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Model Test Papers M.211

Answers

PART A

1. Interest earned on General Fund Investments is accounted as Revenue Receipt and
hence is credited to Income and Expenditure Account.
Or
Income and Expenditure Account is prepared on the basis of Receipts and Payments
Account and other information, whereas, Profit and Loss Account is prepared on the
basis of Trial Balance.
2. (i) Introduction of Additional Capital.
(ii) Withdrawal of Capital.
3. Investment Fluctuation Reserve is reserve created out of profit to meet fall in the value
of investments below its carrying amount, i.e., book value.
4. Profit and Loss Appropriation Account is prepared to distribute profit among partners
as per the Partnership Deed or Partnership Act, 1932.
Profit and Loss Suspense Account is the account to which share of profit or loss of
outgoing partner (or deceased partner) from the date of last Balance Sheet till the
date of retirement/death is debited or credited when the profit-sharing ratio of the
continuing partners do not change.
Or
Profit and Loss Account shows the net profit while Profit and Loss Appropriation
Account shows the distribution of net profit.

5. JOURNAL
Date Particulars L.F. Dr. (`) Cr. (`)
General Reserve A/c ...Dr. 40,000
To Investment Fluctuation Reserve A/c 10,000
To X’s Capital A/c 15,000
To Y‘s Capital A/c 15,000
(Being 25% of General Reserve transferred to Investment Fluctuation Reserve
and balance appropriated between Old Partners)
Or
Let Total Capital of New Fim be x
x = ` 3,00,000 + ` 2,00,000 + 1/6x
x – 1/6x = ` 5,00,000
5/6x = ` 5,00,000
x = ` 5,00,000 × 6/5 = ` 6,00,000
Mohan’s Capital = ` 6,00,000 × 1/6 = ` 1,00,000.
Alternative Method:
Let the total share of firm = 1
Mohan’s share = 1/6
Remaining share = 1 – 1/6 = 5/6 (i.e., Combined share of Ram and Shyam)