2018 H.S. 2nd Year ACCOUNTANCY Solved Question Paper


1. (a) Fill in the blanks with appropriate word:1x4= 4
(i) The interest due to the retiring partner is transferred to his ___ account in case it is not paid immediately.
Ans: Loan

(ii) A partner acts as _____ of the firm.
Ans: Agent

(iii) In case of fixed capital, a partner’s capital account always shows a ______ balance.
Ans: Credit

(iv). Unrecorded assets when realized are credited to _____ account.
Ans: Realisation account

(b) Choose the correct alternative: 1x2=2
(i) Balance sheet shows:
a. Financial position of a company
b. Profit and loss of a company
c. Cash flow of a company
d. All of the above
Ans: Financial position of a company

(ii) Financial statements are:
a. Detailed reports of the recorded facts.                            
b. Detailed reports of the cash transactions only.
c. Summarized reports of recorded facts.
d. Summarized reports of the financial institutions only.
Ans:  Summarized reports of recorded facts

(c) State whether the following statements are True or False. 1x2=2
(i) Interest on partners capital is credited to partners drawings account.
Ans: False

(ii) Life membership fee is a revenue receipt.
Ans: False

2. State any two features of a not-for-profit organization. 2
Ans:  Following are the features of a not-for-profit organization:
a. Voluntary association: It is a voluntary association of some persons.

b. Entity: Such organization has a separate entity other than its members.

c. Non-profit motive: Such organization carries on its activity without any profit motive.

3. What is a common size statement? 2
Ans: Common size statement is a statement where the items of income statement and balance sheet of one or more years are expressed in terms of percentage of a common base. Each item shows the relationship with the base item. 

There are two types of common size statement:-
i. Common size income statement
ii. Common size balance sheet.

4. Mention any two distinctions between shares and debenture. 2
Ans: Following are the distinctions between shares and debenture:
5. What do you mean by Forfeiture of shares? 2
Ans: Forfeiture of shares means when a shareholder fail to pay calls on the day fixed for payment thereof and fails to pay even after his attention is drawn to it by registered notice, the Board of directors pass a resolution to the effect that such shares be forfeited. Forfeiture of shares brings about compulsory termination of membership and the company takes the shares from the defaulting member by way of penalty of allotment and /or call money.

6. What do you mean by comparative statement? 2
Ans: The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods.

There are two types of common size statement:
i. Comparative income statement.
ii. Comparative balance sheet.

7. Explain the meaning of cash flow from financing activities. 3
Ans: Cash flows from financing activities: Financing activities are activities that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise. Cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds to the enterprise.
7. From the following information, calculate stock Turnover ratio. 3
8. Mention any three objectives of financial statement analysis. 3
Ans: Followings are the objectives of financial statement analysis:
(i)  Assessing the creditability: - The business may have to offer credit to prospective dealers and buyers therefore it is essential to analysis their creditworthiness.

(ii)  Assessing the profitability: - Analysing of financial statement helps in getting the view of profitability of business. The profits can be matched with sales, capital employed, total assets etc.

(iii)  Progress of the business: - It is very essential to measure the progress and growth of business.

Briefly explain the nature of financial statements. 3
Ans: Following are the nature of financial statements:
a. Financial statements are prepared as per accounting conventions and as per generally accepted accounting principles.

b. Financial statements are influenced by the personal judgements of the policy makers.

c. Financial statements are based on recorded facts.

d. Financial statements are prepared usually at the end of an accounting period.

e. Financial statements are summarized reports.

9. Mention any three limitations of financial statements. 3
Ans: Followings are the limitations of financial statements:
1. Financial statements are historical in nature.
2. Financial statements are only interim reports.
3. Financial statements are influenced by accounting concepts etc.
4. Financial statements are influenced by personal judgments.
5. Financial statements do not make use of standardized terminology.


Explain the meaning of Ratio Analysis.  3
Ans: Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Ratio analysis is not an end in itself. It is only a means of better understanding of financial strength and weakness of a firm.

Classification of ratios:
(i) Liquidity ratios
(ii) Solvency ratios
(iii) Efficiency ratios
(iv) Profitability ratios.

10. Mention any three distinctions between Fund based Accounting and Non-Fund based Accounting. 3
Ans: Following are the distinctions between Fund based Accounting and Non-Fund based Accounting:

What do you mean by Income and Expenditure Account? 3
Ans: Income and Expenditure account  is a nominal account which is usually prepared by a non trading- organization in lieu of profit and loss account . It records revenue expenditure on debit side and revenue income on the credit side. The balancing figure of this account represents either surplus or deficit.

