Page 117 - AAAXII

M.110 An Aid to Accountancy—CBSE XII
Answers

PART A
1. Cost of construction of a building is deducted from ‘Building Fund’ and is added to
Capital Fund.
Or
Subscription for the year is treated as Revenue Receipts and hence credited to Income
and Expenditure Account.
2. Drawings against profit are not considered for calculating interest on capital, whereas
drawings against capital are considered for calculating interest on capital.

3. Ratio in which the old partners have agreed to sacrifice their share of profit in favour
of the new (incoming) partner is called Sacrificing Ratio. This ratio is calculated by
taking out the difference between Old Profit Share and the New Profit Share.
Or
Sacrificing ratio is calculated because the sacrificing partners are compensated by the
incoming partner and Gaining Partners by paying Premium for Goodwill.
4. A firm that produces high value-added products or has stable demand for its products
will be able to earn more profits and hence more goodwill.
5. Premium Payable on Redemption of Debentures being a liability of the company is
credited to Premium on Redemption of Debentures Account by accounting (debiting)
Loss on Issue of Debentures at the time of issue of debentures.
Or
Premium on Redemption of Debentures Account is a personal account being a liability
of the company for premium payable on redemption.
100
6. Goodwill = Super Profit × .
Normal Rate of Return
7.
Dr. AN EXTRACT OF INCOME AND EXPENDITURE ACCOUNT for the year ended 31st March, 2018 Cr.
Expenditure ` Income `
To Prizes Awarded (` 1,02,000 – ` 96,000*) 6,000

AN EXTRACT OF BALANCE SHEET as at 31st March, 2018
Liabilities ` Assets `

Prize Fund 10% Prize Fund Investments 72,000
Opening Balance 72,000
Add: Donations 16,800
Interest on Prize Fund Investments 7,200
96,000
Less: Prizes awarded* 96,000 ...

*Amount of prizes awarded in excess of available Fund is debited to Income and Expenditure Account.