In This Post we are providing Chapter- 9 FINANCIAL MANAGEMENTNCERT 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 QUESTIONSON FINANCIAL MANAGEMENT
Q1) When is financial leverage considered favorable? Ans) Financial leverage is considered favourable when return on investment is higher than the cost of debt. Q2) why does financial risk arise? Ans) Interest on borrowed fund have to be paid regardless of whether or not you firm has made a profit. Moreover borrowed fund have to be repaid after a fixed time and it carries a charge on assets. This gives rise to financial risk. Q3) How does production cycle effect working capital? Ans) working capital requirement is higher with longer production cycle. Q4) The board of Directors has asked you to design the capital structure of the company. Explain any sin factors that you would consider whiledoing so. [6] Ans) For design the capital structure of the company six factors are as following:- 1) Cash Flow Position. 2) Interest coverage ration(ICR) 3) Debt Service coverage ratio(DSCR) 4) Return on investment (ROI) 5) Cost of debt 6) Tax rate. Q5) Every manager has to take three major decisions while performing the finance function. Ans) A manager take three following major decisions:- 1) financing Decision. 2) Investment Decision. 3) Dividend Decision. Q6) What do you call the capital needed for day to day operations? Explain any 5 factors affecting such capital needs. Ans) Capital needed for day to day operations is called working capital.{explain any 5 factors affecting such capital needs]. 1) Nature of business 2) Scale of operations 3) Seasonal Factors 4) Production cycle 5) Credit allowed Q7) The directors of a company have decided to expand their business activities by increasing the stock of raw materials and finished goods atan estimated cost of Rs. 50 lakhs, Describe the various ways open to thecompany to raise necessary finance for the purpose. Ans) the company can raise necessary finance for the purpose of expansion through the following function. (a) Issue of shares (b) Issue of debentures (c) Loans from banks and financial institutions. (d) Retained earnings. Q8) A capital budgeting decisions is capable of changing the financial fortune of a business. Do you agree? Why or why not? Ans) hint Yes, I agree to this statement because of the following importance of capitals budgeting decisions. (a) long term growth and effects. (b) Large amt of funds involved (c) Risk involved (d) Irreversible decisions. Q9) Are the share holders of a company likely to gain with a debt component in the capital employed ? Explain with the help of an example? Ans) The shareholders of a company are very likely to gain with debt component in the capital employed by way of trading On equity as it increases the earning per share(EPS) of the share holders[( Explain trade on equity with one example)]. Q10) state whether the working capital requirements of businessmanufacturing the following items are big or small. Justify yourstatement. (a) Coolers (c) Sugar (b)bread (d) Locomotives (e) Furniture manufacturing against orders. Ans) Requirements of working capital for the mentioned business will be: (a) Bread Requirements of working capital will be less because it has quick cash turnover. (b) Sugar;- working capital required for manufacturers will be more as ration of raw material cost to total cost is more. (c) Coolers:- working capital required for manufacturers of cooler will be more because it is a seasonal product. (d) Furniture:- Requirements of working capital for a manufacturer of furniture manufactured against specific order is less as it doesn’t requires large stock. (e) Motor car;- Requirements of working capital for a manufacturer of locomotives will be more because gestation period is more.
In This Post we are providing Chapter- 10 FINANCIAL MARKETNCERT 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 QUESTIONSON FINANCIAL MARKET
1.Give the meaning of the following money market instruments (i)Certificate of deposit; and (ii)Commercial bill Ans. (i) Certificate of deposit These are short-term, unsecured, negotiable instruments in bearer form.They are issued by commercial banks or development financial institution to individuals, corporations and companies. These are issued generally in times of tight liquidity when the deposit growth of banks is slow but the demand for credit is high, to mobilise large amounts of money for short periods. (ii) Commercial bill A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term negotiable, self liquidating instrument, whijch is used to finance the credit sale of the firms. When goods are sold on credit, seller draws the bill of exchange on the buyer. On being accepted by the buyer, it becomes a trade bill, which is a marketable instrument. On being discounted from the bank, the trade bill becomes the commercial bill.
2.Give the meaning of the following money market instruments (i)Treasury bill; and (ii)Call money Ans. (i) Treasury bill Also known as zero coupon bond, an T-Bill is issued by RBI on behalf of Central Government to meet its short-term requirement of funds It is issued in form of promissory note. They are highly liquid and have negligible risk. They are issued at discount and redeemed at par, e.g. 91 days, treasury bill of face value of ? 1,00,000 is purchased at ? 96,000 and at the maturity investor gets ? 1,00,000, ? 4000 being the interest received by him. (ii) Call money Call money is a short-term finance repayable on demand, with a maturity of 1 to 15 days. It is used for inter bank transactions. Banks have to maintain a minimum cash balance known as Cash Reserve Ratio. RBI changes this ratio from time to time. Call money is a method by which banks borrow from each other to be able to maintain Cash Reserve Ratio. The interest paid on call money loans is called call rate, which is vary volatile and changes even from hour to hour.
