Part A: Accounting for Partnership Firms
- Q: What is a Partnership Deed?
A: A legal document that outlines the terms and conditions of a partnership, including profit/loss sharing, capital contributions, etc. - Q: What is the difference between a fixed and fluctuating capital account?
A: Fixed capital remains constant throughout the year, while fluctuating capital changes due to drawings, interest on capital, etc. - Q: How is interest on drawings calculated?
A: It depends on the method (product method, average period method, etc.) and the date of drawings. - Q: What is goodwill?
A: The reputation and customer loyalty associated with a business, valued as an intangible asset. - Q: Explain the super profit method of goodwill valuation.
A: Goodwill is calculated based on the excess of average profits over normal profits. - Q: How is goodwill treated on the admission of a new partner?
A: It is usually brought in by the new partner and adjusted among existing partners. - Q: What is the sacrificing ratio?
A: The ratio in which existing partners agree to give up their share of profits in favor of the new partner. - Q: How is goodwill treated on the retirement of a partner?
A: The retiring partner’s share of goodwill is paid to them by the remaining partners. - Q: What is a Revaluation Account?
A: An account used to record the revaluation of assets and liabilities during reconstitution of a partnership. - Q: What is the purpose of a Partner’s Current Account?
A: To record temporary adjustments like drawings, interest on drawings, salary to partners, etc. - Q: What is the difference between dissolution and liquidation?
A: Dissolution refers to the termination of the partnership agreement, while liquidation involves the winding up of the business and distribution of assets. - Q: What is a Realization Account?
A: An account used to record the sale of assets and settlement of liabilities during dissolution. - Q: What is the order of priority for payment of liabilities during dissolution?
A: Secured creditors, preferential creditors, unsecured creditors, partners’ loans, partners’ capital. - Q: What is a Garnishee Order?
A: A court order directing a third party (debtor) to pay a debt directly to the creditor. - Q: What is a Memorandum Revaluation Account?
A: A hypothetical account used to determine the effect of revaluation on partners’ capital accounts without actually recording it.
Part B: Accounting for Companies
- Q: What is a company?
A: An artificial legal person created by law, having perpetual succession and common seal. - Q: What are the different types of shares?
A: Equity shares, preference shares (cumulative, non-cumulative, participating, non-participating). - Q: What is the difference between equity and preference shares?
A: Equity shareholders have voting rights and residual claim on profits, while preference shareholders have priority in dividend and capital repayment. - Q: What is share premium?
A: The amount received in excess of the face value of shares. - Q: What is the accounting treatment for share premium?
A: It is credited to the Securities Premium Reserve account. - Q: What is forfeiture of shares?
A: The cancellation of shares allotted to a shareholder who has failed to pay the required calls. - Q: What is reissue of forfeited shares?
A: The process of selling forfeited shares to new shareholders. - Q: What are debentures?
A: Debt instruments issued by a company to raise long-term funds. - Q: What is the difference between debentures and shares?
A: Debentures are debt, while shares represent ownership. - Q: What are the different types of debentures?
A: Debentures can be classified based on security (mortgage, debenture), convertibility (convertible, non-convertible), and other features. - Q: What is the redemption of debentures?
A: The process of repaying the principal amount of debentures at maturity. - Q: Explain the sinking fund method of debenture redemption.
A: A fund is created by making periodic investments to accumulate the necessary amount for redemption.
Part C: Financial Statement Analysis
- Q: What are financial statements?
A: Statements prepared by a company to present its financial position and performance, including the Balance Sheet, Income Statement (Profit and Loss Account), and Cash Flow Statement. - Q: What is the purpose of financial statement analysis?
A: To evaluate the financial health and performance of a company. - Q: What are the tools of financial statement analysis?
A: Ratio analysis, common size statements, trend analysis, etc. - Q: What are liquidity ratios?
A: Ratios that measure a company’s ability to meet its short-term obligations. Examples: Current Ratio, Quick Ratio. - Q: What are solvency ratios?
A: Ratios that measure a company’s long-term debt-paying ability. Examples: Debt-Equity Ratio, Debt-to-Asset Ratio. - Q: What are profitability ratios?
A: Ratios that measure a company’s profitability. Examples: Gross Profit Ratio, Net Profit Ratio, Return on Equity. - Q: What are activity ratios?
A: Ratios that measure how efficiently a company is using its assets. Examples: Inventory Turnover Ratio, Debtors Turnover Ratio. - Q: What is a Cash Flow Statement?
