2019 H.S. 2nd Year ACCOUNTANCY Solved Question Paper

Solved Question Paper 

1. (a) Fill in the blanks with appropriate word:1x4= 4
(i). The liability of every shareholder of a company is ___.
Ans: Limited.

(ii). Outstanding subscription is shown on the ___ side of the Balance sheet.
Ans: Assets.

(iii). If a partner takes over a liability of the firm, that partner capital account is ___.
Ans: Credit.

(iv). Current ratio is the relationship between ___ assets and current liabilities.
Ans: Current.

(b) Choose the correct alternative: 1x2=2
(i). Annual report is issued by a company to its:
    a. Director
    b. Auditors
    c. Shareholders               
    d. Management
   Ans: Shareholders.

(ii). Financial statements of a company include:
    a. Only cash flow statement                      
    b. Only profit and loss Account
    c. Only Balance sheet
    d. All of the above
    Ans:  All of the above.

(c) State whether the following statements are True or False. 1x2=2
(i) The deceased partner is entitled to a share of profits for the period up to his death.
Ans: True

(ii) Profit or loss on revaluation of assets and liabilities is distributed among old partners in sacrificing ratio.
Ans: False

2. Give two distinctions between a not-for-profit organization and a trading organization. 2
Ans: Following are the distinctions between trading organization and a not-for-profit organization:
3. A and B are two partners sharing profits and losses in the ratio of 3:2. C is a admitted as a new partner for 3/10
th share which he acquires 2/10 th from A and 1/10 th from B. Calculate new profit sharing ratio. 2                                                          


Give two conditions under which a partnership firm is dissolved.
Ans: Following are the conditions under which a partnership firm is dissolved:
a. Dissolution by agreement (Section 40)
b. Compulsory dissolution (Section 41)

4. Mention any two features of a debenture. 2
Ans: Following are the characteristics of Debentures:
a. It is an acknowledgement of debt or loan taken by a company.
b. A debenture is generally redeemable.
c. Its face value is pre- determined.

5. What is the meaning of cash flow from investing activities? 2
Ans: Cash flow from investing activities: Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.

6. What is meant by super profit in relation to valuation of goodwill? 2
Ans: Super profit is the excess of actual profit over the normal profit of a firm. Under this method, the value of goodwill = super profit x number of year’s purchase or number of years the super profit is expected. Super profit is calculated by deducting the normal profit from average profit.

7. Mention three objectives of preparing financial statements. 3
Ans: Following are the objectives of financial statements:
  • To provide reliable financial information about economic resources and obligations of a business firm.
  • To provide other needed information about changes in such economic resources or obligation.
  • To provide reliable information about changes in net resources arising out of business activities.

8. Calculate liquid ratio from the following information:  3
Stock                                   Rs. 50000
Debtor’s                              Rs. 80000
Bills Receivable                Rs. 10000
Advance tax                      Rs. 4000
Cash                                     Rs. 30000
Creditor’s                            Rs. 60000
Bills Payable                      Rs. 40000
Machinery                          Rs. 50000
Bank Overdraft                 Rs. 4000
Debenture                          Rs. 70000


What are comparative statements? Mention two objectives of preparing comparative statements.
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.

Objectives of Comparative statements:
a. Comparative statements help to identify the size and direction of changes in financial position of an enterprise.

b. Comparative statements help to ascertain weakness and strength about liquidity, profitability and solvency of an enterprise.

c. Comparative statements help the management for making forecasts for the future.

9.What are contingent liabilities? Mention any two items. 3
Ans: Contingent liabilities are those liabilities which may occur or may not be occur. These liabilities are shown in the balance sheet only in the form of note; their amount is not included in the total of balance sheet. These liabilities refer to the claims which are uncertain to arise.

Following are the examples of contingent liabilities:
a. Claim against the company not yet acknowledged as debt.
b. Arrears of cumulative dividend.
c. Liabilities for bills discounted.

Explain the average profit method of valuation of goodwill. 3
Ans: The average profit of given number of past years multiplied by an agreed number is considered to be the value of goodwill.

Steps for calculating the value of goodwill under average profit method:
(i) Calculate the total profits of the agreed number of years.
(ii) Calculate the average total profit divided by number of years.
(iii) Calculate the value of goodwill = average profit x number of years purchase.

