under company information. Then follow the navigation path. Gateway of Tally > Company Info > Create Company.
(2) Fill the details in the company creation form, displayed on the screen – Company creation window.