A: A statement that shows the inflows and outflows of cash during a specific period. - Q: What are the three major categories of cash flow activities?
A: Operating activities, investing activities, financing activities. - Q: Explain the difference between the direct and indirect methods of preparing a Cash Flow Statement.
A: The direct method directly shows cash inflows and outflows from operating activities, while the indirect method starts with net income and adjusts for non-cash1 items.
Part D: Accounting for Not-for-Profit Organizations
- Q: What is a Not-for-Profit Organization?
A: An organization that does not aim to make a profit but rather to serve a social or charitable purpose. - Q: What are the main financial statements of a Not-for-Profit Organization?
A: Receipts and Payments Account, Income and Expenditure Account, Balance Sheet. - Q: What is the difference between a Receipts and Payments Account and an Income and Expenditure Account?
A: Receipts and Payments Account records only cash transactions, while Income and Expenditure Account records both cash and non-cash transactions. - Q: What is the purpose of a Balance Sheet for a Not-for-Profit Organization?
A: To show the financial position of the organization at a particular point in time. - Q: What are funds in the context of Not-for-Profit Organizations?
A: Accumulated balances of specific items like capital, reserves, etc.
Part E: Accounting for Share Capital (Additional)
- Q: What is the issue of bonus shares?
A: Issuing additional shares to existing shareholders from the company’s reserves. - Q: What is the accounting treatment for bonus shares?
A: Transfer from reserves (like Securities Premium Reserve or Capital Reserve) to Share Capital account. - Q: What is buy-back of shares?
A: A company purchasing its own shares from the market. - Q: What are the conditions for buy-back of shares?
A: Specified in the Companies Act, 2013, including source of funds, maximum limit, etc.
Part F: Issue and Redemption of Debentures (Additional)
- Q: What is the accounting treatment for the issue of debentures at a discount?
A: Discount on issue of debentures is debited to Discount on Issue of Debentures account and written off over the life of the debentures. - Q: What is the accounting treatment for the redemption of debentures at a premium?
A: Premium on redemption of debentures is charged to Statement of Profit and Loss.
Part G: Financial Statement Analysis (Additional)
- Q: What is the significance of the Du Pont Chart?
A: It breaks down Return on Equity (ROE) into three components: Profit Margin, Asset Turnover, and Equity Multiplier. - Q: What is the significance of the Times Interest Earned Ratio?
A: It measures a company
- Q: What is the significance of the Times Interest Earned Ratio?
A: It measures a company’s ability to meet its interest obligations on debt. - Q: What is the significance of the Inventory Turnover Ratio?
A: It measures how quickly a company sells and replaces its inventory. - Q: What are common size statements?
A: Financial statements where each item is expressed as a percentage of a common base (e.g., sales for Income Statement, total assets for Balance Sheet). - Q: What is trend analysis?
A: Analyzing financial data over multiple periods to identify trends and patterns. - Q: What are the limitations of financial statement analysis?
A: Reliance on historical data, potential for manipulation, lack of non-financial factors.
Part H: Accounting for Not-for-Profit Organizations (Continued)
- Q: What are the different types of funds in a Not-for-Profit Organization?
A: General Fund, Endowment Fund, Building Fund, etc. - Q: How are donations accounted for in the books of a Not-for-Profit Organization?
A: Depending on the purpose of the donation, it may be credited to Income, a specific fund, or a liability. - Q: What are subscriptions in the context of a Not-for-Profit Organization?
A: Regular contributions from members. - Q: How are subscriptions accounted for in the Income and Expenditure Account?
A: Recognized as income for the period to which they relate, even if not yet received in cash. - Q: What is the purpose of a Legacy Fund?
A: To provide a permanent source of income for the organization through investments.
Part I: Accounting for Partnership Firms (Continued)
- Q: What is the difference between interest on capital and interest on drawings?
A: Interest on capital is paid to partners for investing their own funds in the business, while interest on drawings is charged to partners for withdrawing funds for personal use. - Q: What is the purpose of a Profit and Loss Appropriation Account?
A: To show how the net profit of the partnership is distributed among partners. - Q: How is the profit or loss on revaluation of assets and liabilities shared among partners?
A: In their profit-sharing ratio. - Q: What is the gaining ratio?
A: The ratio in which the remaining partners share the profits of the retiring or deceased partner. - Q: What are the methods of valuation of goodwill?
