Class 12 Accountancy Questions with Answer

 Q3A) SHORT NOTE

I)Securities Premium -Securities Premium refers to the amount raised by a company through the sale of its shares at a price higher than their face value. It represents the excess amount investors are willing to pay for shares, reflecting confidence in the company's potential. This premium is not distributable as dividends but is used for various purposes such as issuing bonus shares, writing off preliminary expenses, or offsetting future losses.

ii) Subscribed capital

Subscribed capital is the portion of a company's authorized share capital that has been agreed to be purchased by investors. It is essentially a commitment from investors to buy a certain number of shares at a certain price. Subscribed capital is recorded in the company's balance sheet as a liability, as it represents an obligation to the investors.

iii) Authorized capital

Authorized capital is the maximum number of shares that a company is allowed to issue, as stated in its memorandum of association or articles of incorporation. It is not the same as issued capital, which is the number of shares that have actually been issued to investors. Authorized capital can be increased or decreased through a shareholder vote.

3B) Distinguish between sacrificing Ratio & Gaining Ratio 

Ans.Here is a comparison of sacrificing ratio and gaining ratio:

Definition

SACRIFICING RATIO 

The ratio in which existing partners give up a portion of their profit-sharing ratio in favor of a new or incoming partner.

GAINING RATIO

The ratio in which existing partners acquire a portion of the profit-sharing ratio from a retiring or deceased partner.

When used

  SACRIFICING RATIO

When a new partner is admitted to the firm.

GAINING RATIO

When a partner retires or dies and leaves the firm.

Effect on existing partners

Reduces their profit-sharing ratio.

Increases their profit-sharing ratio.

Calculation

Sacrificing Ratio = Old Ratio - New Ratio

Gaining Ratio = New Ratio - Old Ratio

3B OR)

Q3B) Treatment of Goodwill at the time of Admission/Retirement of a partner

Treatment of Goodwill at the Time of Admission/Retirement of a Partner

The treatment of goodwill at the time of admission or retirement of a partner depends on whether the goodwill is already recorded in the firm's books or not. Here's a breakdown of both scenarios:

1. Goodwill not recorded in the books:

Admission of a partner:

In this case, the incoming partner brings in an additional amount, known as "goodwill premium," to compensate the existing partners for their share in the future profits arising from the established goodwill.

This premium is credited to the existing partners' capital accounts in their profit-sharing ratio.

Journal entry:

Goodwill A/c Dr. (Amount of premium)

Existing Partners' Capital A/c Cr. (Distributed in their profit-sharing ratio)

Retirement of a partner:

The retiring partner is entitled to their share of the firm's goodwill, which is calculated based on their profit-sharing ratio.

This amount is paid by the remaining partners in their gaining ratio (ratio in which they share future profits after the partner's retirement).

Journal entry:

Retiring Partner's Capital A/c Dr. (Amount of goodwill share)

Remaining Partners' Capital A/c Cr. (Distributed in their gaining ratio)

2. Goodwill already recorded in the books:

Admission of a partner:

The goodwill account is not adjusted.

The incoming partner brings in capital based on their share in the revalued firm (including goodwill).

Journal entry:

Cash A/c Dr. (Amount brought in by new partner)

New Partner's Capital A/c Cr.

Retirement of a partner:

The retiring partner's share of goodwill is debited from the goodwill account and credited to their capital account.

The remaining partners' capital accounts are adjusted to reflect their new profit-sharing ratio.

Journal entry:

Retiring Partner's Capital A/c Dr. (Amount of goodwill share)

Goodwill A/c Cr.

Remaining Partners' Capital A/c Cr. (Distributed in their new profit-sharing ratio

Q2)What we the consequences of Non-Registration of Partnership deed?

Q)What we the consequences of Non-Registration of Partnership deed?

Ans. Here are the consequences of non-registration of a partnership deed in India explained elaborately in points:

1. **Limited Legal Recognition:**

   - Unregistered partnerships lack the legal recognition granted to registered ones.

   - Partnerships cannot sue or be sued in the name of the firm, affecting legal standing.

2. **Limited Right to Enforce:**

   - Partners may face difficulties in enforcing rights through legal avenues.

   - Courts may not entertain suits related to an unregistered partnership.

3. **No Claim for Set-Off:**

   - Unregistered partnerships may encounter challenges in claiming set-offs or deductions.

   - This can impact financial matters and tax implications for the partners.

4. **No Legal Evidence:**

   - Lack of registration means there is no legal evidence of the existence of the partnership.

   - This absence can complicate matters in case of disputes or legal proceedings.

5. **Restrictions on Property Rights:**

   - Partners may face restrictions on transferring property in the name of the partnership.

   - This limitation can hinder smooth business operations and property transactions.

6. **No Third-Party Confirmation:**

   - Third parties may be hesitant to engage in transactions with an unregistered partnership.

   - Registration provides a level of assurance and confirmation to external entities.

7. **Impact on Banking Transactions:**

   - Unregistered partnerships may face challenges in opening and operating bank accounts.

   - Banks often require legal documentation, and non-registration can hinder this process.

