BRANCH ACCOUNTING INSIGHTS

ACADEMIC YEAR: 2016 – 2017 REGULATION CBCS - 2012
UCP 21 – FINANCIAL ACCOUNTING

UNIT-1 – BRANCH ACCOUNTS
Type: 80% Theory – 20% Problem
Question & Answers
PART – A ANSWERS
1. What is branch? (Nov – 2014, April-2010)
The word ‘branch’ is any subordinate division of a business, subsidiary shop,
office etc. Business is carried out in different areas scattered over a large territory.
2. What is meant by Invoice price method? (April-2011)

When the goods are sent by the head office to the branch at invoice price
means cost plus some percentage of profit, the branch manager required to sell the
goods at invoice price only.
3. What are the types of branch? (Nov – 2011, Nov – 2012, April-2011, April-2014)
 Home branch
 Foreign branch
4. What is meant by Independent branch ? (April-2014)

Branch which maintains its own set of books and has freedom to operate
independently. If a branch is big and carries on manufacturing operations also, it is
allowed to operate freely within the framework of head office policies.
5. What are the types of home branch?

 Dependent branch
 Independent branch
6. What is meant by Dependent branch? (Nov – 2011, Nov – 2013, April-2010)

These branches are inland branches wholly dependent on the head office
for their requirements. These branches do not maintain their own set of books, and
all the records of the branch are maintained by the head office.
7. What is meant by Debtors system? ( Nov-2010)

This system is adopted in case of branches of small size. Under this
system a branch account is opened separately for each branch in the books of head
office.
8. What is meant by Stock and Debtors system?

Profit or loss of a branch can be found out by preparing branch account , but
there is another method for the same purpose is known as stock and debtors method.
RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1
Answers/VER 2.0
Unit – 1 Answers Page 1 of 18
9. What is meant by Wholesale Branch System?( Nov – 2012)

Manufacturers may sell goods to the consumers either through the
wholesalers and approved stockiest or through their branches. The person/corporate
buy the goods at bulk for the purpose of sell.
10. What is meant by Final account system?

The head office can also ascertain the profit or loss of a dependent branch by
preparing branch trading and profit and loss of a dependent branch by preparing
branch trading and profit and loss account at cost.
11. What is meant by Foreign Branch?

The head office in inland and its branch in foreign country, these branches is
called foreign branch. The foreign branch keeps their accounts not in the home
currency the values will be expressed in foreign currency, now the same has to be
converted into home currency.
12. Give journal entries for good sent to branch(April-2013)

Branch a/c Dr.
To goods sent to Branch A/c
13. Give journal entries for good sent to branch transferred to trading account.
Goods sent to Branch A/c Dr.
To Trading A/c
14. Give journal entries for profit arises at the branch(April-2013)

Branch A/c Dr.
To Profit and Loss A/c
15. Give journal entries for cash sent to bank for expenses
Branch A/c Dr.
To Bank A/c
16. Give the journal entry for closing stock in the branch
Branch stock A/c Dr.
To Branch
17. Give the journal entry for closing debtors in the branch
Branch Debtors A/c Dr.
To Branch A/c

Answers/VER 2.0
18. Give the journal entry for shortage of stock

Branch adjustment A/c Dr.
To Branch Stock A/c
19. What is meant by Inter-branch transactions ?

The head office has many branches and there is a possibility that some branch
may supply goods or send cash to the other branch are called inter-branch
transactions.
20. What is meant by goods in transit ?

When goods are dispatched by the head office to branch and the branch does
not receive it even upto the end of the year, it is known as goods in transit.
21. What is meant by cash in transit ?

The cash sent by branch to H.O. or the cash sent by H.O. to branch has not
been received by the other party upto the end of the year, it is known as cash in
transit.
22. What is meant by branch adjustment account?

This account is prepared for ascertaining the amount of gross profit earned
by the branch. This is done by eliminating the profit element or the ‘loading’ included
in the value of opening and closing stock at branch, goods sent to branch, less returns
made by branch to head office and in surplus or shortage in branch stock etc.
23. Write down the objectives for goods sent on invoice price.
(a) In order to keep secret from the branch manager the cost price of the
goods and profit made,so that the branch manager may not start a rival and
competitive business with the concern ;and
(b) In order to have effective control on stock i.e., stock at any time must
be equal to opening stock plus goods received from head office minus sales made at
the branch.
24. What are the accounts that should be maintained in Stock and debtors system?
 Branch Stock Account.
 Branch Debtors Account
 Branch Expenses Account.
 Branch Adjustment account
 Branch profit and loss account and
 Goods sent to the branch account

Answers/VER 2.0
PART – B ANSWERS
1. Write down the objectives of branch accounting.( NOV – 2010, Nov – 2014,
April-2010, April-2013, April-2014)
 To Ascertain the profit or loss of the branches
 To have a better control over the branches by the head office
 To know the financial position of the branches
 To enable the head office to know the requirements of goods and
cash of each branch
 To provide suggestions for improvements
 To formulate further programmes and policies relating to the branches.
2. Distinction between wholesale and retail profit at branch.
Sometimes head office also sells goods at retail or list price besides
sending the goods to branches at wholesale prices. The difference between the
retail price and wholesale price will be the profit made by the branch. Suppose if
an article costs to head office Rs. 100 and it is supplied to the branches at Rs. 160
at wholesale price but both head office and branches sell goods at Rs. 200, then,
profit made by the branch will be Rs. 40 (i.e., Rs. 200 –Rs. 160) and not Rs. 100
(Rs. 200-Rs.100).
The goods are sent by the head office to the branches at Wholesale price
and if all the goods are sold there is no problem but if some goods remain unsold
at the end of the accounting year, these unsold goods at the branches must be
reduced to cost price by making a stock reserve for unrealized profit for the
difference between eh wholesale and cost price and will be debited to the head
office profit and loss account, as previously the head office must have earned
profit while sending goods to the branches.
3. Write down the features of independent branch. ()

 They need not depend on the Head office for their requirements of supplies of
goods. They can make purchases themselves. Of course, they can also obtain
supplies of goods from the head office as and when they want.
 They can only sell goods for cash and credit at any price they consider
profitable.
 They need not remit the money received by them from cash sales and debtors
to the Head office periodically. They can retain the funds and meet their day-
to-day expenses out of those funds. Finally, if they have surplus cash in their
hands, they can remit the same to the Head office.

Answers/VER 2.0
 They keep a complete set of books for recording their transactions. So, they
can prepare their own Trial Balance, Trading and Profit and Loss Account
and Balance Sheet.
 However, as they are ultimately responsible to the Head office, at the end of
every financial period, they are required to submit a copy of their Trial
Balance to the Head office
4. Write down the features of dependent branch. (Nov – 2013)

 It do not maintain its books of accounts
 Goods are supplied by head office to the branch.
 Branch receives the goods and sells them as per the direction of the head
office.
 All the expenses of branches are paid directly by the head office.
 The head office provides petty cash to the branch to meet some petty
expenses, so only simple petty cash book is maintained at the branch
 The branch remits cash to the head office which are from the sale proceeds
and collection from debtors in case of credit sales.
5. Journal entries passed in the books of head office
(i) Branch a/c Dr. Invoice value of goods sent.

To goods sent to Branch A/c
(ii) Branch A/c Dr. Cash sent for expenses.
To Bank A/c
(iii) Bank A/c Dr Cash remitted by the branch to the H.O.
To Branch A/c (Cash consists of sales and receipts from Drs.)
(iv) Branch Stock A/c Dr. Branch stock (at invoice Price) and branch
Branch Debtors A/c Dr. debtors at the end of year.
To Branch A/c
(v) Goods Sent to Branch A/c Dr. Invoice price on goods sent to branch adjusted.
To Branch A/c (Loading on the goods sent)
(vi) Branch A/c Dr. Invoice value of closing stock adjusted.
To Branch Stock Reserve A/c
(vii) Branch A/c Dr. Profit at branch
To Profit and Loss A/c
(viii) Goods sent to Branch A/c Dr. Goods sent to Branch Transferred.
To Trading A/c

Answers/VER 2.0
6.Layal company opened a branch at madras on 1.1.89. From the

following particulars the madras branch account for the year 1989 and
1990. (Nov – 2011, Nov – 2013)
1989 Rs. 1990 Rs.
Goods sent to branch 15000 45000
Cash sent to branch for :
Rent 1800 1800
Salaries 3000 5000
Other expenses 1200 1600
Cash received from the branch 24000 60000
Stock on 31st December 2300 5800
Petty cash on 31st December 40 30
IN THE BOOKS OF HEAD OFFICE

Madras branch A/c for 1989
Particulars Rs. Rs. Particulars Rs. Rs.
To balance b/d NIL By cash 24000
TO Goods sent to branch 15000 By Balance C/d
To Cash: Stock 2300
Rent 1800 Petty cash 40 2340
Salaries 3000
To General P&L A/c 5340
26340 26340
Madras branch A/c for 1989

To balance b/d By cash 60000
Stock 2300 By Balance C/d
Petty cash 40 2340 Stock 5800
TO Goods sent to branch 45000 Petty cash 30 5830
To Cash:
Rent 1800
Salaries 5000
65830 65830

Answers/VER 2.0
7. Prepare branch accounts for the year 1994. From the following particulars the Madurai
branch account for the year 1994 (Nov – 2011, Nov – 2012, Nov – 2014, April-2010, April-
2011, April-2013, April-2014)
Stock on 1.1.94 11200
Debtors on 1.1.94 6300
Goods sent to branch 51000
Cash sent to branch for :
Rent 1500
Salaries 3000
Petty cash 500 5000
Sales at branch
Cash 25000
Credit 39000 64000
Cash received from debtors 41200
Stock on 31.12.94 13600
Madurai branch A/c for 1994

To balance b/d By Bank :
Stock 11200 Cash sales 25000
Debtors 6300 17500 Cash from debtors 41200 66200
TO Goods sent to branch 51000
To Bank:
Rent 1500 By Balance C/d
Salaries 3000 Stock 13600
Petty cash 500 5000 Debtors 4100 17700

83900 83900
8.From the following particulars prepare a branch account showing the profit or loss at the
branch
Rs.
Opening stock at the branch 15000
Sales 60000
Salaries 5000
Other expenses 2000
Closing stock could not be ascertained but it is known that the branch usually sells at cost
plus 20%. The branch manager is entitled to a commission of 5% of the profit of the branch
before charging such commission.