10. Calculate amount of medicines consumed to be shown in the Income and Expenditure A/c for the year ended 31.03.2018
Amount paid for medicines during 2017-2018 ₹10800. 3                                                                       

Mention any three distinctions between Receipts and Payments Account and Income and Expenditure Account.
Ans: Following are the difference between Receipts &  Payments account and Incomes & Expenditure account are:-
11. Mention any three limitations of Financial statements. 3
Ans: Following are the limitations of financial statements:
a. Financial statements are historical in nature.
b. Financial statements are only interim reports.
c. Financial statements are influenced by accounting concepts etc.
d. Financial statements are influenced by personal judgments

Write three objectives of preparing Realization Account?
Ans: Following are the objectives of preparing Realisation Account:
a. It is prepared to close the books of account at the time of dissolution of firm.

b. It is prepared to record sale of assets and payment of liabilities and expenses.

c. It is prepared to find out profit or loss on realisation of assets and liabilities.

12. North East club had a cash balance of Rs. 20000 and Bank balance of Rs. 35000 respectively on 01.04.2017. From the following details prepare a Receipts and Payments account for the year ended 31.03.2018 5

Subscription received:                                                                 
2016-17                        30000   
2017-18                        225000
2018-19                        10000                   

Donation received for Building   60000
Entrance fees                                    23000
Life Membership Fee                      20,000
Printing and Stationery                 38,750
Lighting Expenses                           26,250
Rent and Taxes Paid                       17,000
Telephone Charges                          2,600
Postage                                                2,000
Salaries                                                88,000
Insurance                                           15,000
Interest Received                             18,000
Locker Rent Received                      42,000
Purchase of Furniture                     2,00,000
Cash in hand as on 31-03-2018      23,400


Explain in brief the treatment of the following items in preparation of Income and Expenditure Account:
i. Subscription
ii. Life Membership Fee
iii. General Donation
iv. Specific Donation
v. Legacy
Ans: i. Subscription: The amount paid by the members of the organization to retain their membership alive is known as subscription. Such amount may be payable periodically i.e. monthly or yearly. Subscription is the major source of revenue for the organization. The amount of subscription is credited to the income and expenditure account.

ii. Life Membership Fee: life membership fee is the amount paid by the members of the organization for life time in lump-sum, at the time of admission or during subsequent years. Members pay the life membership fees only once in their life time. It is treated as a capital receipts and shown on the liabilities side of balance sheet. It is not included in Income and Expenditure account.

iii. General Donation: The donations which are received not for a specific purpose is called general donation. It is treated as a revenue receipts and shown in the credit side of Income and Expenditure account.

iv. Specific Donation: It is a donation received for a specific purpose. It is treated as capital receipt and not shown on Income and Expenditure account.

v. Legacy: Legacy is the amount received by a non trading organization on account of will of a deceased person. It is a capital nature item and added with capital fund on the liabilities side of balance sheet.

13.What is Cash flow statement? Explain its three limitations. 5
Ans: Cash flow statement is a statement which describes the inflows and outflows of cash and cash equivalents in an enterprise during a specified period of time. A cash flow statement summarises the causes of changes in cash position of a business enterprise between dates of two balance sheets.
Following are the limitations of Cash flow statement:

a. Cash flow statement is based on cash basis of accounting; it ignores the basic accounting concept of accrual basis.

b. Cash flow statement is not suitable for judging the profitability of a firm as non-cash charges are ignored while calculating cash flows from operating activities.

c. Cash flow statement is not a substitute of an income statement; it is complementary to an income statement. Net cash flow does not mean the net income of a firm.


From the following information calculate the cash from operating activities:

14. A business has a current ratio of 3:1 and a quick ratio of 1.2:1. If the Working Capital is ₹1,80,000, calculate current assets and stock. 5


What are profitability ratios? What is the significance of gross profit and operating profit ratio?
Ans: The main objective of business is to earn profit. Profitability ratio measures the working results of the units during the accounting periods. Profits are compared with sales level and investment level.
Following ratios are known as profitability ratios:
a. Gross profit ratio
b. Operating ratio.
c. Operating profit ratio.
d. Net profit ratio.

Following is the significance of gross profit and operating profit ratio:
Gross profit ratio: Gross profit ratio measures the relationship of gross profit to net sales and is usually represented as a percentage. Gross profit ratio provides guidelines to the concern whether it is earning sufficient profit to cover indirect expenses and is able to cover its direct expenses.