8. **Tax Implications:**

Ko   - Unregistered partnerships may miss out on certain tax benefits available to registered ones.

   - Tax implications can vary, and registration aids in proper compliance with tax regulations.

9. **Succession and Dissolution Challenges:**

   - Unregistered partnerships may encounter complications in matters of succession or dissolution.

   - The absence of legal documentation can lead to disputes among partners.

10. **Inability to Attract Investors:**

    - Investors may be wary of investing in an unregistered partnership due to legal uncertainties.

    - Registration provides a level of credibility, making the partnership more attractive to potential investors.

In summary, the non-registration of a partnership deed in India can have far-reaching consequences, affecting legal recognition, financial matters, property transactions, and overall business operations. Partners are advised to register their partnership to enjoy the legal benefits and avoid potential complications

DIfferences between Profit&Loss Account and Profit and Loss Appropriation Account

 DIfferences between Profit&Loss Account and Profit and Loss Appropriation Account 

Ans. Here are the key differences between Profit & Loss Account and Profit & Loss Appropriation Account:

1. **Purpose:**

   - **Profit & Loss Account:** It reflects the company's overall financial performance by summarizing revenues, expenses, gains, and losses over a specific period.

   - **Profit & Loss Appropriation Account:** It is specifically used to allocate or distribute the net profit among the partners or shareholders.

2. **Contents:**

   - **Profit & Loss Account:** Includes all income and expenses related to the regular operations of the business.

   - **Profit & Loss Appropriation Account:** Focuses on items like dividends, bonuses, and retained earnings, allocating profits to different stakeholders.

3. **Usage:**

   - **Profit & Loss Account:** Used for assessing the profitability of the business and providing insights into its operational efficiency.

   - **Profit & Loss Appropriation Account:** Used for decision-making regarding the distribution of profits among partners or shareholders.

4. **Timing:**

   - **Profit & Loss Account:** Prepared at the end of the accounting period to determine the overall profit or loss.

   - **Profit & Loss Appropriation Account:** Created after the Profit & Loss Account to decide how the net profit will be distributed.

5. **Stakeholders:**

   - **Profit & Loss Account:** Primarily for internal and external stakeholders interested in the company's financial performance.

   - **Profit & Loss Appropriation Account:** Mainly for internal stakeholders such as partners or shareholders involved in profit distribution decisions.

Remember, while the Profit & Loss Account is part of the financial statements, the Profit & Loss Appropriation Account is often an internal document used in partnership or company meetings for profit distribution decisions.

Distinguish between Equity Share & Preference Share

 Distinguish between Equity Share & Preference Share

Here is a comparison of equity shares and preference shares:

Feature	Equity Shares	Preference Shares
Dividend	No guaranteed dividend. Dividends are paid out of profits at the discretion of the board of directors.	Fixed or predetermined dividend, regardless of the company's profits.
Voting rights	Yes. Equity shareholders have the right to vote on company matters, such as the election of directors and approval of major transactions.	No. Preference shareholders typically do not have voting rights.
Claim on assets	Residual claim on assets. In the event of liquidation, equity shareholders are entitled to any remaining assets after all other creditors and debt holders have been paid.	Preferential claim on assets. Preference shareholders are entitled to receive their investment back before equity shareholders in the event of liquidation.
Risk	Higher risk. Equity shares are more volatile and subject to the fortunes of the company.	Lower risk. Preference shares offer a more stable income stream and are less volatile than equity shares.
Suitability for investors	Investors seeking capital appreciation and voting rights.	Investors seeking a steady income stream and capital preservation.

Differences between fixed capital Account and Fluctuating capital Account?

 )Differences between fixed capital Account and Fluctuating capital Account?

Ans.The distinctions between fixed capital accounts and fluctuating capital accounts are outlined below:"

1. **Nature of Investment:**

   - **Fixed Capital Account:** Represents long-term investments in assets that have a relatively stable value over time, such as machinery, buildings, and land.

   - **Fluctuating Capital Account:** Involves short-term investments that may vary in value more frequently, like stocks, bonds, and other market-based instruments.

2. **Duration of Investment:**

   - **Fixed Capital Account:** Involves investments intended to be held for an extended period, often years, as these assets are expected to provide long-term value.

   - **Fluctuating Capital Account:** Involves investments that can be bought and sold more readily, allowing for shorter holding periods based on market conditions.

3. **Risk and Return:**

   - **Fixed Capital Account:** Generally, investments in fixed capital carry lower liquidity but may offer more stability and potentially predictable returns over the long term.

   - **Fluctuating Capital Account:** Typically involves higher liquidity and potential for quick returns but comes with higher market risk and volatility.

4. **Asset Types:**

   - **Fixed Capital Account:** Comprises tangible assets used for production or business operations, contributing to the productive capacity of the enterprise.

   - **Fluctuating Capital Account:** Encompasses financial assets like stocks, bonds, derivatives, reflecting ownership in companies or debt instruments.

5. **Accounting Treatment:**

   - **Fixed Capital Account:** Reflects the historical cost of acquiring fixed assets, and their depreciation is recorded over time to allocate the cost.

