Page 494 - AAAXII

Model Test Papers M.473

Answers

PART A

1. It will be shown in the expenditure side (i.e., Debit side) of Income and Expenditure
Account.
Or
No, Income and Expenditure Account records all Revenue Incomes (whether received
or not) and Revenue Expenditures (whether paid or not) relating to current year.
2. New partner brings his share of Goodwill at the time of admission to compensate the
sacrificing partners in their sacrificing ratio.
Or
Ravi’s view is correct.
Reason: General Reserve was set aside out of profits earned in the past and, therefore,
all the partners should share it.

3. Since the amount of available profit is less than the amount of interest on capital
payable, the available profit will be distributed in the ratio of interest on capital
payable to Arti and Bharti, i.e., ` 30,000 : ` 15,000 or 2 : 1. Thus,
Interest on Arti’s Capital = ` 37,500 × 2/3 = ` 25,000;
Interest on Bharti’s Capital = ` 37,500 × 1/3 = ` 12,500.

4. Amount of Profit to be transferred to DRR = 25% of Face Value of Outstanding
Debentures less Existing Balance of DRR
= [` 50,00,000 × 25/100] – ` 2,50,000
= ` 10,00,000.
Or
Difference between Share and Debenture
Basis Share Debenture
1. Ownership A share is a part of owned capital. A debenture is a part of the borrowed capital.

2. Returns Dividend is paid on the shares and is an Interest is paid on Debentures and is a charge
appropriation of profit. against profit.

5. Step 1 is to determine Total Capital of the New Firm as follows:
Adjusted Combined Capital of the Old Partners
=
Combined Share of Profit of Old Partners
Step 2 is to determine New Partner’s Proportionate Capital as follows:

= Total Capital of the New Firm × Share of Profit of the New Partner.