Operating profit ratio: Operating profit ratio shows the relationship between operating profit and net sales. Operating profit ratio is calculated by dividing operating profit by sales. Operating profit ratio indicates the earning capacity of the organisation on the basis of its business operations.

15. A, B and C were partners sharing profits in the ratio of 3:2:1 respectively. Balance Sheet of the firm as at 31st March, 2017 stood as follows: 5

“B” retired on the above date on the following terms:
(i) Building to be appreciated by ₹8,800.
(ii) Provision for doubtful debts be made @5% on debtors.
(iii) Goodwill of the firm be valued at ₹9,000.
Pass necessary Journal Entries.


What is share forfeiture? State the procedure of forfeiture of shares.  
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.

A company must follow the following procedure for forfeiture of share:

Notice before Forfeiture: When a shareholder fails to pay any calls, the company may forfeit the shares. Before the shares can be forfeited the company may serve a notice on the defaulting member requiring payment of the call. The notice must give not less than fourteen days time from the date of service of notice for the payment of the amount due. The notice must also state that in the event of non-payment of the amount due within the period mentioned in the notice the shares in respect of which call was made will be liable to forfeit.

Non-compliance of Notice: If the shareholder fails to comply with the requirement of this notice, the directors may pass a resolution effecting the forfeiture of shares.
Effect of Forfeiture: The effect of forfeiture of shares is that the defaulting shareholder losses all his rights in shares and ceases to be a member. The name of shareholder is removed from the register of members and the amount already paid by him is forfeited.

16. What is partnership deed? Mention its four principle clauses.  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”.

Followings are the clauses/contents of partnership deed:
a. Name of the firm: - The name of the firm must not be identical to the name of existing firm.
b. Place of business: - The address of the firm where business is to be carried out must be given.
c. Nature of business: - Partners must decide what type business they would do collectively.
d. Duration of partnership: - The period of partnership must be decided.
e. Contribution of capital: - How much capital will be contributed by each partner must be decided.


Following is the Balance Sheet of P, Q and R as on March 31, 2018. 5
Q died on June 30, 2018. Under the agreement the executors of the deceased partner were entitled to:
(a) Amount standing to the credit of Partner’s Capital A/c.
(b) Interest on Capital @5% p.a.
(c) Share of goodwill on the basis of twice the average of the past three years profit.
(d) Share of profit from the closing of the last financial year to the date of death on the basis of last year’s profit (2017-18).
(e) Profits for the last three years were:
Year                Profit (₹)
2015-16            12,000/-
2016-17            16,000/-
2017-18            14,000/-
Prepare Q’s capital account on the date of his death.
17. Distinguish between Realisation Account and Revaluation Account. 5
Ans: Following are the differences between Revaluation A/c and Realisation A/c:

A and B are partners sharing profits equally. Balance Sheet on September 2018 was as follows: 5

The firm is dissolved on the above date. Assets are realised at ₹49,600. Creditors allowed a discount of 2% and Dissolution Expenses came to ₹544.
Give Journal Entries to close the books of the firm.

18. Discuss the process for allotment of shares of a company in case of oversubscription. 5
Ans:  Rules regarding over subscription according to SEBI guidelines:
All applicants should be categorised according to number of shares applied for.  For e.g. different categories may be set for applicants of 100, 500, 1000 shares and so on.
Allotment shall be made in marketable lots on a proportionate basis.

Where the issue is over subscribed, in the process of allotment, the following situations may arise in course of accounting treatment:
a. Total rejection of some applicants and full allotment to remaining applicants.
b. Pro-rata allotment among all the applicants.
c. Refusing allotment to some applicants and making Pro-rata allotment among the remaining applicants.


Prepare a Comparative Income Statement from the following particulars: 5

19. Following is the Trial Balance of Rana and Raju as on 31st March, 2018: 8

Prepare the Profit & Loss Account and Profit & Loss Appropriation Account for the year ended 31st March, 2018 and a Balance Sheet of the Firm as on that date after taking into consideration the following additional information:

(i) Depreciate Machinery @10% p.a. and Furniture @20% p.a.
(ii) Partners will get interest on Capital @5% p.a.
(iii) Raju is entitled to a salary of ₹1,800 p.a.
(iv) The Profit sharing ratio between Rana and Raju was 3:2.

