Monthly Archives: January 2022

In This Post we are  providing Chapter- 5 ORGANIZING NCERT MOST IMPORTANT QUESTIONS for Class 12BUSSINESS STUDIES which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON ORGANIZING

1)Differentiate between Formal organization and Informal organization?
Answer:

Basis	Delegation of authority	Decentralization
1. Nature	It is the first step towards decentralization	Decentralization is the last step in the process of delegation. It includes delegation.
2. Freedom to make decisions	Under delegation, subordinates have to follow the directions given by their superiors while making decisions.	Under decentralization, subordinates are free to take decisions
3. Scope	Its scope is limited since it refers to entrusting some part of the authority by the superior to his nearest subordinate on a personal basis.	Its scope is wide since it refers to the wide dispersal of authority to all levels in the entire organization.
4. Routine or important	It is considered to be the routine task of managers.	It is considered to be the very important decision of organizational arrangement.
5. Transfer of Responsibility	Under it, only the authority is transferred and not the responsibility. The ultimate responsibility lies with the delegator.	Under it, authority, as well as responsibility, is transferred. Subordinates are independently responsible for their performance.
6. Power to Control	In it superior has the power to exercise control over his subordinates.	In it superior losses the power to control his subordinates.
7. Temporary or permanent	It is a temporary arrangement where the authority is taken back after the assigned task is completed.	It is a permanent feature where the authority is granted for the future also.
8. Essential or optional	It is essential for all types of organizations because no superior can get the things done from his’ subordinates without delegating sufficient authority to them.	It is optional because it is not necessary’ that the superior must disperse his authority in a systematic manner throughout the entire organization.
9. Dependence	Decentralization is not essential for delegation i.e. delegation does not depend on decentralization	Delegation is essential for decentralization, i.e. it depends on delegation.

2)Differentiate between a delegation of authority and Decentralization?
Answer:
The distinction between Decentralisation and Delegation of authority. Though decentralization is the expanded form of delegation, there is a considerable difference in them. Decentralization is much more than delegation. Louis A. Allen says, when a person hands over his work to others it is known as delegation but it will be known as decentralization only when the authority to complete the entire work is handed over to them.

For example, when the chief executive of a company hands over the responsibility to make appointments in h:s department to a particular manager, it is known as delegation. But when all the departmental managers are given authority to make appointments in their respective departments, it is known as decentralization. The extent of decentralization increases when the departmental managers extend this authority to the executives below them

The distinction between Delegation of authority and Decentralisation. Delegation of authority

Basis	Formal organization	Informal organizations
(1) Formation	It is formed by the top management in a thoughtful and organized way.	It is formed automatically due to the social relationship.
(2) Purpose	Its main purpose is the achievement of the objectives of the organization eff’içieñtly.	Its main purpose is the fulfillment of individual needs and to protect their mutual interests.
(3) Nature or Structure	The activities, rights, and responsibilities are clearly defined in suçh organizations.	The rules are neither written nor clearly defined.
(4) Authority	In such an organization authority ¡s derived from assigned positions and from above.	In this authority is derived from the acceptance and capabilities of an individual.
(5) Flow of authority or Communication	This authority flows from top to bottom.	This authority flows from top to bottom or horizontally.
(6) Behaviour of Members	In this organization, the relation among employees is according to the position and functions. Thus, the behavior is highly formal.	In this organization, there exists a personal relationship among members. Thus the behavior among them is informal.
(7) Tenure	Due to the establishment of the organization on some logical planning, the tenure is relatively	Since it is based on personal and mutual relationships it is highly flexible and temporary.
(8) Use of organization charts	In this, an organization chart is prepared to present the position of authority and responsibility.	No organization chat is prepared
(9) Size	They can be huge in size.	They are mainly small in size.

3)Explain in brief the matrix or Grid organization? Also, mention its merits and demerits.
Answer:
Matrix or Grid organization:
When the size and operational field of any organization are too wide and the number of products produced by it and its number of customers is large, it cannot be divided on any of the bases mentioned above. In such a situation, a matrix organization is established. Such organizations are divided on the basis of functions like the production department, purchase department, sales department, finance department, personnel department, etc. Besides this, a separate Project Manager is appointed for different projects.

This is explained through the diagram given below –

From the above diagram, it is clear that a separate Project Manager is appointed to complete the project quickly like Project A, Project B, Project C, etc. The project manager is given full responsibility for that particular project and all the other departmental; officers are instructed to co-operate with him. Project Managers make plans for the project and undertake all the functions of organizing, control, direction, etc. The project manager is responsible for the success or failure of the project. The middle level and lower level officers work under the control of the project manager until the completion. of the project and get involved in their normal activities after the completion of the project.

Thus in a matrix organization, two types of organizational structures work together – Functional and Project. Project managers do not wholly use the services of middle level and lower level officers but make use of their services temporarily according to their needs.

Advantages of Matrix Organisation:

1. Quick Completion of the Project: The project manager makes plans for all the activities of the project like giving orders, direction, etc. Thus the project gets completed quickly.
2. Advantages of Functional as well as project departmentation: Advantages of two types of organization-functional and project, can be availed of Project managers are the experts in their own field and they have the full co-operation of other officers.
3. Flexibility: Such type of organization is flexible as it can be easily implemented without bringing many changes in the existing organizational structure.
4. The economy in costs: There is no need of appointing special staff for each project. Services of departmental officers can be utilized as and when needed by the project manager which leads to economy in costs.

Disadvantages of Matrix organization:

1. Violation of the Principle of Unity of Command: The principle of unity of command is not followed because the officers are responsible to their superior as well as to the project manager. Thus they have to follow more than one boss.
2. The problem of coordination: There is a problem of coordination between the functions of departmental officers and project managers. There arises a conflict between the functions of the two because departmental officers give priority to the activities of their own department whereas project managers give priority to their project work.
3. Lack of Fixation of Responsibility: On non-completion of the project, in time, the project managers normally complain of non-cooperation of the departmental officers.
4. The problem of communication: The problem of internal communication arises.

4) Explain the term Decentralization and mention its importance in business activities?
Answer:
Decentralization:
Decentralisation of authority means systematic dispersal of authority in all departments and at all levels of management. According to Louis Allen decentralization is “the systematic effort to delegate to the lowest levels all authority, except that which can be exercised at central points”. An organization is said to be decentralized when managers at middle and lower levels are given the authority to make decisions and actions on matters relating to their respective areas of work. The top management retains the authority for taking major decisions and formulating policies for the organization as a whole. Top management also retains authority for overall coordination and control of the organization.

For example, let us take the case of a large steel manufacturing company. The board of directors and managing director of the company lay down the overall objectives and policies of the enterprise. Major decisions on product lines, capital investment, marketing methods are taken by the respective heads of departments. The marketing manager, for instance, is authorized to decide the quality and prices of products, channels of distribution, advertising methods, and organizing sales campaigns. The top management of the company does not interfere with his authority. However, departmental managers are required to keep in view the overall policies of the company while making decisions on matters within their authority. This is how a decentralized organization works.

Centralization and decentralization are opposite terms. They should not be confused with the location of work. An organization having ‘ branches in different cities may be centralized. Similarly, a company; maybe decentralized even though all its offices are located in one budding. Centralization and decentralization are relative terms. No organization can be completely centralized or completely decentralized. They exist together.

For example, even in a decentralized organization, the top management retains the authority for-overall policy decisions to ensure coordination and control. The degree of centralization and decentralization differs from one organization to another. According to Henri Fayol, “Everything which goes to increase the subordinates. the role is decentralization; everything which goes to decrease it is centralization.”

Importance of Decentralisation:
The main benefits of decentralization are as follows –
1. Reduction in Burden of Top Executives: Decentralisation helps to reduce the workload of top executives.
They can devote greater time and attention to important policy matters by decentralizing authority for routine operational decisions.

2. Motivation of subordinates: Decentralisation helps to improve the job satisfaction and morale of lower-level managers by satisfying their needs for independence, participation, and status. It also fosters team-spirit and group cohesiveness among the subordinates.

3. Better Decisions: Under decentralization, the authority to make decisions is placed in the hands of those who are responsible for executing the decisions, as a result, more accurate and faster decisions can be taken as the subordinates are well aware of the realities of the situation. This avoids red-tapism and delays.

4. Growth and Diversification: Decentralisation facilitates the growth and diversification of the enterprise. Each product division is given sufficient autonomy for innovations and creativity. The top management can extend leadership over a giant enterprise. A sense of competition can be created among different divisions or departments.

5. Development of managers: When authority is decentralized, subordinates get the opportunity of exercising their own judgment. They learn how to decide and develop managerial skills. As a result, the problem of succession is overcome and the continuity and growth of the organization are ensured. There is a better utilization of lower-level executives.

6. Effective communication: Under decentralization, the span of an organization is wider and there are fewer levels of an organization. Therefore, the communication system becomes more effective. Intimate relationships between superiors and subordinates can be developed.

7. Efficient supervision and control: Managers at lower levels have adequate authority to make changes in work assignments, rechange production-schedules, recommend supervision, and take disciplinary actions. Therefore, more effective supervision can be exercised. Control can JiS-Jnade effective by evaluating the performance of each decentralized unit in the light of clear and predetermined standards. Decentralization permits management by objectives and self-control.

8. Democratic Management: Decentralisation of authority distributes decision making authority at all levels and in all departments. Therefore, it creates democracy in the management of an organization. People at all levels are involved in decision making.

Decentralization, may, however, create problems of coordination and control. It is costly to set up semiautonomous departments and divisions. Lack of competent managers at middle and lower levels hinders decentralization. The degree of decentralization varies from one organization to another. It may also change from one time period to another in the same organization.

5)Give the meaning of delegation of authority and its importance?
Answer:
Meaning of Delegation of Authority:
Delegation of authority takes place when a manager assigns a .part of his work to others and gives them the authority to perform the assigned tasks. The manager who delegates authority holds his subordinates responsible for the proper performance of the assigned tasks. Thus, the process of delegation involves assigning duties, entrusting authority, and imposing responsibility on subordinates.

Some popular definitions of the delegation are given below –

• Delegation of authority merely means granting of authority to subordinates to operate within prescribed limits. Theo Haimann
• Authority is delegated when enterprise discretion is vested in a subordinate by a superior. The entire process of delegation involves the determination of results expected, assignment of tasks, transfer of authority for the accomplishment of these tasks, and the exaction of responsibility for their accomplishment. – Koontz and O’ Donnell.

Importance of Delegation:
When the size of an organization expands, a manager alone cannot do all the work himself. He has to share his work and authority with others. An executive can extend his personal capacity through delegation of authority. Delegation is the means by which a manager can get results through others. Failure to delegate reduces the efficiency of the individual and blocks the development of his juniors. How one delegate determines how one manages. Just as authority is the key to the manager’s job, delegation is the key to the organization.

The main advantages of the delegation are as follows –
1. Relief to Top Executives: Delegation of authority enables a manager to share his workload with his subordinates. It reduces the burden of work on senior executives. By transferring routine work to subordinates, a manager can concentrate on important policy matters. He can, therefore, make better use of his valuable time and ability. Delegation facilitates the proper distribution of workload as it takes place at all levels. The manager who delegates authority can achieve greater results than the one who does not. This is because by delegating authority, a manager secures the cooperation and participation of his subordinates.

2. Scalar Chain: Delegation of authority creates a chain of superior-subordinate relationships among managers. It provides meaning and content to managerial jobs. It also directs and regulates the flow of authority from the top to the bottom of an organization. It serves as a basis of superior-subordinate relations.

3. Specialization: Through delegation, an executive can assign jobs to his subordinates according to abilities and experience. In this way, he can obtain the benefits of the division of work.

4. Quick Decisions: When authority is delegated, lower-level employees can take decisions quickly without consulting senior executives. Subordinates are better in touch with local conditions and can take more practicable decisions within the policy framework laid down by top management.

5. Motivation: Delegation provides a feeling of status and importance to subordinates. Their independence and job satisfaction increase due to the authority they enjoy. They become more willing to work hard and achieve the targets laid down by higher authorities. Thus, delegation promotes a sense of initiative and responsibility among employees. It inspires employees to make full use of their skills.

6. Executive Development: Delegation gives an opportunity to employees to learn decision-making and leadership skills by exercising authority. It helps to improve the quality of personnel at lower levels because they are required to handle situations and solve managerial problems. They acquire competence and problems and can take up higher responsibilities in course of time. In this way, the delegation of authority is a means of developing future managers.

7. Growth and Diversification: Delegation of authority facilitates expansion and growth of the organization. As the quality of managerial talent improves, the organization can face future challenges better. It can grow and expand to a bigger size.

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6).Enumerate the steps in the process of organizing? (3)
Ans: 1) Identification and division of work
2) Grouping Jobs and Departmentalization
3) Assignment of duties
4) Establishing authority relationship
.
7).Distinguish between functional structure and divisional structure. (4M)

Basis	Functional Structure	Divisional Structure.
Formation	It is based on functions	It is based on product lines
Specialisation	Functional Specialisation	Product Specialisation
Responsibility	Difficult to fix on a departments	Easy to fix responsibility
Cost	Economical	Costly
Co ordination	Difficult for multi product company	Easy, because all functions related to a particular product are integrated in one department.
Managerial Development	Difficult, as each functional manager has to report to the top management	Easier, autonomy as well as the chance to perform multiple functions helps in managerial development.

8).What are the advantages and disadvantages of divisional structure? (5/6 )
Ans: Advantages:
1).All activities associated with one product. It can be easily integrated.
2).Decision making is faster.
3).Performance can be easily assessed remedial action can be taken
4). It facilitates expansion and growth as new divisions can be added.
Disadvantages:
1).This gives rise to duplication of effort among its divisions.
2).Manages in each department focus on their own product without thinking the rest of the organization.
3).There may not be full utilization of different equipment’s
4).Conflict may arise among different division.
9) Name the type of organization in which: (1)
Ans. Friendly relationship exists among the members.
b. Official relationship exists among the members.
A: a) Informal Organisation b) Formal Organisation.
10).Distinguish between formal and informal organizations on the basis of( 5/6)
a) Formation b. Purpose c. structure d. Behavior of members e. stability and f. adherence to rules.
Ans:

Basis	Functional Structure	Divisional Structure.
Formation	Deliberately Planned	Emerges Spontaneously among people
Purpose	To achieve organizational goals	To satisfy social and cultural needs
Structure	Well defined structure	Does not have a clear-cut
		Structure
Behavior of members	Standards of behavior	Mutual consent among members
Stability	It is stable	Neither stable nor predictable.
Adherence to rules	Violation of rules may lead to penalties	No such punishment.