Answers/VER 2.0
Branch A/c
Particulars Rs Particulars Rs
To Opening stock at the 15000 By Sales 60000
branch
To Goods sent to branch 45000 By Closing stock 10000
To Salaries 5000
To Other expenses 2000
To Manager’s commission 150
To Net profit –transfer to 2850

P & L A/c
70000 70000
9. A Madras head office has a branch at Salem to which goods are invoiced
cost plus 20%. From the following particulars prepare branch a/c in the
books of head office. (Nov – 2012, April-2011, April-2013)
Stock on 1.1.96 7680
Debtors on 1.1.96 24000
Stock on 31.12.96 13440
Total sales 206400
Cash sales 110400
Cash received from debtors 88000
Salem branch A/c for 1996
To balance b/d By Bank :
Stock 7680 Cash sales 110400
Debtors 24000 31680 Cash from debtors 88000 198400
To Goods sent to branch 211872 By Stock Reserve 1280
By Goods sent to
branch - Loading 35312
By Balance C/d
Stock 13440
To Stock Reserve 2240 Debtors 32000 45440

280432 280432

Answers/VER 2.0
10. A head office sends goods to its branch at 20% less than the list price. Good are sold to
customers at cost plus 100%. From the following particulars ascertain the profit made at
the head office and the branch on whole sale basis.
Head
Particulars Head office office Branch
Purchases 200000 -
Goods sent to branch 80000 -
Sales 170000 80000
Trading , Profit & Loss A/c

Head Head
Particular office Branch Particular office Branch
To
Purchases 200000 - By Sales 170000 80000
By
To Goods Goods
received sent to
from H.O - 80000 branch 80000 -
By
To Gross Closing
Profit 115000 16000 stock 65000 16000
315000 96000 315000 96000

To Stock By Gross
reserve 6000 Profit 115000 16000
To Net
Profit 109000 16000
115000 16000 115000 16000

Answers/VER 2.0
PART – C ANSWERS
1. Difference Between Independent & Dependent Branch. (NOV – 2010)
Sr. Basis Independent Branch Dependent Branch
1. Accounting System Independent branch keeps The accounts of branches are

full system of accounting at maintained at the Head Office level.
their place. At branch only Cash Register.
Debtors Register are maintained.
2. Sale of Goods These branches sell goods These branches sell only those
received from head office as goods which are supplied by the
well as from the purchases Head office. They are normally
made by them. not allowed to make own purchases.
3. Point of Payment Branch keep the required All branch expenses of regular
of Expenses cash to meet the expenses nature like salary, Rent normally
of regular nature with paid directly by head office. Branch
themselves. managers are allowed to incur petty
expenses only.
4. Remittance of Cash Independent Branches are All the daily cash sale and
not required to remit all the collection from debtors will be
cash daily to head office. deposited at local bank or remitted
to H.O.
5. Trial Balance A trial balance has been Trial Balance is not required to be
extracted from the ledger extracted as accounts are
maintained at branch level. maintained at Head Office.
6. Reconciliation Reconciliation between There is no need of reconciliation
branch Account in books of as accounts are maintained at
head office and head office head office level itself.
Account in the books of
Branch is to be made before
finalising the Accounts.
7. Methods of Accounting is done on the Accounting under Dependent
Preparing Final double entry system basis, so branches can be made by three
Account Trading/P&L different methods are Debtors
A/c has been prepared in system, Final Account system and
normal way. Stock and Debtors system.
2. A Limited opened a branch at Shimla in 2002. Goods were invoiced at cost plus 25%. From
the following prepare ledger accounts in the books of A Limited.( April-2010)
Answers/VER 2.0
Rs.
Goods sent to Shimla (Invoice Price) 40,000
Sales at Shimla :
Cash Sales 21,000
Credit Sales 16,000
Cash collected from debtors 14,500
Discount allowed 200
Cash sent to Branch for expenses 4,000
Stock at Branch, 31st Dec.2002 (Invoice Price) 3,200
Branch A/c
Date Particulars Rs. Date Particulars Rs.
2002 To Goods sent to 40,000 2002 By Bank (Remittance)

Dec.31 Branch Dec.31 Cash sales 21,000
A/c Cash Form Drs. 14,500
To Bank 35,500
4,000 By Branch Stock A/c 3,200
(Expenses)
By Branch Debtors 1,300
To Bank stock A/c
Reserve 640 By Goods sent to
A/c 8,000
Branch A/c
To P & L (loading)
A/c 3,360
transfer
48,000 48,000
Goods sent to branch A/c

2002 To Shimla Branch A/c 8,000 2002 By 40,000

Dec.31 (Loading) Dec.31 Shimla
32,000 Brach
To Trading A/c
A/c
(transfer)
40,000 40,000

Answers/VER 2.0
Branch Debtors A/c

2002 16,000 2002 14,500

To Sales A/c By Cash
Dec.31 Dec.31 200
By Discount
By Balance 1,300
c/d
16,000 16,000
Branch Stock A/c

2002 To Shimla 2002 By Balance c/d 3,200

3,200
Dec.31 Branch A/c Dec.31
3,200 3200
Branch Stock Reserve A/c

2002 To Balance c/d 640 2002 By Shimla 640

Dec.31 Dec.31 Branch A/c
640
640
3. A Ltd. has a branch in Calcutta. Goods are invoiced at cost plus 25%.
(Nov – 2011, Nov – 2012, Nov – 2013, April-2014)
Opening Balance
Stock 3,200
Debtors 1,300
Goods sent to Branch (Invoice price)
75,000
Sales at Calcutta
Cash Sales 32,000
Credit Sales 38,000
Cash collected from Debtors 33,400

Answers/VER 2.0
Discount allowed 400

Bad Debts written off 250
Cash sent to Branch for expenses 5,500
Stock at end 7,900
Branch Adjustment A/c

Date Particulars Rs. Branch
Date Stock A/c
Particulars R
s.
2002 1,580 2002 By Stock Reserve 640

To Stock Reserve
Dec.3 Dec.3 (openi
(closing stock)
1 1 ng
A/c
To br. Stock A/c 300 stock)
15,000
(shorta 7,150 By Goods sent to
ge) br. A/c
6,610
To Br. Exp. A/c
To P & L A/c
15,640 15,640
Goods sent to branch A/c

2002 To br. Adjustment 2002 By Br. 75,000

15,000
A/c Dec.31 Stock A/c
Dec.31
(loading) To 60,000
Trading A/c
(Transfer)
75,000 75,000

Answers/VER 2.0
Branch Debtors A/c

2002 2002
To
1,300 By Cash 33,400
Jan. Balance Dec.31
b/d By Branch Exp.
To Branch 38,000 A/c
Stock Discount 400
(cr. Bad Debts 250 650
sales)
By Bal. c/d 5,250
39,300 39,300
Branch Stock A/c

2002 2002
To Balance 3,200 To Cash Sales 32,000
Jan.1 b /d Jan.1
By Branch
To goods sent 75,000 Debtors 38,000
t o Branch By Branch
A/c Adjustment 300
A/c
By Balance
c/d 7,900
78,200 78,200
Branch Stock Reserve A/c

2002 To Br. Adjustment 2002 By Balance b/d 640

A/c 640
Dec. Dec.31 By Branch Adj. 1580
31 To balance c/d 1580 A/c

Answers/VER 2.0
Branch Expenses A/c

2002 To Cash 6,500 2002 By Branch

Dec.31 To branch Dr.s Dec.31 Adjustment 7,150
A/c A/c
Discount 400
Bad Debts 250 650
7,150 7,150
4. Agra head office supplies goods to its branch at Alwar at invoice price which is
cost plus 50%. All Cash received by the branch is remitted to Agra and all branch
expenses are paid by the head office. From the following particulars related to Alwar
Branch for the year 2006, prepare Branch debtors account Branch stock account and
Branch Adjustment Account in the books of the head office so as to find out the gross
profit and net profit made by the branch.
Rs.
Stock with Branch on 1.1.2006 (at invoice price) 66,000
Branch Debtors on 1.1.2006 22,000
Petty cash balance on 1.1.2996 500
Goods received from head office (at invoice price) 2,04,000
Goods returned to Head Office 6,000
Credit Sales 87,000
Sales Returns 3,000
(already adjusted while invoicing) 2,000
Cash received from debtors 93,000
Discount allowed to debtors 2,400
Expenses (cash paid by Head Office)
Rs.
Rent 2,400
Salaries 24,000
Petty Cash 2,000 28,400
Cash Sales 1,06,000
Stock with Branch on 31.12.2006 (at invoice price) 69,000
Petty Cash balance on 31.12.2006 100

Answers/VER 2.0
Branch Adjustment Account

To Stock reserve A/c 23,000 By stock reserve A/c 22,000

2,000 (66,000 ×
To Goods sent to Branch A/c
2,000 50/150)
To Branch stock A/c
By Goods sent to Branch A/c 68,000
To Shortage (Load) 1,000 (2,04,000 × 50/150)
To Gross profit 62,000
c/d
By Gross profit b/d 90,000
To Branch expenses A/c
90,000
Rent 2,400
62,000
Salaries 24,000
Petty exp. 2,400
(500 + 2000 - 100) 28,800
To Branch debtors A/c discount 2,400
To Shortage 2,000
(cost)
To Net profit 28,800
62,000 62,000

Answers/VER 2.0
Branch Debtors A/c

To Balance b/d 22,000 By Branch Cash 93,000

To Branch stock 87,000 A/c 2,400
A/c By Branch
Expenses A/c
(credit sales)
(Discount
allowed to 3,000
Debtors) 10,600
By Sales
Returns
By Balance c/d
1,09,000 1,09,000
Branch stock A/c
To balance 66,000 By branch A/c-cash 1,06,000

b/d sales
To Goods 2,04,000 By Branch Debtors A/c- 87,000
sent to credit sales
Branch A/c By Branch
To Branches 2,000
3,000 Adjustment A/c
Debtors A/c
Allowance to
Sales
Return customer On
selling price
(already Adjusted
while invoicing)
By Goods sent to branch
A/c
Returns 6,000
to
H.O.
By Shortage-in-stock A/c 3,000
By Balance c/d 69,000
2,73,000 2,73,000
Answers/VER 2.0
5. . A head office sends goods to its branch at 25% less than the list price. Good are sold to
customers at cost plus 60%. From the following particulars ascertain the profit made at the
head office and the branch on whole sale basis.
Particulars Head office Rs. Branch Rs.