Following are the features of income and expenditure account:-
(a) It is a nominal account.

(b) It is prepared on accrual basis of accounting.

(c) It is a substitute of profit and loss account prepared by a non-trading organization at the end of an 
accounting period to find out surplus or deficits.

(d) It includes only revenue nature items i.e., capital nature items are ignored.

(e) It records revenue expenditure on the debit side and revenue income on the credit side.

11. Amar and Bahadur are partners of a firm sharing profit in the ratio of 3:2. They admit Mery as anew parter for 1/4 the share in future profit. The new profit sharing ratio between Amar and Bahadur is agreed to be 2:1. Calculate their sacrificing ratio. 3

Ranjana, Sadhana and kamona are partners sharing profits in the ratio of 4:3:2. Rajana retires; Sadhana and Kamona agree to share future profits in the ratio of 5:3. Calculate the gaining ratio.  3
12.From the following Receipts and Payment Account for the year ended 31:03:2017 and other details of KAZIRANGA SPORTING CLUB, prepare an Income and Expenditure account for the year ended 3103.2017.  5
Additional Information:
(i) Outstanding salaries ₹2000/-
(ii) Prepaid rent = ₹1000/-

Solution :

Explain the steps in preparation of Income and Expenditure Account.  5
Ans. Following are the procedure of preparing an income and expenditure account from a given receipts and payments account:-

(a) Leave the opening and closing balances of cash and bank balances given in the receipts and payments account.

(b) Take only revenue nature items of income and expenditure and ignore all capital nature items.

(c) Make all adjustments for outstanding and prepaid expenses, provision for depreciation etc.

(d) Take only the items related to current year .i.e. items relating to the previous year and next year are to be ignored.

13.Charls Ltd. Made a profit of ₹1,00,000/- after charging depreciation of ₹20,000/- on assets and transfer to general reserve of ₹30,000/-. The goodwill written off was ₹7,000/- and gain on sale of machinery was ₹3,000. Other information available to you (changes in the value of current assets and current liabilities) are: Debtors showed an income of ₹6,000/-; Creditors an increase of ₹1,000/-; Prepaid expenses an increase of 200/-; Bills receivable a decrease of ₹3,000/- bills payable a decrease of ₹4,000/- and outstanding expenses a decrease of 2,000/-. Ascertain cash flows from operating activities.  5


Explain the terms:
(i) Cash Equivalents
(ii) Cash inflows   (3+2 = 5)

Ans: (i) Cash Equivalents: Cash equivalents: Cash equivalents are short term, highly liquid investments that are readily convertible into cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

(ii) Cash flows: cash flows are inflows and outflows of cash and cash equivalents. Flow f cash is said to have taken place when any transaction makes changes in the amount of cash and cash equivalents available before happening of the transaction. If the effect of transaction results in the increase of cash and its equivalents, it is called inflow (source) and if the effect of transaction results in the decrease of total cash, it is known as outflow (use) of cash.  

14. Mention any five objectives of Ratio analysis.  5
Ans: Following are the limitations of ratio analysis:
a. Lack of adequate standards: There are no well accepted standards or rules for all ratios which can be accepted as norms. It renders interpretation of the ratios difficult.

b. Change of accounting procedure: Change in accounting procedure by a firm often makes ratio analysis misleading.

c. Price level changes: Changes in price levels often make comparison of figures for various years difficult.

d. Inherent limitations of accounting: Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessarily true indicators of the future.

e. Personal Bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratio in different way.


Calculate current assets of a company from the following information:  5
15. Shaym, Gagan an Ram are partners sharing profits in the ratio of 2:2:1. On 31.3.2017, their Balance Sheet was as follows:  5
Gagan retired on that date and Shaym and Ram agreed to share future profits on the ratio of 5:3.
Stock, machinery and Building were revalued at 20,000, 15,000/- and ₹45,000/-.
Prepare Revaluation A/c and Partners Capital A/c.  5

Prepare the new format of the Balance sheet of a company with major headings only.  5

16. Mohit, Shohan and Rahul are parties sharing profits in the ratio of 2:2:1. On 31st March, 2017, their balance Sheet was as follows:  5
Sohan died on June 30, 2017. It was agreed between the remaining partners and is executors that:
(i) Goodwill will be valued at ₹50,000/-
(ii) Interest on Capital to be provided at 10% P.A.
(iii) Profit for the year 2017-18 be taken as having accrued at the same ratio as that of the previous year which was ₹40,000/-
(iv) The amount due to Shohan shall be transformed to his Executors loan account.
Prepare Shohan’s capital Account as on the date of his death.  5

What is partnership deed? Mention any three distinctions between Fixed and Fluctuating capital accounts of partners.   5
Ans: Partnership comes into existence on account of an agreement. This agreement may be in writing or oral. This written document containing the various terms and conditions among the partners is known as partnership deed.  