In This Post we are  providing Chapter- 4 PLANNING NCERT MOST IMPORTANT QUESTIONS for Class 12 BUSSINESS STUDIES which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON PLANNING

1. How is planning forward looking?
OR
Planning is futuristic’ explain?
Ans. Planning is always for the future and never for the past. It involves peeping in to future, analyzing and preparing plans accordingly. Thus, planning is futuristic as it helps in meeting likely future events effectively and efficiently to best advantage of the organisation.
For example, on the basis of sales forecasts, annual plans for production and sales are drawn.
2. Planning involves decision making”. Explain.
Ans. Planning is essentially a process of making choice from among various alternatives. There will be no need for planning, if there is only one course of action, because there will be no choice. Hence need for planning depends on the availability of alternatives. A manager, after examining and evaluating the various alternatives, chooses the most appropriate one.
3. ‘Planning reduces creativity’. How?
Ans. Usually in an organisation, planning function is performed by the top management and the rest of the members are required to implement these plans. As a result, middle management and other members are neither allowed to deviate from plans nor are they granted authority to act on their own. Hence most of the initiative and creativity in them gets reduced.
4. ‘Planning does not guarantee success’. Comment.
Ans. An organisation is successful only when the plans are effectively drawn and implemented.
A plan must be converted into action otherwise it becomes meaningless. Generally, it is seen that managers are in the habit of depending on previously tried and tested successful plans. But this practice sometimes does not work and may actually lead to failure instead of success.
5. Enumerate the steps involved in the planning process.
Ans. Steps of planning are as follows:
(i) Setting up of objectives
(ii) Developing premises.
(iii) Identifying alternative courses of action.
(iv) Evaluating alternative courses
(v) Selecting an alternative.
(vi) Implementation of plan.
(vii) Follow up

6. What do you mean by methods?
Ans. Methods are standard ways of doing planned jobs for attaining the objectives. They are more detailed than procedures. Methods are helpful in simplification, standardization and systematization of work. For doing different jobs, different methods can be adopted. For example, for imparting training to employees at different levels, different methods of training can be used viz for higher level lectures or seminars and for supervisory level on the job training can be used.
7. What do you mean by rules?
Ans. Rules can be defined as statements that tell us what is to be done and what is not to be done. Deviations from rules are not permitted unless a policy decision is taken. They enforce rigidity and there is fine or penalty if they are not followed. For example, prohibition on sale of tobacco within certain radius of an educational institution is a rule to be followed by all.
8. What do you mean by programmes?
Ans. Programmes are a solid combination of goals, policies, procedures, rules, tasks, assignments, steps to be taken, resources to be employed and other elements necessary to carry out a given course of action. Programmes interlink the objectives, policies and procedures. They work out even the minutest detail within broad policy framework of the organisation.
9. What is meant by budget?
Ans. Budget is a plan in numerical terms which quantifies desired facts and figures. It is a statement of expected results expressed in quantitative terms. For example, a sales budget helps in forecasting the sales of a particular product in different areas during a particular month. Similarly, a budget may be prepared to show the number of workers required in factory at the time of packing the products.
10. Defining ‘organizational objectives’ is the first step in the process of planning.
Explain, in brief, the other steps of this process.
OR
Explain the steps involved in the process of planning.
Ans. It has been rightly said that defining organizational objectives is the first step in the
process of planning. Other steps in the process of planning a as follows:
(i) Establish planning premises
This step involves the establishment of planning premises in which plans are, expected to operate. Planning premises are assumptions relating to future conditions and events which are likely to have an effect on achievement of goals
(ii) Identifying alternative courses of action
Under this step, various possible alternatives for reaching objectives should be identified by managers.
(iii) Evaluating Alternative Courses
This step involves deep evaluation of various alternative courses of action in light of the various objectives to be achieved. The positive and negative aspect of each alternative is evaluated.
(iv) Selecting an alternative
This step involves the selection of the most optimum and realistic plan with least negative results.
(v) Implement the plan
Under this step the best selected plan is put in to action.
(vi) Follow up
Under this step, it is monitored whether the plans are being implement and whether the activities are being performed according to the schedule.
2. Differentiate between procedures and rules.
Ans.
DIFFERENCE BETWEEN PROCEDURES AND RULES

Basis	Procedures	Rules
1. Meaning	Procedure is a guide for action in a given situation.	Rule is a code of conduct governing or restricting flexibility or discretion
2. Nature	Procedures are specified in chronological order.	Rules do not place activities in chronological order
3. Purpose	The purpose of procedure is to facilitate and simplify the operation and eliminate duplication.	The purpose of rule is to s maintain discipline in an organization.
4. Scope	The scope of procedures is wide because it has Its own rules and regulations.	A rule has no procedure.

In This Post we are  providing Chapter- 3 BUSINESS ENVIRONMENT NCERT MOST IMPORTANT QUESTIONS for Class 12 BUSSINESS STUDIES which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON BUSINESS ENVIRONMENT

1. What is included in ‘Political Environment’ of business? State.

Ans. The following components are included in political environment of business:
(i) Constitutional framework
(ii)Political system
(iii)Political structure
(iv) Government interventions in business
(v) Foreign policy and defence policy of the country

2. What is included in ‘Legal Environment’ of business? State.

Ans. Legal environment includes:
(i) Several acts passed by government.
(ii) Court judgements. .                                              .     . ”
(iii) Statutory warnings prescribed under law.
(iv) Legislations passed by the government, e.g. essential commodities, etc

3. What is included in the ‘Technological Environment’ of business? State

Ans. Technological environment includes scientific improvements and innovations, which provide new ways of producing goods and services. It also includes news methods and techniques of operating a business.

4. Business environment includes both specific and general forces. List any four specific forces.  
Ans. Specific forces of business environment are:
(i) Suppliers                                                          (ii)    Investors
(iii) Customers                                                     (iv)     Competitors

5. What is meant by business environment? Explain dynamic nature and uncertainty as features of business environment.
Ans. Business environment is the sum total of all individuals, institutions and other forces like customers, competitors, suppliers, distributors, industry trends, substitutes, regulations government activities, social and cultural factors that are outside the control of the business enterprise but may affect its performance.
Features of business environment are:
Dynamic nature Business environment is dynamic as it keeps on changing. It is not static and its components are highly flexible, e.g. technological improvements, increase in competition, etc.
Uncertainty Business environment is uncertain as it is difficult to predict future happenings when environment changes are taking place frequently

6. Why is the understanding of business environment important for Explain with the help of any four points.  
or
Understanding of environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms? In the light of the statement, explain any four points of importance, of business environment.    
or
Explain any four points of importance of business environment.
or
State any five points which clarify how understanding of business environment helps the managers?    
or
Explain by giving any five reasons why understanding of business environment is important for managers ?
or
Explain by giving any four points, why ‘in the present day competitive market, it is essential for a business to remain alert and aware of its environment’?  
Ans. In the present day of competitive market, it is essential for a business to remain alert and aware of its
environment, because of the following points:
(i) Identify opportunities and getting the first mover advantage Awareness of environment helps an enterprise to identify the opportunities prevailing in the market and they can make strategies to capitalise such opportunities at the earliest, e.g. Maruti Udyog became the leader in the small car market because it was the first, who recognised the need for small cars in the environment.
(ii) Identify threats and early warning signals Environmental awareness helps an enterprise in identifying possible threats in future, so that the enterpirse can take timely measures to minimise the threats and its adverse effects, if any, e.g. when the new firms entered in the mid segment cars (threat), Maruti Udyog increased the production of its Esteem car. Increase in production enabled the company to make faster delivery. As a result, the company captured a substantial share of the market and became a leader in this segment
(iii) Assist in planning and policy formulation Environment awareness helps a business unit to identify opportunities and threats in the market. These serve as a basis for planning future course of action and making policies for the same.
(iv) Tapping useful resources A business environment is an open system which gets resources such as capital, labour, machines, materials, etc from the environment, converts them into goods and services desired by the customers and then supplies its output to the environment. Thus, a business firm depends on its external environment for tapping various resources and for the sale of its output.

7. What is meant by ‘business environment’? Explain any three features of business environment.
or
Explain any four characteristics of business environment.

or
State any five features of business environment.
Ans. Business environment is the sum total of all individuals, institutions and other forces like customers, competitors, suppliers, distributors, industry trends, substitutes, regulations, government activities, social and cultural factors that are outside the control of the business enterprise but may affect its performance.
The main features of business environment are:
(i) Totality of external forces Business environment is the sum total of all external forces outside the control of a business.
(ii) Consists of specific and general forces Specific forces are those, which affects the individual enterprises, viz competitors, customers, investors, and suppliers. Whereas general forces have an impact on all business enterprises. The general forces comprise of social, political, legal, economic and technological forces.
(iii) Complexity Business environment is complex, as to understand it in totality, e.g. it becomes difficult to know the extent of relative impact of social, economic, political, legal and technological, factors on change in demand of a product.
(iv) Uncertainty Business environment is largely uncertain as it is very difficult to predict future happenings, especially when changes take place at a fast pace.
(v) Relativity Business environment is relative as it differs from place to place and region to region.

8. The court passed an order that all schools must have water purifiers for the school children as

• Society in general is more concerned about quality of life.
• Innovative techniques are being developed to manufacture water purifiers at competitive rates.
• Incomes are rising and children at home are also drinking purified water.
• The government is also showing positive attitude towards the water purifier business.

Identify the different dimensions of business environment by quoting from the above details.   
Ans. The court passed an order that all schools must have water purifier’.
The quoted line is depicting legal environment. Business has to function within the framework of laws and regulations of the country. Legal environment exercises significant influence on business activities.
(i) ‘Society in general is more concerned about quality of life’.
The quoted line is depicting the social environment as this environment consists of all the social and cultural forces within which business firms operate
(ii)  ‘Innovative techniques are being developed to manufacture water purifiers at competitive rates’.
The quoted line is depicting the technological environment. It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services.
(iii) ‘Incomes are rising and children at home are also drinking purified water’.
The quoted line is depicting the economic environment. It consists of the factors and forces concerning means of production and distribution of wealth. It includes all such forces of economic development which influence the product’s market scope of business.
(iv) ‘The government is also showing positive attitude towards the water purifier business’.
The quoted line is depicting the political environment. It is concerned with the forces related with political stability, and political conditions that have strong impact on business.

9. The court passed an order to ban polythene bags as

• These bags are creating many environmental problems which affect the life of people in general.
• Society in general is more concerned about quality of life.
•  The government decided to give subsidy to jute industry to promote this business.
• Innovative techniques are being developed to manufacture jute bags at low rates.
• Incomes are rising and people can afford to buy these bags.

Identify the different dimensions of business environment by quoting the lines from the above particulars.  
Ans. ‘The court passed an order to ban polythene bags’.
The quoted line is depicting the legal environment. Business has to function within the framework of laws and regulations of the country. Legal environment exercises significant influence on business activities.
‘Polythene bags are creating many environmental problems which affect the life of people in general’ and ‘society in general is more concerned about quality of life’.
These quoted lines are depicting the social environment, which consists of all the social and cultural forces within which business firms operate.
‘Government decided to give subsidy to jute industry to promote this business’.
The quoted line is depicting the political environment, which is concerned with the forces related with political stability and political conditions that have strong impact on business.
‘Innovative techniques are being developed to manufacture jute bags at low rates’.
The quoted line is depicting the technological environment. It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services.
‘Incomes are rising and people can afford to buy these bags’.
The quoted line is depicting the economic environment. It consists of the factors and forces concerning means of production and distribution of wealth. It includes all such forces of economic development which influence the product’s market scope of business.

10. Management of every enterprise can be benefited from being aware of different dimensions of business environment. Explain any four such dimensions (All India 2010]
Ans. Dimensions of business environment are as follows :
(i) Economic environment It consists of economic factors that influence the business in a country. These factors include Gross National Product, corporate profits, inflation rate, employment, Balance of Payments, interest rates, consumer income, etc. Economic environment in a country has strong influence on the business in that country.
(ii) Social environment It describes the characteristics of the society in which the organisation exists. Literacy rate, customs, value beliefs, life style, demographic features and mobility of population are the part of the social environment. The trend of change can be predicted well in advance. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario.
(iii) Political environment It is the outcome of a combination of various ideologies advocated by different political parties. Every political party has a different attitude towards business community. A live example of this, can be seen during elections when there is a fluctuation in the share market.
(iv) Legal environment It consists of legislation that is passed by the Parliament and state legislatures. This component sets the framework of law within which the business is free to operate. Example of such legislation specifically aims at business operations which include the Trade Marks Act, 1969, Essential Commodities Act, 1955, Standards of Weights and Measures Act, 1969 and Consumer Protection Act, 1986

In This Post we are  providing Chapter- 2 PRINCIPLES OF MANAGEMENT NCERT MOST IMPORTANT QUESTIONS for Class 12BUSSINESS STUDIES which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON PRINCIPLES OF MANAGEMENT