Opening stock 50000 30000
(at invoice price in case of branch)
Purchases 150000 -
Goods sent to branch 108000 -
Sales 160000 80000
Expenses 10000 6000
Trading , Profit & Loss A/c

Head Head
Particulars office Branch Particulars office Branch
To opening 50000 30000 By Sales 160000 80000

stock
To Purchases 150000
By Goods
To Goods sent to
received branch
from H.O 108000 108000 -
To Gross By Closing
Profit 780000 20000 stock 10000 78000
278000 158000 315000 96000

To Expenses 10000 6000
To Stock By Gross
reserve 13000 Profit 78000 20000
By Stock
reserve 5000
To Net Profit 60000 14000
83000 20000 83000 20000

Answers/VER 2.0

UNIT-2 – DEPARTMENTAL ACCOUNTS
Question & Answers
PART – A ANSWERS
1. What is meant by department accounts? (Nov -2010, April -2011, April -2014)
An organization may produce or buy and sell several products or perform
different services under the same roof or from the same premises. The modern
practice is to divide the organization into independent departments, each of which
may deal in a particular class or goods or render a specialized type of service
2. What is meant by interdepartmental transfer? (Nov -2012, April -2010, April -2014)
Whenever goods or services are provided by one department to another their
cost should be separately recorded and charged to that department benefiting thereby
and credited to that providing it.
3. What is stock reserve? (Nov -2011, April -2011)

Unrealized profit included in unsold inventory at the ending of accounting
period eliminated by creating an appropriate stock reserve by debiting the amount
profit and loss account.
4. Write the basis of allocation of expenses –any two. (Nov -2013, Nov -2014, April -
2013, April -2014)
 Rent, rates and taxes - Floor area occupied.
 Salaries - Time allocated to each department.
 Selling expenses, Bad debts - Sales of each department
 Carriage inwards - Purchases of each department
5. What are direct expenses? Give some examples. (Nov -2014)

Expenses which are directly identified with or incurred for particular
departments are called as direct expenses. Example: Wages, insurance of stock etc.
6. What is indirect expenses? (April -2014)

Expenses which cannot be identified with a particular department, but
incurred for their common benefit.
7. What is cost price?
RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC-

II/UNIT-2 Answers/VER 2.0
When the good are sold at the price of which incurred for the production of
goods that means the cost of goods sold is called as cost price.
8. What is selling price?

When the goods are sold at cost price plus profit is known as selling price.
9. Write two advantages of departmental accounts. (Nov -2010, Nov -2012, Nov -2013,
April -2010)
 Evaluation of performance
 Growth potential of each department
 Judgement of efficiency
 Planning and control
10. Write two needs of departmental accounts.

 To have comparative results of departments
 To assesses the stock position of each department
 To analyze the result of each department and to draw up a trend for the future.
11. What are the methods and techniques of departmental accounts?

1. Preparation of trading and profit and loss account,
2. Maintenance of Records,
3. Departmentalization of expenses
12. What is meant by elimination of unrealized profit?

When profit added in the inter-department transfers the loading included in the
unsold stock at the end of the year is to be excluded before final accounts are prepared
so as to eliminates any anticipatory profit included therein.
13. What are the two types of departments?

 Independent department
 Dependent department
14. What is independent department?

Departments which work independently of each other and have negligible
inter department transfer are called Independent Departments.
15. What is dependent department?

Departments which transfer from one department to another department for

further processing are called dependent departments.
16. What are the two sub-divisions of indirect expenses?

 Expenses which can be apportioned
 Expenses which cannot be apportioned
17. What are expenses which cannot be apportioned? (Nov -2011)

Expenses which have no connection with the departments or those which
have no reasonable basis for apportionment must be shown in the general profit &
loss a/c.
18. What are expenses which can be apportioned?

All indirect expenses which are amenable for division on some logical or
appropriate basis among the departments should be charged to the departments after
dividing them on suitable basis.
19. What are the three basis of interdepartmental transfer?

 Cost
 Ruling market price
 Cost plus agreed percentage of profit.
20. What is meant by common expenses?

Common expenses, the benefit of which is shared by all the departments and
which are capable of precise allocation are distributed among the departments
concerned on some equitable basis considered suitable in the circumstances.
PART – B ANSWERS
1. Explain the advantages of departmental accounting. (Nov -2010, Nov -2013, Nov -
2014, April -2011)
 Evaluation of performance: The performance of each department can be

evaluated separately on the basis of trading results. An endeavor may be
made to push up the sales of that department which is earning maximum
profit.
 Growth potential of each department: The growth potential of a department

as compared to others can be evaluated.

 Judgement of efficiency: It helps to calculate stock turnover ratio of each

department separately, and thus the efficiency of each department can be
calculated.
 Planning and control: Availability of separate cost and profit figures for
each department facilitates better control. Thus effective planning
and control can be achieved on the basis of departmental accounting
information.
 Justification of capital outlay: It helps the management to determine the

justification of capital outlay in each department.
2. Write down the needs of departmental accounting.( April -2013)

 To compare the results of each department with the results of previous years and
ascertain the trend.
 To know the comparative results of different departments in the same year.
 To assess the position of stock in each department.
 To identify areas weakness for cost control and improvement of efficiency.
 To decide upon expansion, discontinuation and investment policies.
3. Explain the ways of recording transactions in departmental accounts.

a) Unitary method: Under this method, the accounts of each department
are kept separately. The results of the various departments are finally combined
together in one general P & L account.
b) Tabular or columnar method: Under this method, the accounts of each
department are kept in columnar form with a separate column for each
department and also with a separate column for the total. The tabular method
is more popular and is adopted by almost all the departmental undertaking,
Under this method, at the end of the accounting year, Trading and P & L
account is prepared with separate amount column for each of the department and
also for the total. The trading and P & L of a departmental organization kept in the
columnar basis is called Departmental Trading and P & L account. In trading
account, opening stock, purchases, direct expenses and Gross profit are debited
and sales and closing stock credited. Indirect expenses have to be apportioned
between the departments and debited to the P&L account.
4. Difference between branch and departmental accounts. (Nov -2011, April -2010)
BRANCH: Branches are separated from the main organization.
DEPARTMENTS: Departments are attached with the main organization under a
single roof.

BRANCH: Branches are the outcome of tough competition and expansion of

business.
DEPARTMENTS: Departments are the result of fast human life.
BRANCH: Branches are geographically separated.

DEPARTMENTS: Departments are not separated rather existed under a same
roof.
BRANCH: Branches are of different types like dependent, independent and

foreign.
DEPARTMENTS: There is no such classification in department because all are
common under the same roof.
BRANCH: Allocation of branch common expenses does not arise.

DEPARTMENTS: Allocation of departmental common expenses is a tough job.
BRANCH: To find out the net result of the organization, the reconciliation of
different branch account is a main job.
DEPARTMENTS: In departmental accounting, no reconciliation is necessary
because there is a central account division.
5. The proprietor of large retail store department wished to ascertain approximately the
net profit of the X, Y, Z departments separately for the three months ended 31 st March
1996. It is found impracticable actually to take stock on the date , but an adequate
system of departmental accounting is in use, and normal rates of gross profit for the
three departments concerned are respectively by 40%, 30% and 20% on turnover
before charging the direct expenses. The indirect expenses are charged in proportion
to departmental turnover.
The following are the figures for the department:
X (Rs.) Y (Rs.) Z(Rs.)
Opening stock 10000 14000 7000
Purchases 12000 13500 9700
Sales 20000 18000 16000
Direct expenses 2000 1500 700
The total direct expenses for the period(including those relating to other departments)
were Rs.5400 on total turnover of Rs. 108000.
Prepare a statement showing the approximate net profit, making a stock reserve of
10% for each department on the estimated value on 31-3-96. (April -2010)

6.Trading , profit and loss account of Janaki radio and gramophone equipment vo., for
the six months ended 31-3-93 is presented to you in the following form.( Nov -
2014)
Purchases Rs. Sales Rs.

Radios(A) 140700 Radios(A) 150000
Gramophones(B) 90600 Gramophones(B) 100000
Spare parts(C) 64400 Spare parts(C) 25000
Salaries and wages 48000 Stock as on 31-3-93
Rent 10800 Radios(A) 60100
Sundry expenses 11000 Gramophones(B) 20300
Profit 34500 Spare parts(C) 44600
400000 400000
Prepare departmental accounts for each of the three departments A,B and C
mentioned above after taking into the account of the following:
1.Radios and gramophones are sold at the show room and spares parts at work shop.
2. Salaries and wages are comprises as follows:
Showroom 3/4th and workshop 1/4th.
It was decided to allocate the show room salaries and wages in the ratio of 1.:2
between the departments A and B.
3. The workshop rent is Rs.500 per month. The rent of show room is to be allocated
equally between departments A and B.
4. Sundry expenses are allocated on the basis of turnover of each department.
7. Mixed goods were purchased for Rs.100000 and later they were assorted into three
categories X, Y and Z as follows:
X 1000 - Selling price Rs.20 each
X 2000 - Selling price Rs.22.50 each
X 2400 - Selling price Rs.25 each
All categories yield the same rate of profit. Calculate the purchases price of each
department.
8.A company has two departments A and B. Dept.A supplies good to Dept.B at its usual
selling price. From the following figures prepare departmental trading a/c for the
year 1982.( Nov -2012, Nov -2014, April -2014)

Particulars A (Rs.) B (Rs.)

Opening stock 30000 -
Purchases 210000 -
Transfer to B 50000 50000
Sales 200000 60000
Closing Stock 40000 10000
9. There are two departments X and Y. Good are transferred from Dept.X to Dept.Y at
usual selling price . You are required to compute the stock reserves on stock of
Dept.Y from the following data(April -2013)
G.P. Ratio of the Dept.X :25% on cost
Opening stock of Dept.y : Rs.50000
Closing stock of Dept.y : Rs.75000
10. From the following particulars , prepare departmental trading account.( Nov -2013,
April -2013, April -2014)
Particulars A (Rs.) B (Rs.)
Total Purchases 27000 21600
Total Sales 42000 36000
Closing Stock 10800 4800
Credit Purchases 17000 10600
Credit Sales 5000 6000
PART – C ANSWERS
1. What are the bases of apportionment of expenses.( April -2014)
SI.NO EXPENSES BASIS OF APPORTIONMENT

1 Sales expenses as traveling Sales of each department
salesman, salary and commission,
selling expenses after sales
service, discount allowed, bad
debts, freight outwards, provision
for discount on debtors, sales

manager's salary and other

benefits etc.
2 All expenses relating to Area or value of floor space

building as rent, rates, taxes,
air conditioning expenses,
heating, insurance building etc.
3 Lighting Lighting points in the department
4 Workmen’s amenities and welfare Number of workers in each

expenses department
5 Workmen’s compensation Wages of each department
insurance, ESI, PF etc. payable at
employer
6 Premium for loss of profits Profit of each department in the
insurance previous year
7 Power Consumption as per meter, horse
power, time and hours.
8 Depreciation of assets, fire Value of each assets possessed by
insurance, repairs on such assets. each departments
9 Factory manager’s salary Time devoted to each department
10 Carriage inwards Purchase value
2. From the following information , prepare trading , profit and loss account in a
columnar from the three departments of Sharma dry cleaners ltd. (Nov -2010, April -
2010, April -2011)
Particulars Dry cleaning (Rs.) Darning (Rs.) Dyeing (Rs.)