According to Kohler, “Partnership deed is an instrument drafted and signed by partners for defining the various rules and regulations of the firm”.

Following are the differences between Fixed capital and Fluctuating capital:

17. Sonu and Ashu were partners sharing profit in the ratio of 3:1. Their Balance Sheet as on 31.03/2017 was as follows:
The firm was dissolved on the above date. The assets were realized at ₹50,000. Creditors were paid at a discount of 20%. Sonu agreed to pay off the loan. Realisation expenses were 2000. Prepaid Realisation A/c. Partners Capital A/c and Bank A/c .  5



What do you mean by Dissolution of partnership? State three grounds for Dissolution of partnership.   5
Ans: Dissolution of partnership: Dissolution of partnership means a change in the existing relationship of partners through reconstitution of the firm without effecting the entity of the firm. The dissolution of partnership does not involve the complete breakdown of relationship among the partners but it merely means a change in the economic relationship.

As per section 40, 41, 42, 43, 44 of the Indian Partnership Act, 1932 which states that there are five modes of dissolution of partnership firm. They are as follows:

a. Dissolution by agreement (Section 40)
b. Compulsory dissolution (Section 41)
c. Dissolution on the happening of certain contingencies (Section 42)
d. Dissolution by notice of partnership at will (Section 43)
e. Dissolution by the court (Section 44)

a. Dissolution by agreement: A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

b. Compulsory dissolution:
A firm is compulsory dissolved in the following cases:
(i) When all the partners, except one become insolvent.
(ii) When all the partners become insolvent
(iii) When the business becomes illegal, and
(iv) When the number of partners exceed twenty in case of an ordinary business or ten in case of a banking business.

c. Dissolution on the happening of certain contingencies:
A firm may be dissolved on the happening of any one the following contingencies
(i) By the expiry of the term or duration of the firm.
(ii) By the completion of the venture for which firm was constituted.
(iii) By the death of a partner, and
(iv) By the adjudication of a partner as insolvent.

18. Explain the term Over-subscription and Under-subscription. (2.5+2.5= 5)
Ans. Under- subscription: When a company receives application less than the shares company has offered for subscription than it is called under-subscription of shares. For example if a company invites application for 10000 shares and applications are received from public for 8000 shares, the issue is said to be under-subscribed.

Over-subscription: When company receives application more than the shares company has offered for subscription then it is called over-subscription. For example if a company invites application for 10000 shares and applications are received from public for 12000 shares then the issue is said to be over-subscribed.


What is preference share? Mention the different types of preference shares.   5
Ans. Shares which enjoy the preferential rights as to dividend and repayment of capital in the event of winding up of the company over the equity shares are called Preference shares. The holder of preference shares will get a fixed rate of dividend.

Following are the different types of Preference shares:
A. On the basis of dividend rights:
a. Cumulative preference share: They have the right to receive arrears of dividend before the dividend is paid to the equity shareholders.

b. Non-Cumulative preference share: They do not have the right to receive arrears of dividend before the dividend is paid to the equity shareholders.

B. On the basis of convertibility: 
a. Convertible preference share: They have the right to converted into equity shares.
b. Non convertible preference share: They do not have the right to converted into equity shares.

C. On the basis of refund of capital:
a. Redeemable preference shares: Redeemable preference shares are those shares which are redeemable after the expiry of specific period of time.

b. Irredeemable preference shares: Irredeemable preference shares are those shares which are not redeemed by the company except in case of winding up of company.

D. On the basis of participation:
a. Participating preference shares: They have the rights to participate in remaining profits after payment of dividends to the equity shareholders.

b. Non participating preference shares: They do not have the rights to participate in remaining profits after payment of dividends to the equity shareholders.