20. M. S. Ltd. issued 1,000 equity shares of ₹100 each payable as follows:  8
On Application - ₹25 per share
On Allotment - ₹25 per share
On First Call - ₹20 per share
On Final Call - ₹30 per share
All the shares were duly subscribed for, called-up and paid-up, except Mr. A holding 400 shares did not pay the final call money.
Show the entries in the Cash Book and Journal of the company for the above transactions.

Write short notes on:
a. Redemption of Debentures
b. Loss on issue of Debentures
c. Minimum Subscription

Ans: a. Redemption of Debentures: Redemption of debentures means the repayment of debentures. As debenture is shown in the liability side of balance sheet it is necessary for the company to discharge these liabilities. Thus redemption of debentures denotes discharge of liability on account of debentures by repayment to the debenture holders. The redemption is made on the expiry of specified period mentioned in the debenture certificates.

b. Loss on issue of Debentures: When the company issue debentures at par but repayable at premium, it gives rise to loss on issue of debenture. Again where the company issues debentures at a discount but repayable at a premium, it also gives rise to loss on issue of debenture.

c. Minimum Subscription: Minimum subscription means the minimum amount that  in the opinion of the directors, must be raised to meet the needs of business operations of the company relating to:
The price of any property purchased, or to be purchased, which has to be met wholly or partly   out of the proceeds of issue.
Preliminary expenses payable by the company and any commission payable in connection with the issue of share;
the repayment of money borrowed by the company for the above two matters;
Working capital; and
any other expenditure required for the usual conduct of business operations.
It is to be noted that minimum subscription of capital cannot be less than 90% of the issued amount according to SEBI guidelines.

21. S. K. Ltd. issued 1,000, 12% Debentures of ₹100 each. Give journal entries for Redemption of the debentures in the books of the company under the following conditions: 2+3+3=8
(i) Issued at Par and Redeemable at par after 5 years.
(ii) Issued at Par and Redeemable at a premium of 5% after 5 years.
(iii) Issued at a Premium of 5% Redeemable at Par after 5 years.


Write short notes on:
a. Authorised share capital
b. Calls in arrear
c. Pro-rata allotment
d. Preference share
Ans: a. Authorised share capital: The amount of capital with which the company intends to be registered is called authorised capital. This is the amount of share capital which a company is authorised to issue. It must be set out in the memorandum of association.

b. 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.

c. Pro-rata allotment: When the number of shares applied is more than the number of shares issued by a company, the issue of share is said to be oversubscribed. The company cannot allot shares more than those offered for subscription. In such a case shares are allotted in proportion of shares issued to shares applied, than such an allotment is called pro-rata allotment.

d. Preference share: 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.

22. Vimal and Nirmal are partners in a firm sharing profits and losses in the ratio 3:2. Their Balance Sheet as on 31st December, 2018 was as under:  8

On that date Kailash was admitted as a new partner. He paid ₹40,000 as his capital and ₹20,000 for his share of goodwill. The new profit sharing ratio was agreed to be 2:1:1.
Pass Journal entries in the books of the firm and show the Balance Sheet of the new firm.


What is Goodwill? Mention four factors affecting the goodwill of a firm. Mention three conditions when valuation of goodwill becomes necessary.
Ans: Goodwill is an intangible asset of the business, cannot be seen or touched. Goodwill is the reputation of the business. It is created through various activities such as quality products at reasonable price, good relations with customer, quality service provided etc. Goodwill is the extra earning capacity of the business.

Following the factors affecting the value of goodwill:

(i). Location of business: - If the business is situated at a centrally located convenient place , it can attract more customers and hence its goodwill will be more.

(ii). Quality of the product: - In case the firm produces or deals in products of better quality it will have more goodwill.

(iii). Risk involved: - When the risk is less in the business it creates more goodwill but if the risk is more, it creates less goodwill.

(iv). Efficiency of management:- If the firm is managed and controlled by the experienced and efficient people, there will be economics in production , higher demand for goods as a result its profit will go on increasing consequently the value of goodwill will also increase .

Following are the conditions when valuation of goodwill becomes necessary:

(i). When there is a change in profit sharing ratio of existing partners.
(ii).On the admission of a new partner.
(iii).On the retirement of a partner.
(iv). On the death of a partner.