 1. ‘Principles of Management are different from those used in pure science’. Write any one difference.
Ans.The principle of management are not universal in their Application while those in pure science are universal.
2. Which principle does functional foreman ship violate?
Ans. Unity of command
3. Give any one effect of principle of division of work?
Ans. Specialization, speed, accuracy.
4. A sales person is asked to finalize a deal with customer. The marketing manager allows him to give a discount of up to 10% but the Finance Manager allows him to give discount of upto 25%. Which principle is violated here?
Ans. Unity of Command.
6. State any three reasons as to why proper understanding of management principles is necessary.
Ans. Proper understanding of management principles is necessary because of the  following reasons (any three):
(a) They provide managers with useful insight into reality.
(b) They help in optimal utilization of resources and effective administration.
(c) They help in meeting environment requirements.
(d) They are used as basis for management training, education and research.
6. How do management principles ensure optimum utilization of resources and effective administration?
Ans. In every organization, resources such as men, machine, material and money play a vital role. Management principles are designed in such a way that maximum benefits from these resources can be achieved minimum resources wastage. Along with this, the principles of management also help in establishing effective administration by limiting the boundary of managerial discretion that their decisions may be free from personal biases. For example, while deciding the annual budget for different departments, a manager is required to follow the principle of contribution to organizational objectives and not personal preferences
7. Explain briefly the technique of fatigue study?(3or4)
Ans. Fatigue study determines the amount and frequency of rest intervals in completing a task. Workers cannot work at a stretch. After putting in work for a certain periods of time, they reel tired which affects their performance. If they are allowed rest intervals, they will regain their stamina and will resume their work with greater efficiency.
8. Give positive effects of the principle of ‘discipline’.
Ans. Positive effects of the principle of ‘discipline’ are as under:
i) Improves efficiency of the employees.
ii) Systematic work in the organization.
iii) Ensuring that penalties are imposed judicially.
7. Explain the Principle of centralization and decentralization. –
Ans. Centralization means concentration of authority in the hands of few people at the top, whereas decentralization means appropriate distribution of power at every level of   management. According to Fayol,  company must be properly balanced i.e. it should neither be completely centralized nor d e c e n t r a li z e d . There must be some element of both depending upon the profile of the organization. The panchayat system in our country is a very good example of decentralization at the national level.
8. Ms. Ritu and Mr. Mohit are Data Entry Operators in a company having same educational qualifications. Ritu is getting Rs. 5,000 per month and Mohit Rs. 6,000 per month as salary for the same working hours. Which principle of management is violated in the case? Name and explain the principle.
Ans. The principle of ‘equity’ is violated in this case. According to this principle, employees should be given kind, fair and just treatment and there should not be any discrimination based on caste, creed, color, sex etc. Apparently, Ritu is getting less in view of bring a female which is against this principle.
9. Explain the technique ‘Functional Foremanship’.
Ans. Functional foremanship is the extension of the principle of specialization. This technique emphasizes on the separation of planning from execution. To facilitate it, Taylor suggested setting up of “planning in charge” and “production in charge”.
FUNCTIONAL FOREMANSHIP
Planning Incharge: The main function of “planning in charge” is to plan all aspects of a job to be performed. It consists of four positions:
(i) Route clerk: He determines the sequence to perform various mechanical  and manual operations.
(ii) Instruction card clerk: He issues instructions to the workers to be followed by them.
(iii) Time and cost clerk: He is concerned with the framing of time schedule on the basis of determined route. Also, he keeps the record of the cost of operations.
(iv) Disciplinarian: He is concerned with the coordination in each job from planning to successful execution. He enforces rules and regulations and maintains discipline.
Production Incharge: It consists of following four specialists who are concerned with the execution of plans.
(i) Speed Boss: He checks whether work is progressing as per schedule. He ensures timely and accurate completion of jobs.
(ii) Gang Boss: He arranges machines, materials, tools, and equipments properly so that workers can proceed with their work.
(iii) Repair Boss: He ensures that all machines, tools, equipments are in perfect working order.
Inspector: He ensures that the work is done as per the standards of quality set by planning department.
10. Name and explain that principle of Fayol which suggests that communication from top to bottom should follow the official lines of command.
OR
Explain the ‘Principle of Scalar Chain’ with an example.
Ans. In an organization, the formal lines of authority, from highest to lowest level of all superiors and subordinates, are known as scalar chain. The principle of scalar chain suggests that there should be a clear line of authority from top to bottom, linking superiors and subordinates at all levels. The scalar chain serves as a chain of command as well as communication. In normal circumstances, the formal communication is required to be made by following this chain.
Scalar Chain and Gang Plank
Example: The above figure shows the scalar chain linking managers at lower levels with the top management. If D has to communicate with G, The message should ordinarily move up through C and B to A, and then down from A to E, F and G.
Above mentioned chain has follo
wing disadvantages:
(i) It causes delay in reaching communication to the required level.
(iii) Creates the possibility of distortion of information flow as various levels are involved.
To avoid delays and to remove hurdles in the exchange of information, concept of Gang Plank has been suggested by Fayol, shown by the dotted line joining D and G

In This Post we are  providing Chapter- 1 NATURE AND SIGNIFICANCE OF MANAGEMENT NCERT MOST IMPORTANT QUESTIONS for Class 12BUSSINESS STUDIES which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON NATURE AND SIGNIFICANCE OF MANAGEMENT

Question 1

Coordination is the essence of management. Do you agree? Give reasons. 

Ans- Coordination is no doubt the essence of management. Coordination means a path which links up the group functions. It starts from the stage of planning where the objectives and goals of the organisations are set. Division interdependence, common goal, and work allotted are few of the reasons which signify the essence of the management

Question 2.
Distinguish between coordination and cooperation.
Answer:

Co-ordination	Cooperation
1. It is an orderly arrangement of a group effort to provide for unity of action.	1. It is a voluntary desire to help each other
2. Co-ordination includes cooperation, hence it is a wider term.	2. Co-operation is a narrow term as it is a part of co-ordination.
3. It is a deliberate effort made by the management to balance interrelated activities.	3. It is the voluntary effort made by a group of people depending on their mental needs or liking
4. It is a technique.	4. It is an attitude.

Question 3.
Write the characteristics of management and explain any two.
Answer:
Characteristics The key features of management are –

1. Goal-oriented process,
2. all-pervasive,
3. multidimensional,
4. Continuous process,
5. group activity
6. dynamic function,
7. tangible force.

1. Management is a goal-oriented process:  An organization has a set of basic goals which are the basic reason for its existence. These should be simple and clearly stated.

2. Management is all-pervasive: The activities involved in managing an enterprise are common to all organizations whether economic, social, or political Thus it is all-pervasive.

Question 4.
“Lack of proper management results in wastage of time money and efforts.” Do you agree with this statement? Give reasons in support of your answer.
Answer:
Yes, the above-mentioned statement holds true as the reasons are as follows.

1. Means to accomplishing goals:  Management is important because it helps in achieving group goals, increases efficiency, and creates a dynamic organization.
2. Unified direction: Management motivates and directs the workforce by unifying goals with the group goals.
3. Establishes sound industrial relations: The success of any organization depends upon its workforce. It is the only factor of production which is movable in nature. Effective management tries to build a feeling of team and loyalty towards the organization.
4. It looks after for future uncertainties: An effective management prepares the organization for future contingencies and paved the way for its survival and growth. In the ‘ absence of this foresightedness, an organization may be forced to wind up its operations resulting in wastage of time, efforts, and resources.

Question 5.
State two objectives of management. (1993, 1996, 1998)
Answer:
The main two objectives of management are –

1. Maximization of profits at minimum cost.
2. Optimum utilization of the given resources by the organization.

Question 6.
What is meant by Administration? (1992, 1999)
Answer:
Administration means a determination of overall policies, the setting of major objectives, the identification of general-purpose, the laying out of broad programs, etc. It is determinative in nature.

Question 7.
Name any two activities undertaken at the top-level management. (1995, 2001, 2004)
Answer:
The two main functions or activities of top-level management are.

1. It does long-term planning and formulating suitable policies, organizing (determination of organization structure), and controlling.
2. It maintains cordial relations with all outside parties like the shareholders, the government, etc.

Question 8.
State two functions of lower-level management. (1992-1994)
Answer:
The main functions are as follows –

1. It translates the intermediate plan of middle-level management into day to day operating plan.
2. It gives directions to operating employees by assigning jobs, evaluating and correcting their performance and sends information and progress reports to higher management.

Question 9.
Do you think proper Management is an important part of an organization?
or
Explain the importance of management.
Answer:
Yes, management is a universal activity that is integral to any organization. We now examine some of the reasons that have made management so important.

1. Management helps in achieving group goals: Management is required not for itself but for achieving the goals of the organization, the task of a manager is to give a common direction to all.

2. Management increases efficiency:  The aim of a manager is to reduce costs and increase productivity ” through better planning, organizing directing, staffing, and controlling the activities of the organization.

3. Management creates a dynamic organization: All organizations have to function in an environment that is constantly changing.

4. Management helps in achieving personal objectives: A manager motivates and leads his team in such a manner that individual members are able to achieve personal goals while contributing to the overall organizational objective.

5. Management helps in the development of society: An organization has multiple objectives to serve the purpose of the different groups that constitute it. In the process of fulfilling all these management helps in the development of the organization and through that it helps in the development of society. It helps to provide good ‘ quality products and services, creates employment opportunities, and leads the path towards growth and development.

Question 10.
Explain the level of management and their main functions.
Answer:
Level of Management.

Generally speaking, there are three levels in the hierarchy of an organization.

1. Top Management:
They consist of the senior-most executives of the organization by whatever name they are called. They are usually referred to as the chairman, the chief executive officer, chief operating officer, president, and vice-president. Top management is a team consisting of managers from different functional levels. Their basic task is to integrate diverse elements and coordinate the activities of different departments according to the overall objectives of the organization. They are responsible for the welfare and survival of the organization. Their job is complex and stressful.

2. Middle Management:
It is the link between top and lower-level management. They are subordinate to top managers and superior to the first-line managers. They are usually known as division heads, operation managers, or plant superintendent. They are responsible for implementing and controlling plans developed by top management. At the same time, they are responsible for all the activities of first-line management. Their main task is to carry out the plans formulated by the top management and at the same time, they are responsible for all the activities of first-line managers.

3. Operational Management:
Foreman and supervisors comprise the lower level in the organization. Supervisors directly oversee the efforts of the workforce. Their authority and responsibility are limited according to the plans drawn by the top management. They play a very important role in the organization since they interact with the actual workforce and pass on instructions of the middle management to the Workers. Through the quality of their efforts of output is maintained. Wastage of materials is minimized and safety standards are maintained.

In This Post we are  providing Chapter- 4 RECONSTITUTION OF PARTNERSHIP FIRM : RETIREMENT/DEATH OF A PARTNER NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON RECONSTITUTION OF PARTNERSHIP FIRM : RETIREMENT/DEATH OF A PARTNER

Question 1:

Distinguish between sacrificing ratio and gaining ratio.

ANSWER:

Basis of Difference	Sacrificing ratio	Gaining Ratio
1. Meaning	It is the ratio in which old partners agree to sacrifice their share of profit in favour of new partners/partner	It is the ratio in which continuing partner acquires the share of profit from outgoing partner/partner
2. Calculation	Sacrificing Ratio = Old Ratio – New Ratio	Gaining Ratio = New Ratio – Old Ratio
3. Time	It is calculated at the time of admission of new partners/partner.	It is calculated at the time of retirement/death of old partners/partner.
4. Objective	It is calculated to ascertain the share of profit and loss given up by the existing partners in favour of new partners/partner.	It is calculated to ascertain the share of profit and loss acquired by the remaining partners (of the new firm in case of retirement) from the retiring or deceased partner.
5. Effect	It reduces the profit share of the existing partners.	It increases the profit share of the remaining partners.

Question 2:

Why do firm revaluate assets and reassess their liabilities on retirement or on the event of death of a partner?

ANSWER:

At the time of retirement or death of a partner, it becomes inevitable to revalue the assets and liabilities of the firm for ascertaining their true and fair values. The revaluation is necessary as the value of assets and liabilities may increase or decrease with the passage of time. Further, it may be possible that there are certain assets and liabilities that remained unrecorded in the books of accounts. The retiring or the deceased partner may be benefited or may bear loss due to change in the values of assets and liabilities. Therefore, the revaluation of the assets and liabilities is necessary in order to ascertain the true profit or loss that is to be divided among all the partners in their old profit sharing ratio.

Question 3:

Why a retiring/deceased partner is entitled to a share of goodwill of the firm?

ANSWER:

Goodwill is an intangible asset of a firm that is earned by the efforts of all the partners of the firm. After the retirement or death of a partner, the fruits of the past performance and reputation will be shared only by the remaining partners. Thus the remaining partners should compensate the retiring or the deceased partner by entitling him/her a share of firm’s goodwill.

Question 4:

Explain the treatment of goodwill at the time of retirement or on the event of death of a partner?

ANSWER:

At the time of retirement or at the event of death of a partner, the goodwill is adjusted among the partners in gaining ratio with the share of goodwill of the retiring or the deceased partner. As per Para 16 of Accounting Standard 10, it is mandatory to record goodwill in the books only when consideration in money or money’s worth has been paid for it.

In case of retirement and death of a partner, goodwill account cannot be raised. There are namely two probable situations on which the treatment of goodwill rests.

1. If goodwill already appears in the books of the firm.

2. If no goodwill appears in the books of the firm.

Situation 1: If goodwill already appears in the books of the firm.

Step 1: Write off the existing goodwill

If goodwill already appears in the old balance sheet of the firm (if mentioned in the question), then first of all, this goodwill should be written off and should be distributed among all the partners of the firm including the retiring or the deceased partner in their old profit sharing ratio. The following Journal entry is passed to write off the old/existing goodwill.

All Partners’ Capital A/c	Dr.
	To Goodwill A/c
(Goodwill written of among all the partners in theirold ratio)

Step 2: Adjusting goodwill through partner’s capital account.

After writing off the old goodwill, the goodwill need to be adjusted through the partner’s capital account with the share of the goodwill of the retiring or the deceased partner. The following Journal entry is passed.

Remaining Partner’s Capital A/c	Dr.
	To Retiring/Deceased Partner’s Capital A/c
(Gaining Partner’s Capital A/c is debited in theirgaining share and retiring/deceased partner’s capitalaccount in credited for their share of goodwill)

Situation 2: If no goodwill appears in the books of the firm.

As no goodwill appears in the books of the firm, so the goodwill is adjusted through the partner’s capital account with the share of the goodwill of the retiring or the deceased partner. The following Journal entry is passed. 

Remaining Partner’s Capital A/c	Dr.
	To Retiring/Deceased Partner’s Capital A/c
(Gaining partner’s capital account is debited in their gainingshare and retiring/deceased partner’s capital account incredited for their share of goodwill)

Question 5:

Discuss the various methods of computing the share in profits in the event of death of a partner.