19. Following is the Trial Balance of Ram and Shyam as on 31-03-2017.  8
Prepare a Profit & Loss A/c and the Profit & Loss Appropriation A/c of the firm for the year ended31st March, 2017 and a Balance Sheet as on that date, after taking into consideration the following additional information:  8
i. Outstanding Salaries ₹3,000/-
ii. Ram will get a Commission of ₹10,000/- for the year.

20. Honda Ltd. issued 10,000 equity shares of 100 each payable as follows:
₹20/- on application
₹30/- on allotment
₹20/- on first call
₹30/- on second and final call
10,000 shares were applied for the allotted. All money due was received with the exception of both the calls on 300 shares held by Supriya. These shares were forfeited. Give necessary journal entries. 8

Write short notes on:
(i) Re-issue of forfeited shares
(ii) Calls in arrear
(iii) Calls in advance
(iv) Reserve capital    (4x2= 8)

Ans: (i) Re-issue of forfeited shares: As per clause 31(1) of the table ‘F’ to the companies Act, 2012, forfeited share may be sold or otherwise disposed off on such manner as the board thinks fit.

     Clause 32(1) of the table ‘F’ gives absolute power to the board of directors regarding the reissue of forfeited shares. They have the right to reissue either whole or part of the shares forfeited. They have the authority to fix the terms and price of reissue of such shares. Hence, they can re-issue the forfeited shares at par or at a premium or at a discount.

(ii) Calls in arrear: Sometimes some shareholders do not pay their dues on allotment and or on calls within the fixed period of time. The amount which is not paid by shareholders is called calls-in-arrears. The company can charge interest @ 10% p.a. for the period for which such amount remained in arrear from the shareholders.

(iii) Calls in advance: Sometimes some shareholder may pay a portion or whole of the amount due in shares before the amount is called up. Such amount paid in advance against call is known as calls-in-advance. A company pay interest on such amount received in advance @ 12% p.a. Interest on calls-in-advance is a liability against the profits of the company.

(iv) Reserve capital: Reserve capital is that portion of the subscribed capital which not been called up, and the company has, by special resolution, resolved that it can be called up only in the event of the winding up of the company.

21. X Ltd. Issued 5,000, 16% debentures of ₹100/- each at a discount of 5% repayable after 5 years at a premium of 5%. You are required to pass journal entries and show the “Loss on Issue of Debentures Account” over the period of five years. 8


What is meant by debenture? Explain the different types of debenture. 8

Ans: Debenture is an instrument in writing given by a company acknowledging the liability for the total amount received as a result of issue of debentures and agreeing thereby to pay the money raised after the expiry of the stipulated period at a certain rate of interest per annum.

Following are the different types of debentures:
A. On the basis of securities:
a. Secured or Mortgaged debenture: - When debentures are secured by the assets of the company they are called Secured or Mortgaged debenture.

b. Naked or Simple debenture:- When no security is given against debenture they are called Naked or Simple debenture. 

B. On the basis of Redemption:
a. Redeemable debenture: - When debentures are repayable after a specified period they are called redeemable debentures.

b. Irredeemable debenture: - When debentures are repayable only when the company goes into liquidation they are called irredeemable debenture.

C. On the basis of Registration:
a. Registered debenture: - Registered debenture is payable to a person whose name is appears in the register of debenture holders.

b. Bearer Debenture: - A bearer debenture is one which is payable to the bearer of the debentures.

D. On the basis of convertibility:
a. Convertible debenture: - Convertible debentures are those debentures which can be converted into shares.

b. Non-convertible debenture: - Non-convertible debentures are those debentures which cannot be converted into shares.

22. A and B are partners sharing profits in the ratio of 3:2. Their Balance Sheet as on 31st March, 2017 was as follows:  8

C was admitted as new partner on the following terms and conditions:
1) C will bring ₹15,000/- for capital and ₹5,000 for his share of Goodwill for 1/6th share in the future profits.

2) The value of stock to be reduced by ₹2,000/- and that of machinery be increased by ₹8,000/-

3) The value of furniture to be fixed at ₹9,000/-
 Pass journal entries in the books of the firm and prepare the Balance Sheet of the new firm. 

Give journal entries on dissolution of a Partnership firm in respect of the following: 1x8=8
a) For transfer of assets.
b) For sale of assets.
c) If any partner takes over any asset.
d) For payment of Realisation Expenses.
f) For realization of unrecorded assets.
g) For transfer of the balance of General Reserve Account.
h) For payment of Partners’ Loan. 8