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Model Test Papers M.27

10. How are the following items dealt while preparing the final accounts of a Sports Club
for the year ending 31st March, 2018:
Expenditure on construction of Building ` 6,00,000. The construction work is in progress
and has not yet completed.
Particulars `
(a) Opening Building Fund 8,00,000

(b) Opening 10% Building Fund Investments 8,00,000
(c) Donation for Building Received 10,00,000
(d) Interest Received on Building Fund Investments 80,000
(e) Opening Capital Fund 18,00,000
(f) Subscription for Governor’s Party Received 40,000

(g) Outstanding Subscription for Governor’s Party 10,000
(3)
11. Kumar, Kanwar and Kavita were partners in a firm sharing profits and losses equally.
The firm was engaged in the storage and distribution of canned juice and its godowns
were located at three different places in the city. Each godown was being managed
individually by Kumar, Kanwar and Kavita. Because of increase in business activities at
the godown managed by Kanwar, he had to devote more time. Kanwar demanded that
his share in the profits of the firm be increased, to which Kumar and Kavita agreed.
The new profit-sharing ratio was agreed to be 1 : 2 : 1. For this purpose, goodwill of the
firm was valued at two years’ purchase of the average profits of last five years. The
profits of the last five years were as follows:
Year I II III IV V
Profit (`) 4,00,000 4,80,000 7,33,000 (33,000) Loss 2,20,000

You are required to:
(a) Calculate the goodwill of the firm.
(b) Pass necessary Journal entry for the treatment of goodwill on change in
profit-sharing ratio of Kumar, Kanwar and Kavita.
(c) Give the Working of Gaining/Sacrificing Ratio. (4)
12. On 31st March, 2018 Green Ltd. had the following balances in its books: `
9% Debentures 6,00,000
Debentures Redemption Reserve 1,00,000
Debentures Redemption Investment 45,000
General Reserve 1,00,000
On that date, the company decided to transfer ` 50,000 to Debentures Redemption
Reserve out of General Reserve and redeem debentures of ` 3,00,000. The company
also decided to transfer proportionate amount out of Debentures Redemption Reserve
to General Reserve after redemption. Pass necessary Journal entries in the books of
the company.