ANSWER:

In case of death of a partner during the year, his/her executer is entitled for share of profit up to the date of death of the partner.

The share of profit can be calculated by one of the two methods.

1) On time basis: Under this method, profit up to the date of the death of the partner is calculated on the basis of the last year’s/years’ profit or average profit of last few years. In this approach, it is assumed that the profit will be uniform throughout the current year. The deceased partner will be entitled for the share of the profit proportionately up to the date of his/her death.

Share of Deceased Partner in Profit =

Example- A, B and C are equal partners. The profit of the firm for the years 2008, 2009 and 2010 are Rs 10,00,000, Rs 7,00,000 and Rs 13,00,000 respectively. C dies on April 30, 2011. The share of C in the firm’s profit will be calculated on the basis of average profit of last three years. Firm closes its books every year on December 31.

In this case, C’s share in the profits will be calculated for four months, i.e. from January 01, 2011 to April 30, 2011.

2) On the sale basis: Under this method, profit is calculated on the basis of last year’s sale. In this situation, it is assumed that the net profit margin of the current year’s sale is similar to that of the last year’s.

Share of Deceased Partner’s Profit =×Sales from the beginning of the current year up to the date of death × Share of deceased partner

Example- X Y and Z are equal partners. The last year’s sales and profit were Rs 25,00,000 and Rs 2,50,000. Z died on the April 30, 2011. Sales of the current year till the date of Z’s death amounts to Rs 12,00,000. Firm closes its books on December 31 every year.

Question 6:

Digvijay, Brijesh and Parakaram were partners in a firm sharing profits in the ratio of 2:2:1. Their Balance Sheet as on March 31, 2017 was as follows:

Liabilities	AmountRs	Assets	AmountRs
Creditors	49,000	Cash	8,000
Reserves	18,500	Debtors	19,000
Digvijay’s Capital	82,000	Stock	42,000
Brijesh’s Capital	60,000	Buildings	2,07,000
Parakaram’s Capital	75,500	Patents	9,000
	2,85,000		2,85,000

Brijesh retired on March 31, 2017 on the following terms:

(i)    Goodwill of the firm was valued at Rs 70,000 and was not to appear in the books.

(ii)   Bad debts amounting to Rs 2,000 were to be written off.

(iii)  Patents were considered as valueless.

Prepare Revaluation Account, Partners’ Capital Accounts and the Balance Sheet of Digvijay and Parakaram after Brijesh’s retirement.

ANSWER:

Books of Digvijay and ParakaramRevaluation Account
Dr.		Cr.
Particular	AmountRs	Particular	AmountRs
Bad Debts	2,000
Patents	9,000	Loss transferred to Capital Account:
		Digvijay	4,400
		Brijesh	4,400
		Parakaram	2,200
	11,000		11,000

Partners’ Capital Account
Dr.		Cr.
Particularss	Digvijay	Brijesh	Parakaram	Particularss	Digvijay	Brijesh	Parakaram
Brijesh’s Capital A/c	18,667		9,333	Balance b/d	82,000	60,000	75,500
Revaluation (Loss)	4,400	4,400	2,200	Digvijay’s Capital A/c		18,667
Brijesh’s Loan		91,000		Parakaram’s Capital A/c		9,333
Balance c/d	66,333		67,667	Reserves	7,400	7,400	3,700
	89,400	95,400	79,200		89,400	95,400	79,200

Balance Sheet as on March 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Creditors	49,000	Cash	8,000
Brijesh’s Loan	91,000	Debtors	19,000
		Less: Bad Debts	2,000	17,000
Digvijay’s Capital A/c	66,333	Stock	42,000
Parakaram’s Capital A/c	67,667	Buildings	2,07,000
	2,74,000		2,74,000

Note: As sufficient balance is not available to pay the amount due to Brijesh, the balance of his Capital Account transferred to his Loan Account.

Working Note:

1. Brijesh’s Share of Goodwill

Total goodwill of the firm ´ Retiring Partner’s Share 

2. Gaining Ratio = New Ratio – Old Ratio

Digvijay’s Share

Parakaram’s Share

Gaining ratio between Digvijay and Parakaram = 4 : 2 or 2 : 1

Question 7:

The Balance Sheet of Rajesh, Pramod and Nishant who were sharing profits in proportion to their capitals stood as on March 31, 2015:

Books of Rajesh, Pramod and NishantBalance Sheet as on March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	6,250	Factory Building	12,000
Sundry Creditors	10,000	Debtors	10,500
Reserve Fund	2,750	Less: Reserve	500	10,000
Capital Accounts:		Bills Receivable	7,000
Rajesh	20,000		Stock	15,500
Pramod	15,000		Plant and Machinery	11,500
Nishant	15,000	50,000	Bank Balance	13,000
	69,000		69,000

Pramod retired on the date of Balance Sheet and the following adjustments were made:

a) Stock was valued at 10% less than the book value.

b) Factory buildings were appreciated by 12%.

c) Reserve for doubtful debts be created up to 5%.

d) Reserve for legal charges to be made at Rs 265.

e) The goodwill of the firm be fixed at Rs 10,000.

f) The capital of the new firm be fixed at Rs 30,000. The continuing partners decide to keep their capitals in the new profit sharing ratio of 3:2.

Pass journal entries and prepare the balance sheet of the reconstituted firm after transferring the balance in Pramod’s Capital account to his loan account.

ANSWER:

Journal
Date	Particulars	L.F.	AmountRs	AmountRs
2015
Mar. 31	Revaluation A/c	Dr.		1,840
	To Stock A/c				1,550
	To Reserve for Doubtful Debts A/c				25
	To Reserve for Legal Charges A/c				265
	(Assets and Liabilities are revalued)
Mar. 31	Factory Building A/c	Dr.		1,440
	To Revaluation A/c				1,440
	( Factory Building appreciated)
Mar. 31	Rajesh’s Capital A/c	Dr.		160
	Pramod’s Capital A/c	Dr.		120
	Nishant’s Capital A/c	Dr.		120
	To Revaluation A/c				400
	(Loss on Revaluation adjusted to Partners’ Capital Account)
Mar. 31	Rajesh’s Capital A/c	Dr.		2,000
	Nishant’s Capital A/c	Dr.		1,000
	To Pramod Capital’s A/c				3,000
	(Pramod’s share of goodwill adjusted to Rajesh’s and Nishant’s Capital Account in their gaining ratio)
Mar. 31	Reserve Fund A/c	Dr.		2,750
	To Rajesh’s Capital A/c				1,100
	To Pramod’s Capital A/c				825
	To Nishant’s Capital A/c				825
	(Reserve Fund distributed all the partners)
Mar. 31	Pramod’s Capital A/c	Dr.		18,705
	To Pramod’s Loan A/c				18,705
	(Pramod’s Capital transferred to his Loan Account)
Mar. 31	Rajesh’s Capital A/c	Dr.		940
	Nishant’s Capital A/c	Dr.		2,705
	To Rajesh’s Current A/c				940
	To Nishant’s Current A/c				2,705
	(Excess in Capital Account is transferred to Current Account)

Parters’ Capital Account
Dr.	Cr.
Particulars	Rajesh	Pramod	Nishant	Particulars	Rajesh	Pramod	Nishant
Revaluation (Loss)	160	120	120	Balance b/d	20,000	15,000	15,000
Pramod’s Capital A/c	2,000		1,000	Reserve Fund	1,100	825	825
Pramod’s Loan A/c		18,705		Rajesh’s Capital A/c		2,000
Rajesh’s Current A/c	940			Nishant’s Capital A/c		1,000
Nishant’s Current A/c			2,705
Balance c/d	18,000		12,000
	21,100	18,825	15,825		21,100	18,825	15,825

Balance Sheet as on March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	6,250	Plant and Machinery	11,500
Sundry Creditors	10,000	Debtors	10,500
Reserve for Legal Charges	265	Less: Reserve	(525)	9,975
Pramod’s Loan	18,705	Bills Receivable	7,000
Current Account:		Stock	15,500
Rajesh	940		Less: 10% Depreciation	(1,550)	13,950
Nishant	2,705	3,645
Capital Account:		Factory Building	12,000	13,440
Rajesh	18,000		Add: 12% Appreciation	1,440
Nishant	12,000	30,000	Bank Balance	13,000
	68,865		68,865

Working Notes:

1) Pramod’s share of goodwill = Total goodwill of the firm × Retiring Partner’s Share = 

2) Gaining Ratio = New Ratio − Old Ratio

Gaining Ratio between Rajesh and Nishant = 2:1

NOTE: In the above solution, in order to adjust the capital of remaining partners in the new firm according to their new profit sharing ratio, the surplus or the deficit of Capital Account is transferred to their Current Account. But, in order to match the answer with that of given in the book, the surplus or the deficit amount of the Partners’ Capital Account, will either be withdrawn or brought in by the old partners. This treatment will be shown in the Partners’ Capital itself and no need to transfer the surplus or deficit capital balance to their Current Accounts. The following Journal entry is passed to record the withdrawal of surplus capital by the partners.

If existing partners withdraw their excess capital

Journal entry

Rajesh’s Capital A/c	Dr.	940
Nishant’s Capital A/c	Dr.	2,705
To Bank A/c		3,645
(Surplus Capital withdrawn)

Balance Sheet as on March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	6,250	Plant and Machinery	11,500
Sundry Creditors	10,000	Debtors	10,500
Reserve for Legal Charges	265	Less: Reserve	(525)	9,975
Pramod’s Loan	18,705	Bills Receivable	7,000
Capital:		Stock	15,500
Rajesh	18,000		Less: 10% Depreciation	(1,550)	13,950
Nishant	12,000	30,000
			Factory Building	12,000
		Add: 12% Appreciation	1,440	13,440
		Bank Balance	9,355
	65,220		65,220

Question 8:

Following is the Balance Sheet of Jain, Gupta and Malik as on March 31, 2016.

Books of Jain, Gupta and MalikBalance Sheet as on March 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Sundry Creditors	19,800	Land and Building	26,000
Telephone Bills Outstanding	300	Bonds	14,370
Accounts Payable	8,950	Cash	5,500
Accumulated Profits	16,750	Bills Receivable	23,450
		Sundry Debtors	26,700
Capitals :		Stock	18,100
Jain	40,000		Office Furniture	18,250
Gupta	60,000		Plants and Machinery	20,230
Malik	20,000	1,20,000	Computers	13,200
	1,65,800		1,65,800

The partners have been sharing profits in the ratio of 5:3:2. Malik decides to retire from business on April 1, 2016 and his share in the business is to be calculated as per the following terms of revaluation of assets and liabilities : Stock, Rs 20,000; Office furniture, Rs 14,250; Plant and Machinery Rs 23,530; Land and Building Rs 20,000.

A provision of Rs 1,700 to be created for doubtful debts. The goodwill of the firm is valued at Rs 9,000.

The continuing partners agreed to pay Rs 16,500 as cash on retirement of Malik, to be contributed by continuing partners in the ratio of 3:2. The balance in the capital account of Malik will be treated as loan.

Prepare Revaluation account, capital accounts, and Balance Sheet of the reconstituted firm.

ANSWER:

In the books of Jain and Gupta Revaluation Account
Dr.	Cr.
Particulars	AmountRs	Particulars	AmountRs
Office Furniture	4,000	Stock	1,900
Land and Building	6,000	Plant and Machinery	3,300
Provision for Doubtful Debts	1,700	Loss transferred to
		Jain’s Capital A/c	3,250
		Gupta’s Capital A/c	1,950
		Malik’s Capital A/c	1,300	6,500
	11,700		11,700

Partners’ Capital Account
Dr.	Cr.
Particulars	Jain	Gupta	Malik	Particulars	Jain	Gupta	Malik
Revaluation (Loss)	3,250	1,950	1,300	Balance b/d	40,000	60,000	20,000
Malik’s Capital	1,125	675		Accumulated Profits	8,375	5,025	3,350
Cash			16,500	Jain’s Capital A/c			1,125
Malik’s Loan			7,350	Gupta’s Capital A/c			675
Balance c/d	53,900	69,000		Cash	9,900	6,600
	58,275	71,625	25,150		58,275	71,625	25,150

Balance Sheet
Liabilities	AmountRs	Assets	AmountRs
Sundry Creditors	19,800	Stock (18,100 + 1,900)	20,000
Telephone Bills Outstanding	300	Bonds	14,370
Accounts Payable	8,950	Cash	5,500
Malik’s Loan	7,350	Bills Receivable	23,450
		Sundry Debtors	26,700
Partners’ Capital:		Less: Provision for Bad Debts	1,700	25,000
Jain	53,900		Land and Building (26,000 – 6,000)	20,000
Gupta	69,000	1,22,900	Office Furniture (18,250 – 4,000)	14,250
		Plant and Machinery (20,230 + 3,300)	23,530
		Computers	13,200
	1,59,300		1,59,300

Working Note:

1) Malik’s share of goodwill = Total Goodwill × Retiring Partner Share = 

2) Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Jain and Gupta = 10:6 or 5:3

Question 9:

Arti, Bharti and Seema are partners sharing profits in the proportion of 3:2:1 and their Balance Sheet as on March 31, 2016 stood as follows:

Books of Arti, Bharti and SeemaBalance Sheet as on March 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Bills Payable	12,000	Buildings	21,000
Creditors	14,000	Cash in Hand	12,000
General Reserve	12,000	Bank	13,700
Capitals:		Debtors	12,000
Arti 20,000		Bills Receivable	4,300
Bharti	12,000		Stock	1,750
Seema	8,000	40,000	Investment	13,250
	78,000		78,000

Bharti died on June 12, 2016 and according to the deed of the said partnership, her executors are entitled to be paid as under:

(a) The capital to her credit at the time of her death and interest thereon @ 10% per annum.

(b) Her proportionate share of reserve fund.

(c) Her share of profits for the intervening period will be based on the sales during that period, which were calculated as Rs 1,00,000. The rate of profit during past three years had been 10% on sales.

(d) Goodwill according to her share of profit to be calculated by taking twice the amount of the average profit of the last three years less 20%. The profits of the previous years were:

2013 – Rs 8,200

2014 – Rs 9,000

2015 – Rs 9,800

The investments were sold for Rs 16,200 and her executors were paid out. Pass the necessary journal entries and write the account of the executors of Bharti.