Opening stock 400000 340000 940000
Closing stock 330000 438000 817000
Purchases 1959000 697000 1373000
Sales 4000000 2000000 4000000
Wages 728000 300000 246000
Goods were transferred from one dept. to another dept. at cost price as follows:
i) Darning to dry cleaning Rs.2400 and to dyeing Rs.40200
ii) Dyeing to dry cleaning Rs.25800 and to darning Rs.18000
iii) Dry cleaning to darning Rs.3000 and to dyeing Rs.24000
Apportion equally: Rs.
Stationery 5418
Postage 4050
General expenses 237618
Insurance 10080
Depreciation 32598
Rent & taxes Rs.180000 is to be split in proportion to space occupied, i.e., dry
cleaning 4, darning 2 , dyeing 2 and other space 2.
3. A firm had two departments cloth and readymade garments . The garments were
made the firm itself out of cloth supplied by the cloth department at its usual selling
price. From the following particulars , prepare departmental trading and profit and
loss account for the year ended 31-3-94. (Nov -2012, Nov -2013, April -2014)
Particulars Cloth dept. (Rs.) Readymade dept.(Rs.)

Closing stock 200000 60000
Purchases 2000000 15000
Sales 2200000 450000
Transfer to readymade
dept. 300000 ---
Manufacturing expenses --- 60000
Selling expenses 200000 6000
The stock in the readymade garments department may be considered as consisting of

75% of cloth and 25% other expenses. The cloth department earned gross profit
@ 15% in 1992-93. General expenses of business as a whole came to Rs.110000.
4. Modern company has two departments X and Y. Department X sells goods to Y

departments at normal market price. From the following particulars, prepare
departmental trading and profit & loss account for the year ended 31-12-1996. (Nov -
2011)
Particulars Dept X Dept Y General total

(Rs.) (Rs.) (Rs.)
Stock on 1-1-96 15000 - -
Purchases 250000 40000 -
Good from dept. X - 40000 -
Wages 15000 20000 -
Salaries (departmental) 7000 5000 -
Closing stock at cost 80000 20000 -
Sales 260000 145000 -
Printing & stationery 2500 1500 -
Machinery - 15000 -
Advertisement - - 12000
Salaries (general) - - 18000

Depreciate machinery by 10%. The general unallocated expenses are to be

apportioned in the ratio of 2:1 to the departments X and Y. Half of the closing stock
of department Y represents goods received from the department X.
5. The following purchases were made by a business house having three departments.
(Nov -2011, Nov -2012, April -2011, April -2013, April -2014)
Dept. A - 1000 units
Dept. B - 2000 units
Dept. C - 2400 units
Total cost of purchases for above Rs.100000
Stocks on 1st January were:
Dept. A - 120 units
Dept. B - 80 units
Dept. C - 152 units
Sales were:
Dept. A - 1020 units at Rs.20 each
Dept. B - 1920 units at Rs.22.50 each
Dept. C - 2496 units at Rs.25 each
The rate of gross profit is same each case. Prepare departmental trading account.
-----

ACADEMIC YEAR: 2016– 2017 REGULATION CBCS - 2012

UNIT-3 – HIRE PURCHASE AND INSTALLMENT
SYSTEM
Question & Answers
PART – A ANSWERS
1. What is Hire purchase system?(NOV-2011, NOV-2012, NOV-2013,APRIL-

2011, APRIL-2014)
Hire purchase is the system under which the property is acquired by payment
made installments, during the period of which the title in the property
remains with the hire vendor.
2. What is Installment system?( NOV-2012, APRIL-2010, APRIL-2014)

Installment payment system (also called the deferred installments) is a system
where the buyer is given the ownership as well as the possession of the goods at
the time of signing the contract. The buyer has the facility to pay the price in
installments.
3. Define Installment system.( APRIL-2010)

According to J.B. Batliboi, “a system under there is an agreement to purchase
and pay by installments, the goods which become the property of the Purchaser
immediately when he receives the delivery of the same.
4. What is meant by lump sum method?

The whole amount of the goods paid immediately at the time of purchase
goods and the ownership also transfer immediately to the buyer.
5. What are the methods to maintain the accounts in the books of hire
purchaser?
A. Outright property method
B. Asset accrual method
C. Interest suspense method
6. Who is Hire purchaser?(NOV-2010,APRIL-2014)

A hire purchaser is a person who possesses the goods under hire purchase
agreement for use within an option to either purchase it or return after use.
RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3
Answers/VER 1.0
Unit – 3Answers Page 1 of 8
7. Who is Hire vendor?( NOV-2010, APRIL-2010,APRIL-2014)

A hire vendor is a person who sells the goods under hire purchase agreement.
8. What is meant by Hire purchase price?(NOV-2014,APRIL-2010,APRIL-

2014)
It is the price at which the goods are sold under ‘hire purchase system’ it
includes cash price of the goods and interest.
9. What is meant by Hire purchase agreement?

It is an agreement between hire purchaser and hire vendor according to section
2(c) of the hire purchase act, 1972 for purchasing of goods according to
agreement.
10. What is Net hire purchase price?

It is the net amount after deducting the delivery charges, registration charges,
insurance charges from hire purchase price.
11. What is meant by termination of hire purchase agreement?

The hirer can terminate the agreement at any time by giving the 14 days
notice to the owner. However whatever the amount is already paid by the hirer is
considered as a hire charges.
12. What is Cash Price?(APRIL-2010, APRIL-2013)

This is the retail price of the articles at which they can be purchased
immediately for cash.
13. What is Hire or Installment?

This is the amount payable by the buyer periodically. The installments may
be equal or different depending on agreement.
14. What is meant by rebate?

It is an amount which is claimed by the hire purchaser from the hire vendor in
case if he decides to remit the balance of the purchase price (future installments)
in lump sum without continuing the hire purchasing agreement.
15. What is meant by down payment?( NOV-2011, NOV-2010, APRIL-2010,

APRIL-2011)
This is the advance payable by buyer while signing the hire purchase
agreement. It is also a part of the hire purchase price.
Answers/VER 1.0
16. What is meant by interest in hire purchase?(APRIL-2010)

This is the additional amount apart from the cash price payable by the buyer
as compensation for postponed payments.
17. What is meant by repossession of goods or repossessed stock?( APRIL-2014,

APRIL-2011)
Repossession of goods means the hirer did not pay installment amount the
goods will be taken up by the hire vendor.
18. What is meant by partial repossession?(NOV-2014, APRIL-2014)

The hirer did not pay installment amount the part of the goods only took by the
hire vendor and left the remaining goods with the hirer equal to the value of
amount paid by the hirer.
19. Write any two contents of Hire purchase agreement.

 The hire purchase price of the goods for which the agreement is made
 The number of installments in which the hire purchase price has to be paid
20. Give journal entry for down payment in the books of Hire – purchaser.
(APRIL-2013)
Hire vendor A/c Dr.
To Bank A/c
21. Give journal entry for down payment in the books of Hire – purchaser.
(NOV-2013, APRIL-2014)
Interest A/c Dr.
To Hire vendor A/c
PART – B ANSWERS
1. Write the features of Hire-Purchase System.(NOV-2010, NOV-2014,APRIL-

2013)
 Hire-purchase is a credit purchase.
 The price under hire-purchase system is paid in installments.
 The goods are delivered in the possession of the purchaser at the time of
commencement of the agreement.
 Hire vendor continues to be the owner of the goods till the payment of last
installment.
 The hire-purchaser has a right to use the goods as a bailer.

Answers/VER 1.0
 The hire-purchaser has a right to terminate the agreement at any time in the
capacity of a hirer.
 The hire-purchaser becomes the owner of the goods after the payment of all
installments as per the agreement.
 If there is a default in the payment of any installment, the hire vendor will take
away the goods from the possession of the purchaser without refunding him any
amount.
2. Write the features of Installment Payment System.(NOV-2013)

 Under this system, there will be an outright sale of goods/assets.
 The possession as well as the ownership is passed to the buyer right at the time of
signing the contract.
 The buyer can make the payment in installments.
 In case of default in payment, the seller cannot repossess the goods, but he can
sue the buyer for the recovery of unpaid price.
 The buyer cannot exercise the option of returning the goods and terminate the
contract, unless the same becomes void or voidable under the contract act.
3. Write the advantages and disadvantages of hire purchase.

Advantages:
 Costly items can easily be purchased by the consumers which he cannot otherwise
purchase by making entire payment in lump sum.
 It increase turnover and enhances the profitability of the enterprise.
 It enables the consumer's family to enjoy the possession of the goods before
payment is required.
 Hirer has a right to terminate the agreement at any time before the goods is
transferred.
Disadvantages:
 Cost of items purchased by hire purchase system is more than the normal price as
the customer has to pay interest on the balance amount.
 Hirer does not become the owner of goods hired, until payment of last installment
is made.
 Hirer cannot sell or pledge goods hired until he becomes owner of such goods.
4. On 1.1.86, X purchased machinery on hire purchase system. The payment is to be

made Rs.4000 down (on signing of the contract) and Rs.4000 annually for three
years. The cash price of the machinery is Rs.14900 and the rate of interest is 5%.
Calculate the interest in each year’s installment. (APRIL-2010, APRIL-2014)
Answers/VER 1.0
5. Mr.X purchased a machine on hire purchase system Rs.3000 being paid on delivery
and the balance in five installments of Rs.6000 each , payable annually on 31st
December. The cash price of the machine was Rs.30000. Calculate the amount of
interest for each year.(NOV-2013, NOV-2014)
6. X purchased a typewriter on hire purchase system. As per terms, he is required to pay