A: Super profit method, capitalization of super profit method, average profit method, etc. - Q: What is the purpose of a Memorandum Journal?
A: To record adjustments related to reconstitution of partnership without affecting the actual books of accounts. - Q: What is the significance of a Balance Sheet in partnership accounting?
A: It shows the financial position of the partnership at a particular point in time. - Q: What are the different methods of distributing cash among partners during dissolution?
A: Cash, installment, and piecemeal methods. - Q: What is a Garnishee Order?
A: A court order directing a third party (debtor) to pay a debt directly to the creditor. - Q: What is the purpose of a Bank Overdraft Account?
A: To record temporary borrowings from the bank.
Part J: Accounting for Companies (Continued)
- Q: What is the authorized share capital of a company?
A: The maximum amount of share capital that a company is permitted to issue as per its Memorandum of Association. - Q: What is the issued share capital of a company?
A: The amount of share capital that has actually been issued to the public. - Q: What is the subscribed share capital of a company?
A: The amount of share capital that has been applied for by the public. - Q: What is the called-up share capital of a company?
A: The amount of share capital that has been called up by the company from the shareholders. - Q: What is the paid-up share capital of a company?
A: The amount of share capital that has been actually paid by the shareholders. - Q: What is the accounting treatment for the issue of shares at a discount?
A: Not permitted under Indian law. - Q: What are the different methods of redemption of debentures?
A: Sinking fund method, purchase in the open market, drawing of lots, etc. - Q: What is a debenture trust deed?
A: A legal agreement between the company and the debenture holders that outlines the terms and conditions of the debentures. - Q: What is the significance of the Statement of Profit and Loss in company accounting?
A: It shows the company’s profitability for a particular period. - Q: What are the major components of the Statement of Profit and Loss?
A: Revenue from operations, other income, expenses, and profit/loss before tax.
Part K: Financial Statement Analysis (Continued)
- Q: What is the significance of the Price-Earnings Ratio?
A: It measures the market’s valuation of a company’s earnings. - Q: What is the significance of the Dividend Payout Ratio?
A: It measures the percentage of earnings distributed as dividends to shareholders. - Q: What is the significance of the Return on Assets (ROA)?
A: It measures the profitability of a company’s assets. - Q: What is the significance of the Return on Capital Employed (ROCE)?
A: It measures the profitability of the capital invested in the business. - Q: What is the significance of the Earnings Per Share (EPS)?
A: It measures the amount of profit earned per share of common stock. - Q: What is the significance of the Dividend Per Share (DPS)?
A: It measures the amount of dividends paid per share of common stock. - Q: What is the significance of the Book Value Per Share?
A: It measures the book value of a company’s assets per share of common stock. - Q: What are the limitations of ratio analysis?
A: Reliance on historical data, potential for manipulation, lack of non-financial factors, industry comparisons may not always be valid. - Q: What is the significance of the Cash Flow Statement in assessing a company’s financial health? A: It provides insights into a company’s liquidity, solvency, and overall financial performance.
- Q: How does the Cash Flow Statement help in predicting future cash flows?
A: By analyzing past cash flow trends and identifying key factors that influence cash inflows and outflows.
Part L: Accounting for Not-for-Profit Organizations (Continued)
- Q: What are the different types of subscriptions?
A: Life membership subscriptions, annual subscriptions, etc. - Q: How are entrance fees treated in the accounts of a Not-for-Profit Organization?
A: Usually capitalized as income over a period of time. - Q: What is the purpose of a Legacy Fund?
A: To provide a permanent source of income for the organization through investments. - Q: How are investments accounted for in the books of a Not-for-Profit Organization?
A: Shown as investments in the Balance Sheet. - Q: What are the different types of investments that a Not-for-Profit Organization can make?
A: Government securities, bonds, shares, etc. - Q: How are investment income and losses accounted for?
A: Investment income is credited to the Income and Expenditure Account, while investment losses are debited.
Part M: Accounting for Partnership Firms (Continued)
- Q: What is the purpose of a Partner’s Current Account?
A: To record temporary adjustments like drawings, interest on drawings, salary to partners, etc. - Q: How are drawings treated in the Partner’s Current Account?
A: Debited to the Partner’s Current Account. - Q: What is the purpose of a Partner’s Capital Account?
A: To record the partner’s capital contribution and withdrawals. - Q: What is the significance of a Balance Sheet in partnership accounting?
A: It shows the financial position