ANSWER:

Books of Arti and SeemaJournal
Date	Particulars	L.F.	AmountRs	AmountRs
2016
June 12	Interest on Capital A/c	Dr.		240
	General Reserve A/c	Dr.		4,000
	Profit and Loss (Suspense) A/c	Dr.		3,333
	To Bharti’s Capital A/c				7,573
	(Profit, interest and general reserve are in credited toBharti’s Capital account)
June 12	Arti’s Capital A/c	Dr.		3,600
	Seema’s Capital A/c	Dr.		1,200
	To Bharti’s Capital A/c				4,800
	(Bharti’s share of goodwill adjusted to Arti’s andSeema’s Capital Account in their gaining ratio, 3:1)
June 12	Bharti’s Capital A/c	Dr.		24,373
	To Bharti’s Executor’s A/c				24,373
	(Bharti’s capital account is transferred to her executor’saccount)
June 12	Bank A/c	Dr.		16,200
	To Investment A/c				13,250
	To Profit on Sale of Investment				2,950
	(Investment sold)
June 12	Bharti’s Executor A/c	Dr.		24,373
	To Bank A/c				24,373
	(Bharti Executor paid)

Bharti’s Capital Account
Dr.	Cr.
Date	Particulars	J.F.	AmountRs	Date	Particulars	J.F.	AmountRs
2016				2016
June 12	Bharti’s Executor’s A/c		24,373	Mar. 31	Balance b/d		12,000
				June 12	Interest on Capital		240
					Profit and Loss (Suspense)		3,333
					General Reserve		4,000
					Arti’s Capital A/c		3,600
					Seema’s Capital A/c		1,200
			24,373				24,373

Bharti’s Executor’s Account
Dr.	Cr.
Date	Particulars	J.F.	AmountRs	Date	Particulars	J.F.	AmountRs
2016				2016
June 12	Bank		24,373	June 12	Bharti’s Capital A/c		24,373
			24,373				24,373

Working Notes:

1. Bharti’s share of profit = Profit is 10% of sales

Sales during the last year for that period were Rs 1,00,000

If sales are Rs 1,00,000, then the profit is Rs 10,000

2. Bharti’s Share of Goodwill

Goodwill of the firm = Average Profit × Number of Years Purchase

Or, 9,000 − 20% of 9,000 = 9,000 − 1,800 = Rs 7,200

Goodwill of the firm = 7,200 × 2 = Rs 14,400

3. Gaining Ratio = New Ratio − Old Ratio

Gaining ratio between Arti and Seema = 3:1

4. Interest on Capital for 73 days, i.e. from April 1, 2016 to June 12, 2016

Interest on capital = Amount of Capital × Ratio of Interest × Period 

Question 10:

Nithya, Sathya and Mithya were partners sharing profits and losses in the ratio of 5:3:2. Their Balance Sheet as on March 31, 2015 was as follows:

Books of Nithya, Sathya and Mithya Balance Sheet at March 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Creditors	14,000	Investments	10,000
Reserve Fund	6,000	Goodwill	5,000
Capitals:		Premises	20,000
Nithya	30,000		Patents	6,000
Sathya	30,000		Machinery	30,000
Mithya	20,000	80,000	Stock	13,000
		Debtors	8,000
		Bank	8,000
	1,00,000		1,00,000

Mithya dies on August 1, 2015. The agreement between the executors of Mithya and the partners stated that:

(a) Goodwill of the firm be valued at  times the average profits of last four years. The profits of four years were : in 2011-12, Rs 13,000; in 2012-13, Rs 12,000; in 2013-14, Rs 16,000; and in 2014-15, Rs 15,000.

(b) The patents are to be valued at Rs 8,000, Machinery at Rs 25,000 and Premises at Rs 25,000.

(c) The share of profit of Mithya should be calculated on the basis of the profit of 2014-15.

(d) Rs 4,200 should be paid immediately and the balance should be paid in 4 equal half-yearly instalments carrying interest @ 10%.

Record the necessary journal entries to give effect to the above and write the executor’s account till the amount is fully paid. Also prepare the Balance Sheet of Nithya and Sathya as it would appear on August 1, 2015 after giving effect to the adjustments.

ANSWER:

Books of Nithya and Sathya Journal
Date	Particulars	L.F.	AmountRs	AmountRs
2015
Aug. 1	Nithya’s Capital A/c	Dr.		2,500
	Sathya’s Capital A/c	Dr.		1,500
	Mithya’s Capital A/c	Dr.		1,000
	To Goodwill A/c				5,000
	(Goodwill written off among all the partners)
Aug. 1	Patents A/c	Dr.		2,000
	Premises A/c	Dr.		5,000
	To Revaluation A/c				7,000
	(Increase in the value of patents and premises)
Aug. 1	Revaluation A/c	Dr.		5,000
	To Machinery A/c				5,000
	(Decrease in the value of machinery)
Aug. 1	Revaluation A/c	Dr.		2,000
	To Nithya’s Capital A/c				1,000
	To Sathya’s Capital A/c				600
	To Mithya’s Capital A/c				400
	(Profit on revaluation of assets and liabilities transferredto Partners’ Capital Account)
Aug. 1	Reserve Fund A/c	Dr.		6,000
	To Nithya’s Capital A/c				3,000
	To Sathya’s Capital A/c				1,800
	To Mithya’s Capital A/c				1,200
	(Reserve Fund transferred to Partners’ Capital Account)
Aug. 1	Nithya’s Capital A/c	Dr.		4,375
	Sathya’s Capital A/c	Dr.		2,625
	To Mithya’s Capital A/c				7,000
	(Mithya’s share of goodwill adjusted to Nithya’s andSathya’s Capital Account in their gaining ratio, 5:3)
Aug. 1	Profit and Loss A/c (Suspense)	Dr.		1,000
	To Mithya’s Capital A/c				1,000
	(Profit till date of death credited to Mithya’s CapitalAccount)
Aug. 1	Mithya’s Capital A/c	Dr.		28,600
	To Mithya Executors A/c				28,600
	(Mithya’s Capital Account transferred to her executoraccount)
Aug. 1	Mithya Executor’s A/c	Dr.		4,200
	To Cash A/c				4,200
	(Cash paid to Mithya’s executor)

Mithya Executor’s Account
Dr.	Cr.
Date	Particulars	J.F.	AmountRs	Date	Particulars	J.F.	AmountRs
2015				2015
Aug. 1 2016	Bank		4,200	Aug. 1 2016	Mithya’s Capital A/c		28,600
Jan. 31	Bank (6,100 + 1220)		7,320	Jan. 31	Interest (24,400×10100×612)(24,400×10100×612)		1,220
Mar. 31	Balance c/d		18,605	Mar. 31	Interest (18,300×10100×212)(18,300×10100×212)		305
			30,125					30,125
2016				2016
July 31 2017	Bank (6,100 + 305 + 610)		7,015	April 01 July 31 2017	Balance b/d Interest (18,300×10100×412)(18,300×10100×412)		18,605 610
Jan. 31	Bank (6,100 + 610)		6,710	Jan. 31	Interest (12,200×10100×612)(12,200×10100×612)		610
Mar. 31	Balance c/d		6202	Mar. 31	Interest (6,100×10100×212)(6,100×10100×212)		102
			19,927				19,927
2017				2017
July 31	Bank (6,100 + 102 + 203)		6,405	April 01	Balance b/d		6,202
				July 31	Interest (6,100×10100×412)(6,100×10100×412)		203
			6,405					6,405

Balance Sheet As on August 31, 2015
Liabilities	AmountRs	Assets	AmountRs
Creditors	14,000	Investments	10,000
Mithya’s Executor’s Loan A/c	24,400	Premises	25,000
Partners’ Capital A/c		Machinery	25,000
Nithya	27,125		Stock	13,000
Sathya	28,275	55,400	Debtors	8,000
		Patents	8,000
		Bank (8,000 – 4,200)	3,800
		Profit and Loss (Suspense)	1,000
	93,800		93,800

Working Notes:

1.

Partners’ Capital Accounts
Dr.	Cr.
Particulars	Nithya	Sathya	Mithya	Particulars	Nithya	Sathya	Mithya
Goodwill	2,500	1,500	1,000	Balance b/d	30,000	30,000	20,000
Mithya’s Capital A/c	4,375	2,625		Revaluation A/c	1,000	600	400
Mithya’s Executor’s A/c			28,600	Reserve Fund	3,000	1,800	1,200
Balance c/d	27,125	28,275		Profit and Loss A/c (Suspense)			1,000
				Nithya’s Capital A/c			4,375
				Sathya’s Capital A/c			2,625
	34,000	32,400	29,600		34,000	32,400	29,600

2. Mithya’s Share of Profit:

Previous year’s profit × Proportionate Period × Share of Profit 

3. Mithya’s share of Goodwill

Goodwill of a firm = Average Profit × Number of Year’s Purchase

4. Gaining Ratio = New Ratio – Old Ratio

Gaining Ratio between Nithya and Sathya = 5:3

In This Post we are  providing Chapter- 3 RECONSTITUTION OF PARTNERSHIP FIRM :ADMISSION OF A PARTNER NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON RECONSTITUTION OF PARTNERSHIP FIRM :ADMISSION OF A PARTNER

Question 1.
A, B and C were partners in a firm sharing profits in the ratio of 3 : 2 : 1. D was admitted into the firm with 1/4th share in profit, which he got 3/16th from A and 1/16th from B. The total capital of the firm as agreed upon was ₹ 1,20,000 and D brought in cash equivalent to 1/4th of this amount as his capital. The capital of other partners also had to be adjusted in the ratio of their respective share in profits by bringing in or paying cash. The capitals of A, B and C after all adjustments related to revaluation of assets and reassessment of liabilities were ₹ 40,000; ₹ 35,000 and ₹ 30,000 respectively.
Calculate the new capitals of A, B and C and record the necessary journal entries for the above transactions.
Answer:

Question 2.
P, Q and R were partners in a firm sharing profits and losses equally. S was admitted as a new partner for 1/4th share in the profits. The total capital of the new firm as agreed between P, Q, R and S was ₹ 2,00,000 and S brought in cash equivalent to 1/4th of this amount as his capital. The capitals of P, Q and R were also to be adjusted in their profit sharing ratio by bringing in or paying off cash as the case may be. The capitals of P, Q and R after doing adjustments related to revolution of assets and reassessment of liabilities were ₹ 40,000; ₹ 50,000 and ₹ 60,000 respectively.
Calculate the new capital of P, Q and R pass necessary journal entries for the above transactions in the books of the firm.
Answer:

Question 3.
Anita, Geeta, Sunita and Lata were partners in a firm. They admitted Kavita as a new partner for 1/5th share in the profits. Kavita acquired her share equally from Anita, Geeta, Sunita and Lata. The total capital of the new firm was agreed at ₹ 4,00,000. Kavita brought cash equal to 1/5th of the total capital as her capital and the capital of Anita, Geeta, Sunita and Lata were to be adjusted according to the new profit sharing ratio. For this necessary cash was to be brought by or paid to Anita, Geeta, Sunita and Lata as the case may be. After doing necessary adjustments related to revaluation of assets and reassessment of liabilities the balances in the capital accounts of Anita, Geeta, Sunita and Lata were Anita ₹ 80,000; Geeta ₹ 85,000; Sunita ₹ 75,000 and Lata ₹ 80,000.
Calculate the new capitals of Anita, Geeta, Sunita and Lata and pass necessary journal entries for the above transactions in the books of the firm.
Answer:

Question 4.
A business earned average profits of ₹ 6,00,000 during the last few years. The normal rate of profits in the similar type of business is 10%. The total value of assets and liabilities of the business were ₹ 22,00,000 and ₹ 5,60,000 respectively. Calculate the value of goodwill of the firm by super profit method if the good will is
valued at 2 1/2 years’ purchase of super profits. (CBSE Outside Delhi 2014)
Answer:

Question 5.
Geeta, Sunita and Anita were partners in a firm sharing profits in the ratio of 5 : 3 : 2. On 1.1.2015 they admitted Yogita as a new partner for 1/10 th share in the profits. On Yogita’s admission, the Profit and Loss Account of the firm was showing a debit balance of ₹ 20,000 which was credited by the accountant of the firm to the capital accounts of Geeta, Sunita and Anita in their profit sharing ratio. Did the accountant give correct treatment₹ Give reason in support of your answer.
Answer:
No, the accountant didn’t give correct treatment as capital account of the partners are to be debited.

Question 6.
Chander and Damini were partners in a firm sharing profits and losses equally. On 31st March, 2017 their Balance Sheet was as follows:

On 1.4.2017, they admitted Elina as a new partner for l/3rd share in the profits on the following conditions :

(i) Elina will bring ₹3,00,000 as her capital and ₹ 50,000 as her share of goodwill premium, half of which will be withdrawn by Chander and Damini.
(ii) Debtors to the extent of ₹5,000 were unrecorded.
(iii) Furniture will be reduced by 10% and 5% provision for bad and doubtful debts will be created on bills receivables and debtors.
(iv) Value of land and building will be appreciated by 20%.
(v) There being a claim against the firm for damages, a liability to the extent of ₹8,000 will be created for the same. Prepare Revaluation Account and Partners’ Capital Accounts. (CBSE 2018-19)
Answer:

Question 7.
P & K were partners in a firm. On March 31, 2017 their Balance Sheet was as follows: Balance Sheet as at March 31, 2017.