Rs.800 down, Rs.400 at the end of the first year, Rs.300 at the end of the second year
and Rs.700 at the end of the third year. Interest is charged at 5% p.a. Calculate the
total cash price of the typewriter and the amount of interest payable in the each
installment.( NOV-2012, APRIL-2014)
7. X purchased a machine on hire purchase system. According to the terms of the

agreement Rs.40000 was to be paid on signing of the contract. The balance was to be
paid in four annual installments of Rs.25000 each plus interest. The cash price was
Rs.140000. Interest is chargeable on outstanding balance at 20% per annum.
Calculate the interest for each year and the installment amount.(NOV-2014)
8. On 1.1.90 X bought some trucks under hire purchase system for Rs.51000 payable by
three equal installments combining principal and interest, the later being a normal rate
of 5% p.a. Calculate the cash price .( The present value of annuity of one rupee for
the three years at 5% is Rs.2.72325)(NOV-2010)
9. From the following details of a businessman who sells goods of small value at cost
plus 50%. Prepare hire purchase trading account. Rs.
1.1.90
Stock out with the customer at H.P price 9000
Stock at the shop at cost price 18000
Installments due but not received 5000
31.12.90
Goods worth Rs.500 repossessed (Inst. Not due Rs.2000)
Cash received from customers 60000
Purchase made during the year 60000
Stock out with the customer at H.P price 30000
Stock at the shop at cost (excluding goods repossessed) 20000
Installments due but not received 9000
10. Raman purchased a motor car from bharathan whose cash price is Rs.56000 on
1.1.93. Rs.15000 is paid on signing the contract and the balance is to be paid in three
equal annual installments of Rs.15000 each. The rate of interest is 5% p.a. Calculate
the amount of interest included in the each installments.( NOV-2012)
Answers/VER 1.0
11. Mohan purchased a car on hire purchase system the cash price of the car was
Rs.15980, payableRs.4000 being paid down and the three installments of Rs.6000
Rs.5000, Rs.2000 at the end of the first, second and third year respectively. Interest is
charged at 5% p.a. Calculate the amount of interest for each year.(NOV-2011,
APRIL-2014)
12. Mr.X purchased a cycle on hire purchase system for Rs.1000 to be paid as follows:
Rs.800 on signing of contract, Rs.400 at the end of the first year, Rs.300 at the end of
the second year and Rs.700 at the end of the third year. Interest is charged at 5% p.a.
Calculate the total cash price of the cycle and the amount of interest payable in
the each installment.
13. Calculate the cash price of the machine from the following information. (APRIL-
2013)
Down payment Rs.10000
Four annual installments at the end of each year Rs.10000
Rate of interest 5% per annum
PART – C ANSWERS
1. Differences Between Hire Purchase System and Installment Purchase System.
(NOV-2010, NOV-2011, APRIL-2010, APRIL-2013, APRIL-2014)
Hire-Purchase System Installment Purchase

It is a contract of hiring. It is a contract of sale.
It is transferred by seller to buyer only It is transferred by seller to buyer,
after payment of all installments. immediately on signing the contract.
In this case, the buyer is like a bailee. In this case, the buyer is not in the position of
a bailee.
Such risk is on the seller. Such risk is on the buyer.
On default of payment of any installment On default of payment of any installment by

by the buyer, the seller can repossess the the buyer, seller cannot repossess the goods,
goods. but can file a suit in the court of law against
the buyer for the recovery of unpaid price.
The buyer can exercise the option of The buyer cannot exercise the option of
return of goods. return of goods.
The buyer cannot dispose the goods, The buyer has the right to dispose the goods,
until the payment of last installment. If even if all installments are not yet paid.
disposed, the third party buyer does not
get a better title.
Answers/VER 1.0
2. Mr.P purchased 4 cars for Rs.14000 each on 1.1.92 under the hire purchase system.
The hire purchase price for all the 4 cars was Rs.60000 to be paid as Rs.15000down
payment and 3 equal installments of Rs.15000each at the end of each year. Interest is
charged at 5% p.a. The buyer depreciates the car at 10% on straight line method.
From the above particulars give journal entries and relevant A/c’s in the books
of Mr.P and in the hire vendor.(NOV-2011, NOV-2012, APRIL-2011)
3. Knight purchased a truck for Rs.160000 from S.Waugh on 1.1.93 payment to be

made Rs.40000 down and Rs.46000 at the end of the first year, Rs.44000 at the end of
the second year and Rs.42000 at the end of the third year. Interest was charged at 5%
p.a. Knight depreciates truck at 10% p.a on written down value method.
Knight after having paid down payment and first installment at the end of the
first year, could not pay the second installment. The seller took repossession of truck
after spending Rs.4000 on the repairs , sold it away Rs.91500.
Prepare ledger accounts.
4. On 1.1.90 National transport company purchased from Metro motors five trucks
costing Rs.40000 each on the hire purchase system. It was agreed that
Rs.50000should be paid immediately and the balance in three equal installments of
Rs.60000 each at the end of the each year. The Metro motors charges interest at
10%p.a. The buyer depreciates trucks at 10%p.a. on the diminishing balance method.
The buyer paid the down and two installments and failed to last installment.
Consequently the Metro motors repossessed three trucks leaving two trucks with the
buyer and adjusting the value of three trucks against the amount due. The trucks
repossessed were valued on the basis of 30% on the written down value method. The
trucks repossessed were sold by Metro motors for Rs.60000 after necessary repairs
amounting to Rs.10000. Open the necessary ledger accounts in the books of both
the parties.
5. From the following details, set out the hire purchase trading account in the books
of a trader who sells a number of articles of comparatively small value daily on the
hire purchase system, showing his profit on this department of the business for the
year ended 31.12.88. For the purpose of charging his hire purchase customers, he
adds 60% to the cost of the goods. Rs.
1.1.88 Stock in customers hands at the selling price 1620
31.12.88 Sale of goods on H.P. at selling price 6534
Cash received from H.P customer at selling price 2100
Cost in customer’s hand at selling price 4474
Good repossessed (Installments dueRs.1000) valued at 250
Answers/VER 1.0
6. Krishna sells products on H.P terms, the price being cost plus 33 1/3 % . From the
following particulars for the year ended 31.12.95, prepare the necessary accounts
on stock and debtor system to reveal the profit earned. Rs.
1.1.95 Stock out on hire at H.P price 1600000
Stock in hand at shop 200000
Installments due (customers still paying) 120000
31.12.95 Stock out on hire at H.P price 1840000
Stock in hand at shop 280000
Installments due (customers still paying) 200000
Cash received during the year 3200000.
-----

Answers/VER 1.0

UNIT-4 – PARTNERSHIP –BASIC
ADMISSION,RETIREMENT AND DEATH
Question & Answers
PART – A ANSWERS
1. Define partnership.(NOV-2010,NOV-2014)
According to Partnership act 1932 define “as the relationship between persons who
have agreed to share the profits of a business carried on by all or any of them acting
for all.”
2. What is the treatment of goodwill at the time of retirement of partner?(APRIL-

2014)
At the time of retirement of a partner, adjustment for goodwill of the firm, if any, has
to be made as in admission. In retirement too, we confine to the Revaluation Method
only.
3. Who is called as partner?(APRIL-2014)

The persons who have entered into partnership are individually known as ‘Partners’
and collectively as ‘Firm’.
4. What is partnership deed?(APRIL-2010)

It is an outcome of an agreement created orally or in writing between two
or more persons. It is not essential that agreement must be in writing, but to avoid any
disputes between the parties in future.
5. What is profit sharing ratio?(APRIL-2011)

The ratio which is profit or loss shared by the partners in the partnership firm is called
as profit sharing ratio.
6. What is Sacrificing ratio?(NOV-2011, APRIL-2010,NOV-2013)

At the time of admitting the new partner the old partners are giving their ratio of
profit to the new partner it is called sacrificing ratio.

Answers/VER 1.0
7. How do we calculate Sacrificing ratio and Gaining ratio? (APRIL-2010,NOV-

2010)
Sacrificing Ratio = Old ratio – New ratio
Gaining ratio = New ratio – Old ratio
8. What is Revaluation account? (APRIL-2013)

At the time of admission of a partner, the assets and liabilities are revalued so that the
profit and loss arising on revaluation account . The profit or loss may be adjusted in the
old partners’ capital accounts.
9. What is Goodwill?( APRIL-2011,NOV-2011)

A well-established business develops an advantage of good name, reputation and
wide business connections. This helps the business to earn more profits as compared to
a newly set up business. In accounting, the monetary value of such advantage is known
as 'goodwill'.
10. Define admission of partner.

According to Section 31 (1) of the Indian Partnership Act 1932, a person can be
admitted only with the consent of all the existing partners. A person who is admitted is
known as new partner or incoming partner.
11. Define retirement of partner.

According to section 32 (1) of the Indian partnership act 1932, a partner may
retire from the firm.
i. With the consent of all the partners
ii. Where the partnership is at will by giving notice in writing to all other partners of
his intention to retire.
iii. In accordance with an express agreement by the partners.
12. What is death of partner?

Death of a partner dissolves the partnership but the surviving partners usually carry
on the business by purchasing the deceased partners share. But the difference is
retirement may be planned one, death is a permanent retirement.
13. What is gaining ratio?

At the time of retirement of the old partner the remaining partners are sharing the
profit ratio of the retired partner is called gaining ratio.

Answers/VER 1.0
14. What are the Methods of calculating interest on drawings.

Simple method
Interest on drawings = Amount of drawings X Rate of Interest X Months
100 12
Product Method:
Interest on drawings = Total of products X Rate of Interest X 1
100 12
Average Method:
Interest on drawings = Amount of drawings X Rate of Interest X Average period
100 2
15. What are the methods of capital?
 Fixed capital
 Fluctuating capital
16. What is Fluctuating Capital method?

Under the fluctuating capital method, only one account, viz., the capital
account for each partner, is maintained. The capital of the partners changed from year to
year.
17. What is Fixed capital method?

Under this method, two accounts are maintained for each partner viz., (i) Capital
account and (ii) Current account. The capital account will continue to show the same
balance from year to year. In the current account, the transactions relating to drawings,
interest on capital, interest on drawings, salary, share of profit or loss etc., are recorded.
18. What is adjusted profit and loss account?

In a partnership firm, the net profit as shown by the Profit and Loss Account need
certain adjustments with regard to interest on capitals, interest on drawings, salary and
commission to the partners. For this purpose, Profit and Loss Appropriation Account
may be prepared.
19. What are the methods of calculating interest on capital?

 Simple method
 Product method
 Average period method
20. What is product method?

The amount of drawings for each period is multiplied by the period for which the
amount is going to be used. Then, the product is summed up.

Answers/VER 1.0
21. What is average period method?

Interest on drawings is to be calculated with reference to the average of the periods
for which the money is withdrawn.
22. What is average period ?

The average period is calculated to take the period for the average of the periods
applicable to the first installment and the last installment.
23. Write down the three methods of valuation of goodwill?

1) Average Profit method
2) Super Profit method
3) Capitalisation method
24. What is meant by average profit method?

In this method, past profits of a number of years are taken into account. Such profits
are added and the average profit is found out. The average profit is multiplied by a certain
number of years to arrive at the value of goodwill.
25. What is meant by super profit method?

The excess of average profit over normal profit is called super profit. The goodwill
under the Super profits method is calculated by multiplying the super profits by certain
number of years purchase.
26. What is meant by transfer of undistributed profit or loss?