   - **Fluctuating Capital Account:** Values are marked-to-market regularly, reflecting current market prices, which can lead to more frequent changes in the account's value.

6. **Purpose of Investment:**

   - **Fixed Capital Account:** Primarily focused on supporting the core operations and growth of the business by acquiring and maintaining essential assets.

   - **Fluctuating Capital Account:** Often driven by the goal of capital appreciation, income generation, or speculation based on market trends.

7. **Ownership Representation:**

   - **Fixed Capital Account:** Represents ownership in physical assets and infrastructure of the business.

   - **Fluctuating Capital Account:** Represents ownership in financial instruments, reflecting a stake in the performance of companies or markets.

Understanding these distinctions can help in forming a balanced investment portfolio that aligns with both short-term and long-term financial goals.

What are the main factors that affect the amount of depreciation:

 What are the main factors that affect the amount of depreciation:

Ans.Depreciation is the allocation of the cost of an asset over its useful life. It is a non-cash expense that reduces the book value of an asset on the balance sheet. There are three main factors that affect the amount of depreciation:

• Cost: The cost of an asset is the initial purchase price plus any additional costs incurred to get the asset ready for use. For example, the cost of a computer would include the purchase price, software installation, and training costs.

• Salvage value: The salvage value is the estimated amount that an asset can be sold for at the end of its useful life. It is typically a small percentage of the original cost of the asset. For example, the salvage value of a computer might be $100.

• Useful life: The useful life is the number of years that an asset is expected to be used. It is based on factors such as the type of asset, its expected usage, and technological advancements. For example, the useful life of a computer might be 5 years.

The amount of depreciation is calculated using a variety of methods, the most common of which are straight-line depreciation, declining balance depreciation, and sum-of-the-years' digits depreciation.

Here is a table that summarizes the factors that affect depreciation:

Factor	Description	Impact on depreciation
Cost	The initial purchase price of the asset	Higher cost = higher depreciation
Salvage value	The estimated amount that the asset can be sold for at the end of its useful life	Higher salvage value = lower depreciation
Useful life	The number of years that the asset is expected to be used	Longer useful life = lower depreciation

In addition to these three main factors, there are a number of other factors that can affect depreciation, such as:

• Obsolescence: Obsolescence is the rapid decline in the value of an asset due to technological advancements. For example, a computer that is only a few years old may be considered obsolete if newer, more powerful computers are available.

• Physical wear and tear: Physical wear and tear is the damage to an asset that occurs over time due to use. For example, a car will depreciate faster if it is driven more frequently.

• Repairs and maintenance: Repairs and maintenance are the costs of keeping an asset in working condition. Higher repair and maintenance costs can lead to higher depreciation.

• Economic conditions: Economic conditions can also affect depreciation. For example, if the economy is in a recession, businesses may sell assets at a loss, which can lower the salvage value of assets and increase depreciation.

GOODWILL TREATMENT AT TIME OF ADMISSION/RETIREMENT

 The treatment of goodwill at the time of admission and retirement of a partner depends on whether goodwill is already recorded in the firm's books and the agreement between partners. Here's a breakdown with journal entries:

Admission of a Partner:

Case 1: Goodwill not in the books:

• Option 1: Private payment for goodwill:

• New partner pays existing partners privately for their share of goodwill. No entries are made in the firm's books.

• Option 2: New partner brings capital and premium for goodwill:

• New partner brings cash as capital and additional amount as premium for goodwill.

• Journal Entry:

• Debit Cash (for total amount received)

• Credit Capital Account (new partner)

• Credit Goodwill Account (calculated share for new partner)

• Sacrificing ratio adjustment:

• Existing partners' capital accounts are adjusted (debited or credited) based on their sacrificing ratio (difference between old and new profit-sharing ratios) and the remaining premium for goodwill.

• Journal Entry:

• Debit Goodwill Account (remaining premium)

• Credit Existing Partners' Capital Accounts (in their sacrificing ratios)

Case 2: Goodwill already in the books:

• New partner brings capital and premium for goodwill:

• Similar to Case 1 (Option 2) with Goodwill Account already existing.

• No adjustment to existing partners' capital accounts unless a specific agreement exists.

Retirement of a Partner:

Case 1: Goodwill not in the books:

• Retiring partner is paid their share of goodwill from remaining partners' capital accounts in their gaining ratio (opposite of sacrificing ratio).

• Journal Entry:

• Debit Remaining Partners' Capital Accounts (in their gaining ratios)

• Credit Retiring Partner's Capital Account

Case 2: Goodwill already in the books:

• Two options:

• 1. Goodwill account adjusted:

• Goodwill account is debited with the retiring partner's share.

• Remaining partners' capital accounts are credited in their gaining ratios.

• Journal Entry:

• Debit Goodwill Account (retiring partner's share)

• Credit Remaining Partners' Capital Accounts (in their gaining ratios)

• 2. No adjustment to goodwill:

• Retiring partner receives their share of goodwill directly from remaining partners without affecting the Goodwill Account.