On April 1,2017, they decided to admit C as a new partner for 1/4th share in profits on the following terms:

(i) C’s Loan will be converted into his capital.
(ii) C will bring his share of goodwill premium by cheque. Goodwill of the firm will be calculated on the basis of Average Profits of previous three years. Profits for the year ended March 31, 2015 and March 31, 2016 were ₹ 55,000 and ₹ 1,00,000 respectively.
(iii) 10% depreciation will be charged on Plant & Machinery and Land & Building will be appreciated by 5%.
(iv) Capitals of P & K will be adjusted on the basis C’s capital. Adjustments be done through bank and in case required overdraft facility be availed.
Pass necessary Journal entries on C’s admission. (CBSE Sample Paper 2017-18)
Answer:

Question 8.
Ashish and Dutta were partners in a firm sharing profits in 3 : 2 ratio. On Jan. 01,2014 they admitted Vimal for 1/5 share in the profits. The Balance Sheet of Ashish and Dutta as on Dec. 31, 2013 was as follows:


It was agreed that:
(i) The value of Land and Building be increased by ₹ 15,000.
(ii) The value of plant be increased by ₹ 10,000.
(iii) Goodwill of the firm be valued at ₹ 20,000.
(iv) Vimal to bring in capital to the extent of l/5th of the total capital of the new firm. Record the necessary journal entries and prepare Balance Sheet after Vimal’s admission.
Answer:

Question 9.
Divya, Yasmin and Fatima are partners in a firm, sharing profits and losses in 11 : 7 : 2 respectively. The balance sheet of the firm as on 31st March 2018 was as follows:

On 1.4.2018, Aditya is admitted as a partner for one-fifth share in the profits with a capital of ₹4,50,000 and necessary amount for his share of goodwill on the following terms:
(i) Furniture of ₹2,40,000 were to be taken over Divya, Yasmin and Fatima equally.
(ii) A creditor of ₹ 7,000 not recorded in books to be taken into account.
(iii) Goodwill of the firm is to be valued at 2.5 years purchase of average profits of last two years. The profit of the last three years were:
2015-16 ₹6,00,000; 2016-17 ₹2,00,000; 2017-18 ₹6,00,000
(iv) At time of Aditya’s admission Yasmin also brought in 50,000 as fresh capital
(v) Plant and Machinery is re-valued to ₹ 2,00,000 and expenses outstanding were brought down to ₹ 9,000. Prepare Revaluation Account, Partners Capital Account and the balance sheet of the reconstituted firm. (CBSE Sample Paper 2018-19)
Answer:

Question 10.
P and Q were partners in a firm sharing profits in 3 : 2 ratio. R was admitted as a new partner for 1/4x share in the profits on April 1, 2015. The Balance Sheet of the firm on March 31, 2015 was as follows:

The terms of agreement on R’s admission were as follows:
(a) R brought in cash 60,000 for his capital and 30,000 for his share of goodwill.
(b) Building was valued at 1,00,000 and Machinery at 36,000.
(c) The capital accounts of P and Q were to be adjusted in the new profit-sharing ratio. Necessary cash was to be brought in or paid off to them as the case may be.
Prepare Revaluation Account, Partner’s Capital Account and the Balance Sheet of P, Q and R. (CBSE Sample Paper 2016)
Answer:

In This Post we are  providing Chapter- 2 ACCOUNTING FOR PARTNERSHIP: BASIC CONCEPT NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON ACCOUNTING FOR PARTNERSHIP: BASIC CONCEPT

1: Radha and Raman are partners in a firm sharing profits and losses in the ratio of 5:2. Capital contributed by them is Rs. 50,000 and Rs. 20,000 respectively. Radha was given salary of Rs. 10,000 and Raman Rs. 7,000 per annum. Radha advanced loan of Rs. 20,000 to firm without any agreement to rate of interest in deed while in deed rate of interest on capital was mentioned as 6% p.a. Profits for the year are Rs. 29,400. Prepare Profit and Loss Appropriation Account for the year ending 31st March 2015.
Solution:
Profit and Loss Appropriation account
For the year ending on 31.03.2015
Dr. Cr.

Particulars	Rs.	Particulars	Rs.
To Interest on Capital:  Radha 3,000 Raman 1,200 To Partner’s Salary Radha 10,000 Raman 7,000 To Profits transferred to capital A/cs of: Radha 5,000 Raman 2,000	4,200 17,000   7,000	By Profit and Loss A/c  (Net Profits)29,400 Less: Interest On Radha’s loan 1,200	28,200
28,200	28,200

When appropriation are more than available profits
In such case available profits are distributed in the ratio of appropriation.

---

2: Ram & Sham are partners sharing profits & losses in ratio of 3:2. Ram being non-working partner contributes Rs. 20,00,000 as his capital & Shyam being a working parties, gets a salary of Rs. 8000 per month. As per partnership deed interest is paid @ 8% p.a. & salary is allowed. Profits before providing that for year ending 31st March 2015 were Rs. 80,000. Show the distribution of profits.
Solution:
Profit & Loss Appropriation Account for the year ended 31.3.15
Dr. Cr.

Particulars	Rs.	Particulars	Rs.
To Ram’s Capital A/c  (Interest) To Shyam’s Capital A/c (Salary)	50,000  30,000	By Profit & Loss A/c  (Net Profits)	80,000
80,000	80,000

working Notes: Interest on capital == Rs. 1,60,000
Salary =  =Rs. 96,000
Total 2,56,000
Ratio of Interest & Salary = 1,600,000 : 96,000 = 5 : 3
Profits share given to Ram = Rs. 50,000
Shyam = = Rs. 30,000

---

3: Amit and Sumit commenced business as partners on 01.04.2014. Amit contributed Rs. 40,000 and Sumit Rs. 25, 000 as their share of capital. The partners decided to share their profits in the ratio of 2:1. Amit was entitled to salary of Rs. 6,000 p.a. Interest on capital was to be provided @ 6% p.a. The drawings of Rs. 4, 000 was made by Amit and Rs. 8,000 was made by Sumit. The profits after providing salary and interest on capital for the year ended 31^st March, 2015 were Rs. 12,000.
Draw up the capital accounts of the partners
1. When capitals are fluctuating
2. When capitals are Fixed
Solution:
1. When capitals are fluctuating
Capital Accounts of Amit and Sumit
Dr. Cr.

Particulars	Amit  (Rs.)	Sumit  (Rs.)	Particulars	Amit  (Rs.)	Sumit  (Rs.)
To Drawing A/c  To Balance c/d	4,000  52,400	8,000  22,500	By Balance A/c (Capital)  By Salary A/c By Interest on capital A/c By Profit and Loss Appropriation A/c	40,000  6,000 2,400 8,000	25,000  1,500 4,000
56,400	30,500	56,400	30,500

When capital are Fixed Capital accounts
Dr. Cr.

Particulars	Amit  (Rs.)	Sumit  (Rs.)	Particulars	Amit  (Rs.)	Sumit  (Rs.)
To Balance c/d	40,000	25,000	By Balance A/c (Capital)	40,000	25,000
40,000	25,000	40,000	25,000

Current Accounts
Dr. Cr.

Particulars	Amit  (Rs.)	Sumit  (Rs.)	Particulars	Amit  (Rs.)	Sumit  (Rs.)
To Drawing A/c  To Balance c/d	4,000  12,400	8,000  –	By Salary A/c  By Interest on capital A/c By Profit and Loss Appropriation A/c To Balance c/d (Closing Balance)	40,000  2,400 8,000	1,500  4,000 2,500
16,400	8,000	16,400	8,000

Working Notes: Profits after salary and interest Rs. 12,000
Amit share =  = 8,000
Sumit share = = 4,000
Difference between Fixed Capital Account & Fluctuating Capital Account:

Basis	Fixed Capital Account	Fluctuating Capital Account
1. No. of Accounts maintained	Two accounts for each partner Fixed Capital Account & current Account.	Only one account is maintained for each partner, i.e., capital Account.
2. Balance chane	Balance does not change except under specific circumstances (introduction of additional capital and capital withdrawn)	Balance changes frequently from period to period.
3. Adjustments	All adjustments for drawing interest on drawing, interest on capital, salary and profit/loss are made in current account.	All adjustments for drawings, in terest on drawing & capital, salary, profit/loss are made in Capital Accounts.
4. Balance	Fixed Capital Account. Capital Account has credit balance always However, current account may have debit or credit balance.	Fluctuating Capital account can have debit or credit balance.

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4: X and Y invested Rs. 20,000 & Rs. 10,000. Interest on capital is allowed @ 6% per annum. Profits are shared in ratio of 2 : 3. Profits for year ending 11.3.2015 is Rs. 1,500. Show allocation of profits when partnership deed.
(a) Allows interest on capital & deed is silent on treating interest as charge.
(b) Interest is charge against profit.
Solution:
(a) When partnership deed is silent on treating interest as a charge,
Profit & Loss Appropriation Account for the year ending 31.3.2015
Dr. Cr.

Particulars	(Rs.)	Particulars	(Rs.)
To Interest on Capital  X 1000 Y 500	1,500	By Profit & Loss A/c  (Net Profits)	1,500
1,500	1,500

Working Notes: Interest on X’s Capital =  = 1200
Y’s Capital =  = 600
Total Interest = 1800
Ratio of Interest = 1200 : 600 = 2 : 1
Interest allowed to partner = 
Interest to X =  = Rs. 1000
Interest allowed by y =  = Rs. 500
(b) Interest is charge on profit – In such case full interest will be given & loss is transferred to partner’s capital accounts.
Profit & Loss Appropriation is not prepared in this case instead profit & Loss Account is prepared & deficit is treated as loss.
Profit & Loss Account
For the year ending on 31.3.2015
Dr. Cr.

Particulars	(Rs.)	Particulars	(Rs.)
To Interest on Capital  X1200 Y 600	1800	By Profit before Interest  By Loss transferred to Capital A/cs X120 Y 180	1,500  300
1800	1800

(a) In case of Sufficient Profits
Profit and Loss Appropriation A/c Dr.
To Interest on Capital A/c
(Being interest on capital transferred to P & L Appropriation A/c
(b) In case of Insufficient Profits or Losses
Profit & Loss/Profit and Loss Adjustment A/c Dr.
To Interest on Capital A/c
(Being interest on capital transferred to P & L Adjustment A/c)

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5: A and B are partners in business. Their capitals at the end of year were Rs. 48,000 & Rs. 36,000 respectively. During the year ended March 31st 2015 A’s Drawings and B’s drawings were Rs. 8, 000 & Rs. 12, 000 respectively. Profits before charging interest on capital during the year were Rs. 32, 000. Calculate Interest on partners’ capitals @ 10% p.a.
Solution
Statement showing calculation of opening capitals
 

Particulars	A(Rs.)	B(Rs.)
Closing Capital  Add: Drawings already credited Less: Profits already credited Opening capitals or capitals in the beginning Interest on Capital @ 10% p.a.	48,000  8000	36,000  12,000
56,000  16,000	48,000  16,000
40,000	32,000
4,000	3,200

 
For additional capital interest is calculated for period for which capital is utilized e.g. if additional capital is introduced on 1 April in firm where accounts are closed on 31st December.
Interest = 
As money is utilized for 9 months

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6: Aarushi and Simran are partners in a firm. During the year ended on 1st March, 2015 Aarushi makes the drawings as under:

Date of Drawing	Amount (Rs.)
01-08-2015  31-12-2014 31-03-2015	5,000  10,000 15,000

Partnership Deed provided that partners are to be charged interest on drawing @ 12% p.a. Calculate the interest chargeable to Aarushi Drawing by using Simple Interest Method and Product Method.
Solution:
 
1. Simple Interest Method

Date of Drawing	Amount (Rs.)	Months till March 31, 2014	Interest @ 12% pm(Rs.)
01-08-2015  31-12-2014 31-03-2015	5,000  10,000 15,000	08  03 00	400  300 000
700

Before charging interest on capital the year were Rs. 32,000. Calculate Interest on partners’ capitals @ 10% p.a.
Solution:
Statement showing calculation of opening capitals

Particulars	A(Rs.)	B(Rs.)
Closing Capital  Add: Drawings already credited Less: Profits already credited Opening capitals or capitals in the beginning Interest on Capital @ 10% p.a.	48,000  8000	36,000  12,000
56,000  16,000	48,000  16,000
40,000	32,000
4,000	3,200

For additional capital interest is calculated for period for which capital is utilized e.g. if additional capital is introduced on 1 April in firm where accounts are closed on 31st December.
Interest = 
As money is utilized for 9 months
2. Product Method

Date of Drawing	Amount of Drawings (Rs.)	Months for which Amount has Withdrawn till December 31, 2014	Product  (Rs.)
01-08-2015  31-12-2014 31-03-2015	5,000  10,000 15,000	08  03 00	40,00  30,00 00000
70,000

Interest on Drawing = (in months)
=  = Rs. 700

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7: Calculate interest on drawings of Mr. X @ 10% p.a. if he withdrawn Rs. 1000 per month (i) in the beginning of each Month (ii) In the middle each of month (iii) at end of each month.
Total Amount with withdrawn = Rs. =12, 000.
Solution:
(i) Interest on Drawing = 
 = Rs. 650
(ii) Interest on drawing = 
= Rs. 600
(iii) Interest on drawing = 
= Rs. 550

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8: Calculate interest on drawing of Vimal if the withdrew Rs. 48000 Quarter withdrawn evenly (i) at beginning of each Quarter (ii) in the middle of each of at end (iii) Quarter. Rate of interest is 10% p.a.
Solution:
Case I – Drawing made on beginning of each Quarter
Interest on drawing = 
= Rs. 3,000
Case II – Drawing made in middle of each quarter
Interest on drawing = 
= Rs. 2,400
Case III – Drawing made at end of each quarter
Interest on drawing = 
= Rs. 1,800
Similarly Interest can be calculated by following formulas Half yearly Drawings for year when
(a) Drawings are made in the beginning of each period (half-year)
Interest on drawing = 
(b) Drawings are made in the middle of each period (half year)
Interest on drawing = 
(c) Drawings are made at the end of each period (half year)
Interest on drawing = 
For monthly drawings for 6 months (Last 6 months)
 
For monthly drawings for 6 months (Last 6 months)
(a) Drawings are made in the beginning of each month
Interest = 
(b) Drawings are made in the middle of each month
Interest = 
(c) Drawings are made at the end of each month
Interest = 

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9: A and B entered into partnership on 1st April, 2014 without any partnership deed. They introduced capitals of Rs. 5,00,000 and Rs. 3,00,000 respectively. On 31st October, 2014, A advanced Rs. 2,00,000 by way of loan to the firm without any agreement as to interest.
The Profit and Loss Account for the year ended 31-03-2015 showed a profit of Rs. 4,30,000 but the partners could not agree upon the amount of interest on Loan to be charged and the basis of division of profits. Pass a Journal Entry for the distribution of the Profits between the partners and prepare the Capital A/cs of both the partners and Loan A/c of ‘A’.
Solution:
Profit and Loss Appropriation Account
For the year ending on 31st March, 2015
Dr. Cr.