The balance sheet of the partnership firm may show undistributed profits in the
liabilities side and undistributed loss in the assets side of the old Balance Sheet. That
undistributed profit or loss should be transferred to the old partners capital accounts in
the old profit sharing ratio.
27. What is the accounting treatment of undistributed reserves and surplus?

Partners of the firm, may set aside a portion or percentage of the profit earned to
meet the unexpected or unforeseen losses arise in future in the name of Reserve, General
Reserve, Reserve Fund, Contingency Reserve etc. At the time of admission of new
partner, if there is any reserve, it should be transferred to the Capital accounts of the old
partners in the old profit sharing ratio.
28. What are the three methods of goodwill adjusted ?

1. Revaluation Method
2. Memorandum Revaluation Method
3. Premium Method
Answers/VER 1.0
29. What is meant by Settlement of claim of the retiring partner?

The amount due to the retiring partner is ascertained by preparing his capital account
incorporating all the adjustments. The amount due is either paid off immediately or is
paid in installments. When it is not paid immediately, it will be transferred to his loan
account.
30. Write any two adjustments made at the time of admission of partner.(APRIL-
2014)
 Adjustment in the profit sharing ratio
 Adjustment for goodwill
th
31. P and Q are partners sharing profits in the ratio of 3:2. They admit R for 1/5 share as
new partner. Calculate new profit sharing ratio.(APRIL-2010,APRIL-2011,APRIL-
2013, APRIL-2014,NOV-2014)
32. A and B are partners sharing profits in the ratio of 5:3. They admit C for 1/5 th share of
th th
future profits which she acquires 4/20 from A and 2/20 from Bi. Calculate new Profit
sharing ratio.(NOV-2012, APRIL-2014)
33. A and B are partners sharing profits in the ratio of 3:2. They admit R for 1/5 th Share
which acquires equally from P and C. Calculate new profit sharing ratio.(NOV-
2013)
34. Calculate goodwill under average profit method for 2 years purchases of three years
profit which have been Rs.25000, Rs.35000, Rs.30000.(NOV-2014)
PART – B ANSWERS
1. Write down the essentials of partnership.(NOV-2012)
 There must be an agreement entered into between two or more persons.

 The agreement must be to share the profits of a business.
 The business must be carried on by all or any of the persons concerned acting for all.
 It is formed to carry on a lawful business and
 It is an association of two or more persons.

Answers/VER 1.0
2. Write down the items debited and credited in Revaluation account
Revaluation Account is credited with the following profit items:

1) Increase in the value of assets,
2) decrease in the amount of liabilities and
3) unrecorded assets now recorded.
Revaluation account is debited with the following loss items:
1) Decrease in the value of assets,
2) increase in the amount of liabilities,
3) unrecorded liabilities now recorded and
4) creation of a new liability.
3. What are the rules applicable in the absence of partnership deed?

1. Profit sharing ratio: Profits and losses are to be shared equally among the partners.
2. Interest on Loan: On any loan advanced by a partner he is entitled to interest on the
at 6% p.a.
3. Interest on Capital: No interest is to be allowed on capitals.
4. Salary to partners: Partners are not entitled for any salary or other remuneration.
5. Interest on Drawings: No interest is to charged on drawings.
4. Difference between fluctuating capital and fixed capital.
Basis Fixed capital Fluctuating capital

The capital normally remains The capital is changing
Change in capital unchanged except under special from period to period.
circumstances.
Each partner has two accounts, Each partner has only
Number of One account i.e.,
accounts namely, Capital Account and Capital Account.
Current Account.
Capital Account shows always a Capital Account shows
Balance credit balance. always a credit balance.

Current account may sometimes
show debit or credit balance.
All adjustments relating to partners All adjustments relating to

Adjustments are recorded in the Current partners are recorded
Accounts. directly in the Capital
Accounts itself.

Answers/VER 1.0
5. Give journal entries for unrecorded assets and liabilities(Nov-2010)

* For recording an unrecorded asset
Unrecorded Asset A/c Dr ......
To Revaluation A/c ......
* For recording an unrecorded liability

Revaluation A/c Dr ......
To Unrecorded Liability A/c ......
6.Draw the specimen for Profit and loss appropriation account.( APRIL-2013)
Profit and loss appropriation account
Particulars Rs. Particulars Rs.
To Interest on capital XXX To net profit b/d XXX
To Partner’s salary XXX To Interest on
To Commission XXX drawings XXX
To Profit transferred
to capital account XXX
XXX XXX
7. Show how the following items will appear in the capital accounts of the
partners, Babu and Gopu When their capitals are fluctuating. (NOV 2010,
NOV-2013, NOV-2014)
Babu Gopu
Capital on 1.4.2004 800000 700000
Drawings during 2004 - 2005 160000 140000
Interest on drawings 4000 2000
Share of profit for 2004-05 84000 66000
Interest on capital 48000 42000
Partner’s salary 72000 NIL
8. A and B are partners sharing profit and losses in the ratio of 3:2. They admit C and
he paying a premium of Rs.1000 for 1/4th of share of profit. No goodwill account
appears in the books of the firm. They withdraw the amount of goodwill.
Journalise.(NOV-2011,APRIL -2011)

Answers/VER 1.0
9. A and B are partners in a firm with capital of Rs.36000 and Rs.32000 respectively.
They decide to admit G into the firm with a capital of Rs.30000. G is given 1/5th share in
the future profits and losses. Give journal entry for goodwill.(NOV-2011,APRIL-
2011 )
10. A, B and C are the partners sharing profit and losses in the ratio of 5:5:4. D is
admitted as a partner. Goodwill of the firm is valued at 2 years purchases of 3 years
profits which have been Rs.15000, Rs.26000 and Rs.22000. Give journal entries if:
a) There is no goodwill in the books of the firm.

b) The goodwill account appears at Rs.14000 and
c) The goodwill is already standing in the books is Rs.56000. (APRIL-2013)
11. A partner makes a drawings of Rs.2000 p.m. under the partnership deed. Interest is
to be charged 12% p.a. What is the interest that should be charged to the partner if
the amount was drawn (a) in the beginning of the month , (b) in the middle of the
month and (c) at the end of the month.(NOV-2013)
12. X and Y are the partners in the firm sharing profits and losses equally. On 1 st ,
January 1995, their capital were Rs.20000 and Rs.10000 respectively. Interest on
capital is to be allowed at 5% p.a. from the profits prior to the division thereof.
The net profit for the year ending 31st December 1995, before allowing interest on
capital amounted to Rs.9500.
Give the journal entries and prepare profit & loss appropriation account as on 31st
December 1995, showing the division of profit between X and Y.(NOV-2013)
13. Prepare revaluation account from the following information given by the partners
A and B sharing profit and losses in the ratio of 3:2.(NOV-2012, APRIL-2013,
APRIL-2014)
* Increase the value of building Rs.10000
* Provision for doubtful debts be increased by Rs.2000
* Depreciate the value of furniture Rs.3000
* Investment of Rs.10000 was brought into the account.
* Decrease the value of stock Rs.5000.
PART – C ANSWERS
1. Write down the contents of partnership deed.
 The name of the firm
 Name and address of the partners
 Nature of the partnership business
 The period of the business if any
 The commencement of business
 Capital contributed by each partner
 Nature of the capital i.e., Fixed or Fluctuating
Answers/VER 1.0
 The proportion of sharing the profits or losses

 Amount and period of drawings
 Interest rate on capital, drawings
 Commission salary, allowance etc., payable to partners, if any
 Valuation method of goodwill and its treatments on admission, retirement or
death or partners.
 Procedure by which a partner’s account has to be settled and mode of
payment.
 Rights and duties of partners.
 Under what situation the firm stands dissolved
 The ways of keeping accounts, their audit etc.
2. Write the adjustments at the time of admission and accounting treatment for
death of partner.
At the time of admission
1. Adjustment in the profit sharing ratio
2. Adjustment for goodwill
3. Adjustment for revaluation of assets and liabilities
4. Adjustment of reserves and other accumulated profits
5. Adjustment for capital
At the time of retirement
1. Revaluation of Assets and Liabilities

2. Transfer all the reserves, profit and loss and accumulated losses to all the
partners capital account.
3. Share of goodwill
4. Capital to his credit
5. Disposal of a deceased partners share.
3. A and B are partners sharing profit in the ratio of 3:1. Their balance sheet stood as
under on31.12.95(Nov-2011,Nov-2014,APRIL-2010,APRIL-2011,APRIL-
2013,APRIL-2014)
Liabilities Rs. Assets Rs.
Capital : A Stock 10000
B 30000 50000 Prepaid Insurance 1000
Salary due 5000 Debtors
Creditors 20000 40000 Less: Provision 8000 7500
Cash 18500
Machinery 500 22000
Buildings 30000
Furniture 6000
95000 95000
Answers/VER 1.0
C is admitted as a new partner introducing capital of Rs.20000 for his 1/4th share in
future profit.
Following revaluations are made:
 Stock be depreciated by 5%
 Furniture be depreciated by 10%
 Building be revalued at Rs.45000
 Provision for bad and doubtful debts be increased to Rs.1000
Pass Journal entries , prepare revaluation A/c and balance sheet after admission.
4. A and B are partners sharing profit in the ratio of 3:1. Their balance sheet is as
follows(NOV-2010,NOV-2012)

Capital : A Buildings 100000
B 80000 120000 Plant 25000
Reserves 40000 Stock 40000
Creditors 40000 60000 Debtors 70000
Bills payable 20000 Cash 5000
240000 240000
C is admitted into partnership for 1/5th share of the business on the following terms:
 Buildings is revalued at Rs.120000
 Plant is depreciated to 80%
 Provision for bad debts is made at 5%
 Stock is revalued at Rs.30000
 C should introduced 50% of the adjusted capitals of both A and B .
Open various accounts and the new balance sheet after the admission of C.
5. A ,B and C are partners in the firm sharing profit and losses in the ratio of 1/3, ½,
1/6 respectively. Their balance sheet as on 31-12-90 was as follows

Capital : A Buildings 50000
B 30000 120000 Machinery 40000
C 40000 Furniture 10000
Reserves 40000 16000 Stock 25000
Creditors 25000 Debtors
Bills payable 25000 15000 Less: Provision 18000 17500
Cash 8500
500
151000 151000

Answers/VER 1.0
C retires on 31-12-90 subject to the following conditions:

 A goodwill account is created in the books for Rs.24000
 Machinery is depreciated to 10%
 Furniture is depreciated to 5%
 Stock to be depreciated by 15% and buildings to be appreciated by 10%.
 Reserve for doubtful debts to be raised to Rs.2000.
Prepare necessary ledger accounts and balance sheet of the new firm.
6. X, Y and Z were partners sharing profits equally. Z died on 31.3.91. The balance
sheet of the firm as at 31.12.90 was as under:
Capital : X 90000 Goodwill 40500
Y 75000 Buildings 90000
Z 63000 Investments 24000
Reserve Fund 18000 Debtors
Investment Less: Provision 54000 48600
fluctuation fund 6300 Stock 84000
Creditors 46800 Cash at bank 5400 12000
299100 299100
On the date of death it was found that;

 Debtors were all good
 Investments were valued at Rs.22500 and taken by X at the value
 Stocks were valued at Rs.75000
 Building was valued at Rs.171000
 A liability of workmen’s compensation for Rs.9000 was to be provided for.
 Goodwill was to be valued at one year’s purchase of average profits of last 5 years
 Z’ share of the profit upto the date of death was to be calculated on the basis of last
three year’s profit.
The profit of the last 5 years were as under:
1986 – Rs.34500; 1987 – Rs.37500; 1988 – Rs.24000; 1989 – Rs.30000; 1990 –
Rs.36000.
Prepare Revaluation A/c, Capital A/c and balance sheet of the remaining
partners.
-----

Answers/VER 1.0

UNIT-5–DISSOLUTION OF PARTNERSHIP
Question & Answers
PART – A ANSWERS
1. What is dissolution of partnership?(APRIL-2011)

The relation of partnership among different partners is changed without changing
the partnership firm.
2. What is meant by dissolution of firm? (NOV-2013,APRIL-2010)

It means to close the firms activities permanently. It means closing down the
undertaking or suspending permanently the activities of a partnership business.
3. What are the modes of dissolution?(NOV-2014,APRIL-2013)

 Compulsory dissolution
 Dissolution by agreement
 Dissolution by notice
 Dissolution by court
 Dissolution on happening of certain events.
4. What is meant by dissolution by agreement?( NOV -2010,APRIL-2010)

A Partnership firm can be dissolved at any time by mutual consent of all the
partners.
5. Write some circumstances firm dissolved by court.(APRIL-2010)

 When a partner becomes of unsound mind
 When a partner gets disabled permanently
6. What is meant by piecemeal distribution?(NOV-2014)

It has been assumed that all the assets are realized immediately on the date of
dissolution and all liabilities are paid off on the same date. But in actual practice, it
seldom happens, the assets are sold gradually to realize the best price for term.
7. What is meant by realization?(APRIL-2014)
The Realization Account is prepared to record the transactions relating to sale

and realization of assets and settlement of creditors. Any profit or loss arising out of
this process is shared by the partners in their profit sharing ratio.
Answers/VER 1.0
8. What is meant by insolvency of a partner?(or)Who is an insolvent partner?

(NOV-2010, NOV-2012,NOV-2014,APRIL-2011,APRIL-2014)
In partnership firm when the partners liabilities are more than his assets then
the partners becomes insolvent partner.
9. What is Garner vs Murray rule? (NOV-2011)

The loss arising by default of an insolvent partner is to be borne by the
solvent partners in proportion to their respective capitals instead of their Profit
sharing ratio.
10. Journal entry for closing of assets account in dissolution.(NOV-2013)
Realization a/c Dr.

To Assets a/c(individually)
Partners’ capital a/c Dr.
To Fictitious assets a/c
11. Journal entry for closing of liabilities account in dissolution.(APRIL-2013)
External liabilities a/c(Individually) Dr.

To Realization a/c
Realization a/c Dr.
To Bank a/c
12. What is fixed capital in dissolution?(APRIL-2010)

The original capitals form the ratio to distribute the loss caused by the default of
an insolvent partner.
13. What is dissolution?
Dissolution means discontinuance. It means closing down the undertaking or

suspending permanently the activities of a partnership business.
14. Write down the expansion of dissolution.
D – Stands for Death of a partner

I – Stands for Incapacity
S – Stands for Shares (transfer)
S – Stands for Serious misconduct of partnership
O – Stands for object of the firm (Completion)
L – Stands for Lunacy of a partner
U – Stands for Unexpected losses of a firm
T – Stands for Term of the expiry of a Partnership
Answers/VER 1.0
I – stands for Insolvency of all the partners

O – Stands for unlawful Object
N – Stands for Notice given by partners
.
15. What is meant by dissolution by notice?

Any partner can dissolve the partnership by giving notice in writing to all
other partners if the partnership is at will.
16. Write down the events happening that the partnership firm is dissolved.
 On the expiry of the period for which it was formed.
 On the death of a partner.
 On the completion of the venture agreed upon.
17. What is the order of payment is adopted, when assets are realized?
* Payment to creditors and other external liabilities
* Payment of partners’ loan rate ably.
* If any amount remains after making above payments, this is utilized in
payment of capitals to the partners.
18. What are the two methods making payment to partners in dissolution?
* Proportionate capital/surplus capital method
* Maximum loss method.
19. What are the accounts settled in dissolution?

(a) Payment of losses, (b) Distribution of assets, (c) payment of firm’s debts and
personal debts and (d) in settling the accounts of a firm after its dissolution.
20. What is meant by payment of liabilities through surrender of assets to creditors?

If any asset has been taken over or accepted by any creditor in full or
part payment of the amount due to him, then the agreed value of the asset will
be deducted from the amount due to the creditor and the payment will be nil, in
case of full settlement or payment will be restricted to the balance amounts.
21. Give journal entry for dissolution expenses.(APRIL-2014)

(a) When realization expenses are paid by the firm
Realization a/c Dr.
To Bank a/c
(b) When firm has agreed to pay partner a fixed amount towards realization
expenses irrespective of the actual realization expenses
Realization a/c Dr.
To Partners’ capital a/c
Answers/VER 1.0
PART – B ANSWERS
1. Journal entries for Undisclosed or unrecorded assets and liabilities. (NOV-

2010,NOV2014,APRIL-2013,APRIL-2014)
Such asset would never be transferred to realization account, but the entries
would be as under
 When sold for cash: Bank A/c Dr.
To Realisation A/c
 When taken over by a partner: Partner’s Capital A/c Dr.
To Realisation A/c
 No entry if taken over by a creditor
Similarly unrecorded liability will not be recorded in realisation A/c only the
payment made will be shown as :
 when paid in cash : Realisation a/c Dr.
To Bank A/c
 When taken over or paid by partner: Realisation A/c Dr.
To Partner’s capital A/c
2 . Explain Fixed and Fluctuating Capitals under

dissolution.(APRIL-2011)
In Garner vs. Murray the ratio of capital prior to dissolution formed the
basis for writing off the deficiencies of insolvent partner. In this connection it is
important to note when the capital accounts are fixed; the original capitals form the
ratio to distribute the loss caused by the default of an insolvent partner. But if the
capitals are fluctuating, first of all relevant adjustment regarding Reserve and
business profit and losses are made; capitals, thus but without any adjustment for
realisation loss or profit or taken over of an assets or liability by a partner form the
basis for distribution of loss due to the insolvency of a partners.
3. Discuss Garner vs. Murray Decision - Insolvency of a Partner.

Before the decision in Garner vs. Murray, any loss, arising from insolvency of
any partner, was borne by the solvent partners in the same proportion as they had
shared profits and losses of the business. But after the decision of justice Juice in the
case of Garner vs. Murray, the loss arising by default of an insolvent partner is to
be borne by the solvent partners in proportion to their respective capitals instead of
their Profit sharing ratio. It should be noted that this rule is applied only
where there is no agreement on this point.

Answers/VER 1.0
The Realisation account is prepared as usual whether this rule is to be applied or not.
The insolvent partner asked to pay whether he can, towards his debit balance. The final
balance in the solvent partners in the ratio of their capital as they stood before
dissolution. The application of ruling of Garner vs. Murray may be the excluded by
the expressed agreement among the partners.
4. Difference between Revaluation account and Realisation Account.
Revaluation account Realisation account

It is prepared on the admission , it is prepared on the Dissolution of
retirement or death of a partner. partnership firm.
To record necessary adjustments in It is prepared to find out profit or loss
the value of assets and liabilities . on the sale of assets and repayment of
liabilities.
The firm continues to function The firm comes to an end after
though with a changed relationship preparation of this account.
among the partners.
Difference between the book value The realized value of assets and the
and revised values of assets and actual payment of liabilities is recorded
liabilities is recorded is this account. in this account.
It is prepared many times during the It is prepared only once during the life
life time of a firm. time of a firm.
5. Difference between Dissolution of Partnership and Dissolution of firm.
Dissolution of partnership Dissolution of firm

Change in the exiting agreement Dissolution of partnership between all
between the partners. the partners of the firm.
The firm continues its business. The firm does not continue its business.
Books of accounts may not be closed. Books of accounts have to be closed.
Dissolution of partnership does not Dissolution of firm means the
mean the dissolution of firm. dissolution of partnership also.
It is voluntary nature. It is voluntary and compulsory nature.
6. Pass journal entries assuming the assets and liabilities already transferred to
realisation account: (APRIL-2014)
a) Unrecorded assets realized Rs.5000
b) Unrecorded liability paid Rs.3000
c) A liability taken over by partner ‘X’ Rs.8000

Answers/VER 1.0
Journal entries:
a) Cash A/c Dr. 5000-
To Realisation A/c 5000-
b) Realisation A/c Dr. 3000-
To Cash A/c 3000-
c) Realisation A/c Dr. 8000-
To X’s capital 8000-
7. Pass journal entries after various assets and third party liabilities transferred
to realisation A/c.(APRIL-2013)
a) Bank loan Rs.12000 is paid.
b) Stock worth Rs.6000 is taken over by partner B
c) Expenses on dissolution amounted to Rs.1500 and were paid by the partner
A.
d) A typewriter completely written off in the books of account was sold for
Rs.200.
Journal entries:
a) Realisation A/c Dr. 12000-
To Cash A/c 12000-
b) B’s capital A/c Dr. 6000-
c) Realisation A/c Dr. 1500-
To A’s capital 1500-
d) Cash A/c Dr. 200-
8. P, Q, R share the profits and losses in proportion of ½, ¼ and ¼ . On the date of

dissolution their balance sheet was as follows: (APRIL-2010, APRIL-2011, APRIL-
2013)
Creditors 14000 Sundry assets 40000

P’s capital 10000
Q’s capital 10000
R’s capital 6000
40000 40000

Answers/VER 1.0
The assets realized Rs.35500. Creditors were paid in full. Realisation expenses
amounted to Rs.1500. Close the books of the firm.
9. The following is the balance sheet of X, Y and Z on 31-3-94

Creditors 40000 Furniture 40000

X’s capital 50000 Plant & machinery 20000
Y’s capital 30000 Stock 40000
General reserve 30000 Sundry debtors 20000
Cash at bank 12000
Z’s capital 18000
150000 150000
Z is insolvent but his estate pays Rs.4000. It is decided to dissolve the partnership.
The assets realized as follows:
Sundry debtors: Rs.15000, Furniture: Rs.28000, Stock: Rs.32000, Plant &
Machinery: Rs.14000. The dissolution expenses amounted to Rs.5000.
Give accounts to close the books of the firm if the capitals are fluctuating.
10. A and B are in equal partnership. Their balance sheet stood as follows:
Creditors 3900 Plant & machinery 1475

A’s capital 600 Furniture 400
Sundry debtors 500
Stock 625
Cash at bank 300
B’s capital 1200
4500 4500
The assets were realized as follows:

Sundry debtors: Rs.500, Furniture: Rs.200, Stock: Rs.350, Plant & Machinery:
Rs.700.The cost of collecting and distributing the estate amounted to Rs.150.
A’s private estate is not sufficient even to pay his private liabilities, where as in B’s
private estate, there is a surplus of Rs.50.
Prepare Realisation A/c, Cash A/c, Creditors A/c, Capital A/c’s and the
Deficiency A/c of the partners.

