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Model Test Papers M.135

Or
An investor would prefer to invest in the debentures of a company and not in shares:
(i) to ensure the safety of his investment; and (ii) for assured returns.

6. (i) On Time Basis. (ii) On Sales Basis.
7. Difference between Income and Expenditure A/c and Profit and Loss A/c

Basis Income and Expenditure Account Profit and Loss Account
1. Prepared by This account is prepared by ‘Not-for- This account is prepared by business
Profit Organisations’. organisations.
2. Objective Its main objective is to ascertain excess of Its main objective is to ascertain Net Profit
income over expenditure, (i.e., surplus) earned or Net Loss incurred during an
or excess of expenditure over income accounting period.
(i.e., deficit) of an accounting period.
3. Basis of Preparation It is prepared on the basis of Receipts It is prepared on the basis of Trial Balance
and Payments Account and other and other information.
information.

8. JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)

2018 For Interest on Capital
March 31 Profit and Loss Adjustment A/c ...Dr. 73,000
To X’s Capital A/c 41,000
To Y’s Capital A/c 32,000
(Being the Interest on capital provided)
For Interest on Drawings
X’s Capital A/c ...Dr. 2,250
Y’s Capital A/c ...Dr. 1,125
To Profit and Loss Adjustment A/c 3,375
(Being the interest on drawings charged)
For Loss on Adjustment
X’s Capital A/c ...Dr. 41,775
Y’s Capital A/c ...Dr. 27,850
To Profit and Loss Adjustment A/c 69,625
(Being the loss due to adjustment transferred)

Working Note: Calculation of Opening Capitals and Interest thereon:
Particulars X (`) Y (`)

Closing Capitals 10,00,000 7,50,000
Add: Drawings 1,20,000 90,000
11,20,000 8,40,000
Less: Share of Profit 3,00,000 2,00,000
Opening Capitals 8,20,000 6,40,000
Interest on Capital @ 5% 41,000 32,000