Particulars	(Rs.)	Particulars	(Rs.)
To Profits transferred to Capital A/c of :  A 2,12,500 B 2,12,500		By Profit and Loss A/c  Net Profits 4,30,000 Less : Int. on A’s Loan 5,000	1,500
4,25,000	4,25,000

 
Partner’s Capital A/cs
Dr. Cr.

Date	Particulars	A Rs.	B Rs.	Date	Particulars	A Rs.	B Rs.
1.3.2015	To balance c/d	7,12,500	5,12,500	1.4.2014  31.3.2015	By Bank A/c  By Profit and Loss appropriation A/c	500000  2,12,500	300000  2,12,500
7,12,500	5,12,500	7,12,500	5,12,500

 
Journal
Dr. Cr.

Date	Particulars	LF.	Debit(Rs.)	Debit(Rs.)
31.3.2015	Profit and Loss Appropriation A/C Dr.  To A’s Capital A/c To B’s Capital A/c (Being profit distributed among the partners)		4,25,000	2,12,500  2,12,500

 
A’s Loan A/c
Dr. Cr.

Date	Particulars	Amount (Rs.)	Date	Particulars	Amount (Rs.)
2015 March, 31	To A’s Capital c/d	2,05,000	2014 Oct., 31  2015 Mar., 31	By Bank A/c  By interest on Loan A/c	2,00,000  5,000
2,05,000	2,05,000

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10: Manoj Sahil and Dipankar are partners in a firm sharing profit and losses equally.
The have omitted interest on Capital @ 10% per annum for there years ended on 31st March, 2015. Their fixed Capital on which interest was to be calculated throughout were:
Manoj Rs. 3,00,000
Sahil Rs. 2,00,000
Dipankar Rs. 1,00,000
Give the necessary adusting journal entry with working notes.
 
Solution:
Books of Manoj, Sahil and Dipankar
Journal
 

Date	Particulars	LF.	Debit  (Rs.)	Debit  (Rs.)
31.3.2015	Dipankar’s Current A/c Dr.  To Manoj’s Current A/c (Being adjustment entry passed)		30,000	30,000

 
STATEMENT SHOWING ADJUSTMENT
 

Date	Particulars (Rs.)	Manoj  (Rs.)	Sahil  (Rs.)	Dipankar  (Rs.)
	Amount to be given  —– Interest on Capital	90,000	60,000	30,000
Total A	90,000	60,000	30,000
Amount already given to be taken back now ——) :  —- Profit taken back from the partners in their profit sharing ratio ———— 160,000+30,000 = 1,80,000)	60,000	60,000	60,000
	Effect (A-B)	30,000	Nil	30,000
Credit		Debit

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In This Post we are  providing Chapter- 1 ACCOUNTING FOR NOT-FOR-PROFITING ORGANISATION NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON ACCOUNTING FOR NOT-FOR-PROFITING ORGANISATION

Question 1:

What is subscription? How is it calculated?

ANSWER:

Subscription is the main source of income for an NPO besides entrance fees, donations, grants, etc. Subscriptions refer to the amount of money paid by the members on periodic basis for keeping their membership with the organisation alive. It is paid monthly, quarterly, half yearly or annually by the members.

It is shown in the debit side of the Receipt and Payment Account with the total amount received during the year that may be related to the current period and to the previous and next accounting period.

While calculating subscription for the current period, advance subscription received for the current period in the previous period and outstanding subscription for the current period are added to the subscription received during the current period. Whereas, on the other hand, advance subscription received for the next accounting period during the current period and outstanding subscription for the preceding period are deducted from the subscription received during the current period.

Calculation of Subscription

Subscription received during the year		***
Add: Subscription received (in advance) during previous year for current year	***
Add: Subscription outstanding at the end of the year	***
		***
Less: Subscription received in advance for the next year	***
Less: Subscription outstanding for the previous year	***	***
## Subscription shown in Income and Expenditure Account		***

## This subscription is related to the current accounting period and is shown in the Income side of the Income and Expenditure Account.

Question 2:

What is Capital Fund? How is it calculated?

ANSWER:

Capital fund is the excess of NPOs’ assets over its liabilities. In other words, the excess of assets over the liabilities for a profit earning organisation is termed as capital and the same for an NPO is termed as capital fund. Any surplus or deficit ascertained from Income and Expenditure account is added to (deducted from) the capital fund. It is also termed as Accumulated Fund.

Calculation of Capital Fund

Capital Fund at the beginning of the year		**
Add: Surplus from Income and Expenditure Account	**
Add: Subscription Amount (Capitalised amount)	**
Add: Life membership fee.	**	**
Less: Deficit from Income and Expenditure Account		**
Capital Fund at the end of the year		***

Question 3:

Explain the statement: “Receipt and Payment Account is a summarised version of Cash Book”.

ANSWER:

Receipts and Payments Account is a summary of the Cash Book. This account is prepared by those organisations which maintain their books on cash basis. All cash receipts are recorded on the Receipts side (i.e. Debit side) and all cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all the cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period, but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period. This account only helps us to ascertain the closing balance of the cash and bank and helps in assessing the cash position of an NPO. It also forms the basis for the preparation of Income and Expenditure Account.

Similarities between Receipt and Payments Account and Cash Book

The following are the features of Receipt and Payment Account that are common to those of Cash Book:

1. Nature: It is a summarised version of the Cash Book. Similar to the Cash Book, the Receipt and Payment Account is also a Real Account.

2. Nature of Transactions: It records only cash and bank transactions similar to a Two-Column Cash Book. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.

3. No distinction between Capital and Revenue items: It records all the cash and bank receipts and payments of both capital and revenue nature. Likewise, the transactions recorded in the Cash Book are also of both capital and revenue nature.

4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.

5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period. Similarly, a Cash Book also helps us to assess the cash position of an organisation.

Thus, on the basis of the above mentioned points and similarities, the statement ‘Receipt and Payment Account is a summarised version of Cash Book’ is justified.

Question 4 :

“Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business concern”. Explain the statement.

ANSWER:

Income and Expenditure Account (I&E) is similar to Profit and Loss Account (P&L), in the sense that the former is prepared by Not-for-profit-Organisations and the latter is prepared by profit earning organisations. Both the accounts are prepared on the accrual basis.

Similar to the P&L, all the expenses and losses pertaining to the current accounting period are recorded on the debit side (Expenditure side) and all the gains and income of the current accounting period are recorded on the credit side (Income side) of the I&E. The balancing figure of the I&E is surplus or deficit and that of the P&L is net profit or net loss. Both the accounts record only revenue items which are related to the current accounting period.

Similarities between Income and Expenditure Account and Profit and Loss Account

I&E Account of an NPO is akin to the Profit and Loss Account of a profit earning business in the following manners.

1. Nature of Account: Both the concerned accounts are nominal in nature.

2. Basis of Recording: Both the accounts record only revenue expenses and revenue income related to the current accounting period. The items of capital nature are not ignored while preparing these accounts.

3. Period: Transactions related to current year are recorded in Income and Expenditure account in the same manner in which profit and loss account is prepared. Transactions related to previous year or next year are excluded.

4. Adjustments: The treatment of adjustments like, outstanding expenses, prepaid expenses, income received in advance, income due but not received, depreciation, bad debts etc. is same as that in Profit and Loss Account. Thus, both the accounts are prepared on the accrual basis.

Question 5:

Distinguish between Receipts and Payments Account and Income and Expenditure Account.

ANSWER:

Basis of Difference	Receipts and Payments Account	Income and Expenditure Account
1. Nature	It is a summary of cash and bank transactions	It is a summary of current year income and expenses
2. Revenue and Capital	It records transactions related to both revenue and capital nature.	It records transactions related to revenue nature only.
3. Debit Side	Debit side of this account records cash and bank receipts during an accounting period.	Debit side of this account records expenses and losses incurred in the current accounting period.
4. Credit side	Credit side of this account records payments in cash and through cheques.	Credit side of this account records income and gains earned in the current accounting period.
5. Type of account	It is a Real Account	It is a Nominal Account
6. Period	It records receipts and payments made during the year that may be related to the current accounting period or the preceding period and the succeeding accounting period.	It only records income and expenditure made during the current accounting period.
7. Object	This account depicts the cash position of an NPO.	This account shows the net result in terms of surplus or deficits due to the business activities during the year.
8. Opening Balance	This account begins with the opening balance of cash in hand and cash at bank or overdraft.	Usually, it has no opening balance but sometimes surplus or deficits forwarded from the last accounting period (if not added to the Capital Fund) can be shown as the opening balance of this account.
9. Closing balance	The balancing figure of this account is expressed in terms of the closing balance of cash in hand and cash at bank or overdraft.	The balancing figure is expressed in terms of either surplus (if incomes > expenses) or deficit (if expenses > incomes).
10. Depreciation	It does not include non-cash items like depreciation, appreciation, etc.	It includes non-cash items like depreciation, bad-debts, provisions, etc. in order to ascertain the actual net profit or net loss.
11. Adjustment	Receipts and Payments during the year can be adjusted before preparation of the financial statements.	Adjustments regarding both cash and non-cash transactions can be made.
12. Transfer of Balance	The opening balance of this account is brought forward from the last year’s Receipts and Payments Account and the closing balance of this account is carried forward to the subsequent year’s Receipts and Payments Account and is shown in the Balance Sheet of the current accounting period.	If the closing balance of this account is surplus then it is added to the Capital Fund in the Balance Sheet. If the closing balance is deficit then it is deducted from the Capital Fund in the Balance Sheet.
13. System	It is prepared on cash basis.	It is prepared on accrual basis.

Question 6:

Explain the basic features of Income and Expenditure Account and of Receipt and Payment Account.

ANSWER:

Income and Expenditure Account (I&E) Account is a Nominal Account and is prepared on the accrual basis. It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side (Expenditure side) and all income and gains are recorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termed as surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.

The following are the basic features of Income and Expenditure Account

1. Nature: It is a Nominal Account. The debit side of I&E records all expenses and losses and the credit side records all incomes and gains related to the current accounting period.

2. Basis: It is prepared on the basis of Receipt and Payment Account (R&P). All the revenues items whether incomes or expenditures are transferred from R&P.

3. Excludes Capital Transactions: The transactions those are capital in nature are excluded from this account. For example, only profit or loss on sale of fixed assets is recorded but the total amount of sales is not recorded since sale of fixed asset is considered as a capital receipt.

4. Akin to Profit and Loss Account: Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period the latter is prepared to ascertain net profit or net loss incurred during an accounting period.

5. Records only Current Year’s items: This account records only those transactions that are related to current accounting year. In other words, transactions related to the preceding or succeeding accounting period are excluded even if these transactions are realised in the current period.

6. Adjustments: Various cash and non-cash items like, outstanding expenses, prepaid expenses, income received in advance, income due but not received, depreciation, bad debts, etc. can be adjusted in this account.

7. Balancing Figure: The balancing figure of this account is expressed in terms of either surplus (if incomes > expenses) or deficit (if expenses > incomes). The surplus balance, if any, is added to the Capital Fund, whereas, the deficit balance, if any, is deducted from the Capital Fund.

Receipts and Payments Account is a summary of the Cash Book. All the cash receipts are recorded on the Receipts side (i.e. Debit side) and all the cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all the cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period.

The following are the features of Receipt and Payment Account.

1. Nature: It is a Real Account. It is a summarised version of the Cash Book.

2. Nature of Transactions: It records only cash and bank transactions. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.

3. No distinction between Capital and Revenue items: It records all cash and bank receipts and payments of both capital and revenue nature.

4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.

5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period.

Question 7:

The following is the account of cash transactions of the Nari Kalayan Samittee for the year ended December 31, 2017:

Receipts	AmountRs	Payments	AmountRs
Balance from last year	2,270	Rent	6,600
Subscriptions	32,500	Electric charges	3,200
Life membership fee	3,250	Lecturer’s fee	730
Donation	2,500	Office expenses	1,480
Profit from entertainment	7,250	Printing and Stationery	1,050
Sale of old Books (books value Rs 1,000)	750	Legal fee	1,870
Interest	350	Books	6,500
		Furniture purchased	8,600
		Expenses on nukar drama	1,300
		Cash in hand	8,040
		Cash at bank	9,500
	48,870		48,870

You are required to prepare an Income and Expenditure Account after the following adjustments:

(a) Subscription still to be received are Rs 750, but subscription include Rs 500 for the year 2018.

(b)  In the beginning of the year the Sangh owned building Rs 20,000 and furniture Rs 3,000 and Books Rs 2,000.

(c) Provide depreciation on furniture @ 5% (including purchase), books @ 10% and building @ 5%.