Answers/VER 1.0
PART – C ANSWERS
1. Explain the various modes of dissolution.(NOV-2010,NOV -201, NOV-2013,APRIL-

2011,APRIL-2014)
1. Compulsory Dissolution: In certain cases in which a firm becomes illegal and stands
dissolved. The following are such cases
(i) If all the partners except one or all of them are declared insolvent.
(ii) When the number of partners exceeds 20
(iii) When a citizen of an enemy country becomes a partner
(iv) When the business of the firm is opposed to public interest
(v) If the business of the firm is opposed to public interest.
2. Dissolution by Agreement: A Partnership firm can be dissolved at any time by mutual
consent of all the partners.
3. Dissolution by notice: Any partner can dissolve the partnership by giving notice in
writing to all other partners if the partnership is at will.
4. Dissolution by court: A court can order the dissolution of the partnership firm in the
following cases:
(i) When a partner transfers/sells his share to a third party without the consent of
other partners
(ii) When a partner becomes of unsound mind
(iii) When a partner gets disabled permanently
(iv) When a partner is found guilty of misconduct
(v) When the firm cannot be carried on except with losses.
5. Dissolution on happening of certain events: A firm may also get dissolved in the
following cases.
(i) On the expiry of the period for which it was formed
(ii) On the death of a partner
(iii) On the completion of the venture agreed upon.
2. Journal Entries for dissolution of partnership firm .(NOV-2011,NOV-2013)

1. For transferring the assets
Realization a/c Dr.

To Assets a/c(individually)
To Fictitious assets a/c
2. For transferring the liabilities
External liabilities a/c(Individually) Dr.

To Realization a/c

Answers/VER 1.0
3. For sale of assets

Bank a/c(realized price) Dr.
To Realization a/c
4. For an asset taken over by a partner
Partner’s capital a/c Dr.
To Realization a/c(Agreed price)
5. For payment to creditors
Realization a/c Dr.

To Bank a/c
6. Settlement with the creditors through transfer of asset
Realization a/c Dr.
To Bank a/c
Whenever a creditor takes over an asset, there may be two situations :
(a) When a creditor accepts an asset whose value is more than the amount due to him,
he will pay cash. It is recorded as :
Bank a/c Dr.
To Realization a/c
(b) When a creditor accepts an asset as full and final settlement, no journal entry is
recorded.
7. Expenses of realization
(a) When realization expenses are paid by the firm
Realization a/c Dr.
To Bank a/c
(b) When firm has agreed to pay partner a fixed amount towards realization expenses
irrespective of the actual realization expenses
Realization a/c Dr.
(c) When the actual expenses are paid by the firm on behalf of a partner, the following
entry will be recorded :
To Bank a/c
(d) However, if a partner himself pays and agreed not to get them reimbursed, no

Answers/VER 1.0
journal entry is recorded.

(e) When the partner agrees to pay the expenses on behalf of the firm, the entry to be
recorded :
Realization a/c Dr.
8. When liabilities are paid off
Realization a/c Dr.
To Bank a/c
9. When partner discharges a liability
The liability account is transferred from realization account to partner’s capital account
by recording the following entry :
Realization a/c Dr.
10. For realization of any unrecorded assets
Bank a/c Dr.
To Realization a/c
11. Unrecorded asset taken over by a partner
To Realization a/c
12. For settlement of any unrecorded liability

Dr
Realization a/c .
To Bank a/c
13. Unrecorded liability taken over by a partner
Dr
Realization a/c .
To Partners’ Capital a/c
14. When the profit (loss) on realization is transferred to partners’ capital account in their
respective profit sharing ratio :
(a) In case of profit on realization
Realization a/c Dr.
To Partners’ Capitals a/c(individually)
(b) In case of loss on realization
Partners’ Capitals a/c (individually) Dr.
To Realization a/c

Answers/VER 1.0
15. For transferring accumulated profits and reserve

All accumulated profits and reserves are transferred to the partners’ capital account in
their respective profit sharing ratio :
Accumulated profit/reserves Dr.
To Partners’ capitals a/c (Individually)
16. Transfer of fictitious assets
All accumulated losses and fictitious assets are debited to the partners’ capital accounts
in their profit sharing ratio :
Partners’ capitals a/c (Individually) Dr.
To Accumulated losses/Fictitious Assets a/c
17. Payment of loans
Any loans due to partners are paid off :
Partner’s loan a/c Dr.
To Bank a/c
18. Settlement of capital accounts

(a) If the partner’s capital account shows debit balance, he is to bring in the necessary
cash
Bank a/c Dr.
(b) In case of partners whose accounts show credit balance, the same is paid off :
Partners’ capitals a/c Dr.
To Bank a/c
3. R, S and M are partners sharing profits and losses as 2:2:1. Their balance sheet as at
30.6.91 was as follows: (NOV-2012)
Creditors 4000 Cash at bank 5000

R’s capital 10000 Sundry debtors 4000
S’s capital 4000 Stock 5000
M’s capital 2000 Furniture 2000
Reserve Fund 5000 Plant & machinery 9000
25000 25000

Answers/VER 1.0
They decide to dissolve the business. The following are the amounts realized.
Machinery Rs.8500, Furniture Rs.1500, Stock Rs.7000, Debtors Rs.3700. Creditors
allowed discount of 2% and R agreed to bear all realisation expenses. For this service,
R is paid Rs.120. Actual expenses amounted to Rs.900 which was withdrawn by him
from the firm. There was unrecorded asset of Rs.500 which was taken over by S at
Rs.400. Pass journal entries and prepare Realisation A/c, Capital A/c’s and Bank
A/c.
4. X, Y and Z sharing profits in the proportion of 3:2:1 decided to dissolve partnership

on 31.12.90. Their balance sheet on that date was as under:
X’s capital 30000 Leasehold premises 12500

Y’s capital 10000 Goodwill 20000
Z’s capital 10000 Machinery 30520
Bank loan 11500 Stock 7550
Leasehold redemption fund 6000 Investments 6330
Life policy fund 12000 Joint life policy 12000
Creditors 16200 Sundry debtors 5800
Less: Reserve 500 5300
Cash at bank 1500
95700 95700
A joint life policy is surrendered for Rs.10000. The investments are taken over by Y
for Rs.8000. X agreed to discharges the bank loan. The remaining assets are sold for
Rs.86700. The expenses of realisation amount to Rs.850.
Show the necessary ledger accounts including the accounts of the partners.
5. D, E, F and G are partners sharing 4:3:2:1. Their position statement was as follows:
D’s capital 90000 Cash at bank 4500

E’s capital 60000 Machinery 132000
Creditors 120000 Stock 60000
Bank loan 60000 Sundry debtors 120000
F’s capital 10500
G’s capital 3000
330000 330000
The firm is dissolved. All assets realised Rs.246000. The creditors and bank loan
were paid Rs.177000 in full satisfaction. Expenses on dissolution are Rs.1800. G
became insolvent and F paid only Rs.9000.Prepare ledger accounts of the firm.
----------
Answers/VER 1.0

BRANCH ACCOUNTING INSIGHTS

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ACADEMIC YEAR: 2016 – 2017 REGULATION CBCS - 2012

UCP 21 – FINANCIAL ACCOUNTING

2. What is meant by Invoice price method? (April-2011)

4. What is meant by Independent branch ? (April-2014)

5. What are the types of home branch?

6. What is meant by Dependent branch? (Nov – 2011, Nov – 2013, April-2010)

7. What is meant by Debtors system? ( Nov-2010)

8. What is meant by Stock and Debtors system?

9. What is meant by Wholesale Branch System?( Nov – 2012)

10. What is meant by Final account system?

11. What is meant by Foreign Branch?

12. Give journal entries for good sent to branch(April-2013)

14. Give journal entries for profit arises at the branch(April-2013)

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

18. Give the journal entry for shortage of stock

19. What is meant by Inter-branch transactions ?

20. What is meant by goods in transit ?

21. What is meant by cash in transit ?

22. What is meant by branch adjustment account?

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

2. Distinction between wholesale and retail profit at branch.

3. Write down the features of independent branch. ()

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

4. Write down the features of dependent branch. (Nov – 2013)

5. Journal entries passed in the books of head office

(i) Branch a/c Dr. Invoice value of goods sent.

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

6.Layal company opened a branch at madras on 1.1.89. From the

IN THE BOOKS OF HEAD OFFICE

To General P&L A/c 5340

Madras branch A/c for 1989

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

Madurai branch A/c for 1994

To General P&L A/c 10400

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

To Other expenses 2000

To Manager’s commission 150

To Net profit –transfer to 2850

To General P&L A/c 34640

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

Trading , Profit & Loss A/c

315000 96000 315000 96000

115000 16000 115000 16000

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

Sr. Basis Independent Branch Dependent Branch

1. Accounting System Independent branch keeps The accounts of branches are

2002 To Goods sent to 40,000 2002 By Bank (Remittance)

Goods sent to branch A/c

2002 To Shimla Branch A/c 8,000 2002 By 40,000

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

Branch Debtors A/c

2002 16,000 2002 14,500

Branch Stock A/c

2002 To Shimla 2002 By Balance c/d 3,200

Branch Stock Reserve A/c

2002 To Balance c/d 640 2002 By Shimla 640

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1

Discount allowed 400

Branch Adjustment A/c

2002 1,580 2002 By Stock Reserve 640

Goods sent to branch A/c

2002 To br. Adjustment 2002 By Br. 75,000

RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1