ANSWER:

Books of  Nari Kalyan SamitteeIncome and Expenditure Account as on Dec. 31, 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Rent	6,600	Subscription	32,500
Electric Charges	3,200	Add: Outstanding for 2017	750
Lecturer’s fee	730	33,250
Office Expenses	1,480	Less: Advance for 2018	(500)	32,750
Printing and Stationery	1,050	Donation	2,500
Legal Fee	1,870	Profit from Entertainment	7,250
Depreciation on:		Interest	350
Books	750
Furniture	580
Building	1,000	2,330
Expenses on Nukar Drama	1,300
Loss on Sale of Books	250
Surplus	24,040
	42,850		42,850

Balance Sheet as on Dec. 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Capital Fund as Dec. 31, 2016	27,270	Building	20,000
(Balancing Figure)		Furniture	3,000
		Books	2,000
		Cash and Bank	2,270
	27,270		27,270

Balance Sheet as on Dec. 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Capital Fund	27,270		Building	20,000
Add: Life Membership Fees	3,250		Less: 5% Depreciation	(1,000)	19,000
Add: Surplus	24,040	54,560
		Furniture	3,000
Advance Subscription for 2018	500	Add: Purchases	8,600
			11,600
		Less: 5% Depreciation	580	11,020
		Books	2,000
		Add: Purchases	6,500
		8,500
		Less: Sales	1,000
				7,500
		Less: 5% Depreciation	750	6,750
		Cash in Hand		8,040
		Cash at Bank		9,500
		Subscription Outstanding		750
	55,060		55,060

Question 8:

Following is the Receipt and Payment Account of Indian Sports Club, prepared Income and Expenditure Account, Balance Sheet as on December 31, 2017:

Receipt and Payment Account for the year ending December 31, 2017
Receipts	AmountRs	Payments	AmountRs
Balance b/d	7,890	Salary	11,000
Subscriptions	52,000	Electric charges	5,500
Life member ship fee	2,200	Billiard Table	17,500
Entrance fee	3,200	Office expenses	4,100
Tournament fund	26,000	Printing and Stationery	2,300
Locker Rent	1,250	Tournament expenses	18,500
Sale of old sports goods (Costing Rs 2,200)	2,500	Repair of ground	2,000
Sale of Old Newspaper	750	Furniture purchased	7,700
Legacy	37,500	Sports equipments	12,000
		Cash in Hand	12,690
		Cash at Bank	10,000
		Fixed Deposit (on 1.10.17 for 10% p.a)	30,000
	1,33,290		1,33,290

Other Information:

Subscription outstanding was on December 31, 2016 Rs 1,200 and Rs 3,200 on December 31, 2017. Locker rent outstanding on December 31, 2017 Rs 250. Salary outstanding on December 31, 2017 Rs 1,000.

On January 1, 2017, club has Building Rs 36,000, furniture Rs 12,000, Sports equipments Rs 17,500. Depreciation charged on these items @ 10% (including Purchase).
 

ANSWER:

Indian Sports ClubIncome and Expenditure Account as on Dec. 31, 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Salary	11,000		Subscriptions	52,000
Add: Outstanding for 2017	1,000	12,000	Add: Outstanding for 2017	3,200
Electric Charges	5,500		55,200
Office Expenses	4,100	Less: Outstanding for 2016	(1,200)	54,000
Printing and Stationery	2,300
Repair of Ground	2,000	Locker Rent	1,250
Depreciation on:		Add: Outstanding for 2017	250	1,500
Furniture	1,970
Building	3,600		Entrance Fees	3,200
Sports Equipments	2,730	8,300	Profit on Sale of Sports
Surplus	26,300	Equipments (Rs 2,500 – Rs 2,200)	300
		Sale of Old Newspapers	750
		Accrued Interest	750
	60,500		60,500

Balance Sheet as on January 01, 2016
Liabilities	AmountRs	Assets	AmountRs
Capital Fund (Balancing Figure)	74,590	Subscription Outstanding	1,200
			Building	36,000
		Furniture	12,000
		Sports Equipments	17,500
		Cash and Bank	7,890
	74,590		74,590

Balance Sheet as on Dec. 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Salary Outstanding	1,000	Subscripting Outstanding	3,200
Tournament Fund	26,000		Locker Rent Outstanding	250
Less: Tournament Expenses	18,500	7,500	Building	36,000
		Less: 10% Depreciation	(3,600)	32,400
Capital fund	74,590
Add: Life Membership Fee	2,200		Furniture	12,000
Add: Legacy	37,500		Add: Purchases	7,700
Add: Surplus	26,300	1,40,590		19,700
		Less: 10% Depreciation	(1,970)	17,730
		Sports Equipments	17,500
		Add: Purchases	12,000
			29,500
		Less: Sales	(2,200)
			27,300
		Less: 10% Depreciation	(2,730)	24,570
		Billiard Table	17,500
		Cash in hand	12,690
		Cash at Bank	10,000
		Fixed Deposit	30,000
		Add: Accrued Interest	750	30,750
	1,49,090		1,49,090

Question 9:

From the following Receipt and Payment Account of Jan Kalyan Club, prepare Income and Expenditure Account and Balance Sheet for the year ending March 31, 2017.           

Receipt and Payment Account for the year ending March 31, 2017
Receipts	AmountRs	Payments	AmountRs
Cash in hand as on 1.4.16	6,800	Salaries	24,000
Subscription	60,200	Traveling Expenses	6,000
Donation	3,000	Stationery	2,300
Sale of furniture (Book value Rs 6000)	4,000	Rent	16,000
Entrance fee	800	Repair	700
Life membership fee	7,000	Books purchased	6,000
Interest on investment (@ 5% for full year)	5,000	Building purchased	30,000
		Cash in hand as 31.3.2017	1,800
	86,800		86,800

Additional Information:

	As on1.04.2016	As on31.03.2017
(i)	Subscription received in advance	1,000	3,200
(ii)	Outstanding subscription	2,000	3,700
(iii)	Stock of stationery	1,200	800
(iv)	Books	13,500	16,500
(v)	Furniture	16,000	8,000
(vi)	Outstanding rent	1,000	2,000

ANSWER:

Books of Jan Kalyan ClubIncome and Expenditure Account as on 31 March 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Loss on Sale of Furniture (Rs 6,000 – Rs 4,000)	2,000	Subscription	60,200
Salaries		24,000	Less: Outstanding for 2016	(2,000)
Traveling Expenses	6,000		58,200
Stationery	2,300		Add: Outstanding for 2017	3,700
Add: Opening Stock	1,200			61,900
	3,500		Add: Advance in 2016	1,000
Less: Closing Stock	(800)	2,700		62,900
		Less: Advance in 2017	(3,200)	59,700
Repairs	700
Rent	16,000		Donation	3,000
Less: Outstanding for 2016	(1,000)		Entrance Fees	800
	15,000		Interest on Investments	5,000
Add: Outstanding for 2017	2,000	17,000
Depreciation on Books	3,000
Depreciation on Furniture	2,000
Surplus	11,100
	68,500		68,500

Balance Sheet as on April 01, 2016
Liabilities	AmountRs	Assets	AmountRs
Advance Subscription	1,000	Cash in Hand	6,800
Outstanding Rent	1,000	Investment {5,000 × (100/5)}	1,00,000
Capital Fund (Balancing figure)	1,37,500	Subscription Outstanding	2,000
		Stock of Stationery	1,200
		Books	13,500
		Furniture	16,000
	1,39,500		1,39,500

Balance Sheet as on March 31, 2017
Liabilities	AmountRs	Assets	AmountRs
Advance Subscription	3,200	Subscription Outstanding	3,700
Outstanding Rent	2,000	Stock of Stationery	800
Capital Fund	1,37,500		Investments	1,00,000
Add: Life Membership Fees	7,000
Add: Surplus	11,100	1,55,600	Books	13,500
			Add: Purchases	6,000
			19,500
		Less: Depreciation	(3,000)	16,500
		Building	30,000
		Cash in Hand	1,800
		Furniture	16,000
		Less: Sales	6,000
			10,000
		Less: Depreciation	(2,000)	8,000
	1,60,800		1,60,800

Question 10:

Receipt and Payment Account of Shankar Sports club is given below, for the year ended March 31, 2017

Receipt and Payment Account for the year ending March 31, 2017
Receipts	AmountRs	Payments	AmountRs
Opening Cash in hand	2,600	Rent	18,000
Entrance fees	3,200	Wages	7,000
Donation for building	23,000	Billiard table	14,000
Locker rent	1,200	Furniture	10,000
Life membership fee	7,000	Interest	2,000
Profit from entertainment	3,000	Postage	1,000
Subscription	40,000	Salary	24,000
		Cash in hand	4,000
	80,000		80,000

Prepare Income and Expenditure Account and Balance Sheet with help of following Information:

Subscription outstanding on March 31, 2016 is Rs 1, 200 and Rs 2,300 on March 31, 2017, opening stock of postage stamps is Rs 300 and closing stock is Rs 200, Rent Rs 1,500 related to 2015 and Rs 1,500 is still unpaid.

On April 01, 2016 the club owned furniture Rs 15,000, Furniture valued at Rs 22,500

On March 31, 2017. The club took a loan of Rs 20,000 (@ 10% p.a.) in 2017.
 

ANSWER:

Books of Shankar Sports ClubIncome and Expenditure Account as on 31 Dec. 2017
Dr.			Cr.
Expenditure	AmountRs	Income	AmountRs
Rent	18,000		Entrance Fees	3,200
Add: Outstanding for 2017	1,500		Locker Rent	1,200
	19,500		Profit from Entertainment	3,000
Less: Outstanding for 2016	(1,500)	18,000
		Subscription	40,000
Wages	7,000	Less: Outstanding for 2016	(1,200)
Depreciation on Furniture	2,500		38,800
Interest	2,000	Add: Outstanding for 2017	2,300	41,100
Postage	1,000		Deficit (Balancing Figure)	6,100
Add: Opening Stock	300
	1,300
Less: Closing Stock	(200)	1,100
Salaries	24,000
	54,600		54,600

Balance Sheet as on  December 31, 2016
Liabilities	AmountRs	Assets	AmountRs
Rent Outstanding	1,500	Cash in Hand	2,600
10%  Loan	20,000	Subscription Outstanding	1,200
		Furniture	15,000
		Stock of Postage Stamps	300
		Capital fund Deficit (Balancing figure)	2,400
	21,500		21,500

Balance Sheet as on December 31, 2017
Expenditure	AmountRs	Income	AmountRs
Rent Outstanding	1,500	Subscription Outstanding	2,300
10%  Loan	20,000	Stock of Postage Stamps	200
Donation for Building	23,000	Billiard Table	14,000
Capital Fund	(2,400)		Furniture	15,000
Add: Life Membership Fee	7,000		Add: Purchases	10,000
Less: Deficit	(6,100)				25,000
		Less: Depreciation	(2,500)	22,500
		Cash in Hand	4,000
		* Capital Fund (Deficit)	1500
	44,500		44,500

* NOTE 1:

Capital Fund	(2,400)
Add:	Life Membership Fees	7,000
Less:	Deficit	(6,100)
	Net Deficit	(1,500)

In This Post we are  providing Chapter- 5 DISSOLUTION OF PARTNERSHIP FIRM NCERT MOST IMPORTANT QUESTIONS for Class 12 ACCOUNTANCY which will be beneficial for students. These solutions are updated according to 2021-22 syllabus. These MCQS  can be really helpful in the preparation of Board exams and will provide you with a brief knowledge of the chapter

NCERT MOST IMPORTANT QUESTIONS ON DISSOLUTION OF PARTNERSHIP FIRM

1. What is Dissolution

 Dissolution means discontinuance of existing relationship among the partners. According to Indian Partnership Act, 1932, dissolution may be either of partnership or of a firm.

2.What is Dissolution of Partnership 

It changes the existing relationship between partners but the firm may continue its business as before.

3.What is Dissolution of Partnership Firm 

Dissolution of firm means dissolution of partnership among all the partners in the firm. In this case, business of the firm also comes to an end.

4.what are Modes of Dissolution of Partnership Firm

(i) Dissolution by mutual agreement                       (ii) Compulsory dissolution
(iii) Dissolution on the happening of an event         (iv) Dissolution by notice
(v) Dissolution by court

5.Settlement of Accounts in Case of Dissolution of Firm

(i)Treatment of Losses
Losses shall be paid, first out of profits, then out of partners’ capital and lastly, by the partners individually in their profit sharing ratio, if necessary.
(ii)Application of Assets
(a)Payment to outsiders/creditors
(b)Loans and advances of partners
(c)Payment of capital of partners
(d)The balance shall be divided among the partners in their profit sharing ratio

6.Hanif and Jubed were partners in a firm sharing profits in the ratio of their capitals. On 31st March, 2013 their balance sheet was as follows

On the above date the firm was dissolved
(i)Debtors were realised at a discount of 5%, 50% of the stock was taken over by Hanif at 10% less than the book value. Remaining stock was sold for Rs 65,000.
(ii)Furniture was taken over by Jubed for Rs 1,35,000. Machinery was sold as scrap for Rs 74,000.
(iii)Creditors were paid in full.
(iv)Expenses on realisation Rs 8,000 were paid by Hanif. Prepare realisation account. (All India 2014)
Ans.

7.Shanti and Satya were partners in a firm sharing profits in the ratio of 4:1. On 31st March, 2013 their balance sheet was as follows:

On the above date the firm was dissolved
(i)Shanti took over 40% of the stock at 10% less than its book value and the remaining stock was sold for Rs 40,000. Furniture realised Rs 80,000.
(ii)All unrecorded investment was sold for Rs 20,000. Machinery was sold at a loss of Rs 60,000.
(iii) Debtors realised Rs 55,000.
(iv) There was an outstanding bill for repairs for which Rs 19,000 were paid. Prepare realisation account.    (Delhi 2014)
Ans.

8.Verma and Sharma were partners sharing profits in the ratio of 3 : 1. On 31st March, 2011, their balance sheet was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Creditors of Rs 50,000 took over land and building in full settlement of their claim.
(ii)Remaining creditors were paid in cash.
(iii)Machinery was sold at a depreciation of 30%.
(iv)Debtors were collected at a cost of Rs 500.
(v)Expenses on realisation were Rs 1,700. Pass necessary journal entries for dissolution of the firm.  (Delhi 2012)
Ans.

9.A and B were partners in a firm sharing profits in the ratio of 3 : 2. On 31st March, 2011, the balance sheet of the firm was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Building was taken over by creditors as their full and final payment.
(ii)Furniture was taken over by B for cash payment at 5% less than the book value.
(iii)Debtors were collected by a debt collection agency at a cost of Rs 5,000.
(iv)Stock realised Rs 70,500.
(v)B agreed to bear all realisation expenses. For this service, B is paid Rs 500. Actual expense on realisation amounted to Rs 1,000.Pass necessary journal entries for dissolution of the firm.(Delhi 2012)
Ans.

10.Sanjay and Sameer were partners in a firm sharing profits in the ratio of 2 : On 31st March, 2011 the balance sheet of the firm was as follows:

The firm was dissolved on 1st April, 2011 and the assets and liabilities were settled as follows:
(i)Sanjay agrees to take over land and building at Rs 3,50,000 by paying cash.
(ii)Stock was sold for Rs 90,000.
(iii)Creditors accepted debtors in full settlement of their claim. Pass necessary journal entries for dissolution of the firm.(All India 2012)
Ans.