3.Financial market plays an important role in the allocation of scarce resources in an economy by performing various functions. Explain any three functions of financial market. (Delhi 2014) Ans. Financial market plays an important role in the allocation of scarce resources in an economy by performing these important factions: (i) Mobilisation of savings and channeling them into the most productive uses A financial market facilitates the transfer of savings from savers to investors. Thus, it will help in channelising surplus funds into the most productive uses. (ii)Facilitating price discovery Interaction between supplier and investor helps to establish a price for the financial asset which is being traded in that market. (iii) Providing liquidity to financial assets Financial market facilitates easy purchase and sales of financial assets. In doing so, they provide liquidity which means these assets are converted into cash whenever required.
4.What is meant by primary market? Explain any two methods of floating new issues in the primary market. Ans. Primary market is the market where securities are being issued for the first time. Therefore, it is also known as ‘New Issue Market’ (NIM).
Methods of floatation are as follows: (i) Offer through prospectus Under this method, company issues a prospectus to inform and attract general public. In prospectus, company provides details about the purpose for which funds are being raised, past financial performance of the company, background and future prospects of company. (ii) e-IPOs It is the new method of issuing securities through online system of stock exchange. In this, company has to appoint registered brokers for the purpose of accepting applications and placing orders. The issuer company has to apply for listing of its securities and the leading manager coordinates all the activities of these issues through various intermediaries.
5.Nature of money market can be well explained with the help of its features. State any three such features of money market. Ans. The features of the money market are: (Any three) (i) Instruments Money market raises funds by wide variety of short-term securities such as call money, treasury bills, trade bills, commercial paper, certificate of deposit, etc. (ii) Duration Money market provides funds for a period of less than one year. (iii) Participant The participants in the money market are large institutional investors such as Reserve Bank of India (RBI), commercial banks, financial institutions, non-banking finance companies, state government, large corporate houses, etc. (iv)Investment outlay Investment in money market entails huge sum of money as the instruments are quite expensive. (v)Liquidity Money market instruments enjoy a high degree of liquidity as there is a formal arrangement for it. The Discount Finance House of India (DFHI) has been established for the specific objective of providing a ready market for money market instruments. (vi)Expected return The expected rate of return of the money market is generally low as money is invested for a short duration.
6.Nature of a capital market can be well explained with the help of its features. State any three such features of a capital market. Ans. The features of a capital market are: (Any three) (i) Link between savings and investment opportunities Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers. (ii) Long-term funds Capital market is concerned with medium-term and long-term funds. Funds raised through capital market are used for long-term financial needs such as procurring plant, machinery, land, etc. (iii) Participants Both individual investors and institutional investors participate in capital market. (iv) Instruments The main instruments of a capital market are equity shares, preference shares, bonds and debentures.
7.Differentiate between capital market and money market on the basis of the following (i)Meaning (ii) Liquidity (iii)Safety (iv) Expected return (v) Duration or Differentiate between capital market and money market on the basis of the following (i)Participants (ii) Instruments (iii)Duration (iv) Investment outlay (v) Liquidity (All India 2014 C) Ans. Differences between capital market and money market are:
8.What is meant by capital market ? Name the two types of capital market and differentiate between the two on any four basis or Difference between ‘Primary Market’ and ‘Secondary Market’ on any five basis. (Ail India 2014) Ans. Capital market refers to facilities and institutional arrangements through which long-term fund, both debt and equity are raised and invested. The capital market consists of development banks, commercial banks and stock exchanges. The two types of capital market are (i) Primary market or new issue market (NIM) (ii) Secondary market or stock exchange
9.Financial market plays an important role in the allocation of scarce resources in an economy by performing many important functions. Explain any four such functions. or Explain any three functions of financial market. or Explain any four functions of financial market. or What is meant by financial market? Explain any two functions of financial market. or Describe any four functions of financial market. Ans. Meaning of financial market It is a link between the savers and the borrowers. This market transfers money or capital from those who have surplus money to those who are in need of money. The functions of financial market are: (i) Facilitating price discovery In the financial market, households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market. (ii)Provides liquidity to financial assets The investors can invest their money, wherever they desire, in securities through the medium of financial market and convert them into cash by selling their financial assets through the mechanism of financial market. (iii)Reduce the cost of transactions Financial market provides complete information regarding price, availability and cost of various financial securities. So, investors and companies do not have to spend much on getting this information. (iv)Mobilisation of savings and channelising them into most productive uses A financial market facilitates the transfer of savings from savers to investors. It gives savers a wide choice of making investments and thus, channelise surplus funds into productive uses.
10.Explain any four methods of floating new issues in the primary market. or Explain any four methods of flotation of new issues in the primary market. Ans. There are various methods of floating new issues in the primary market: (Any four) (i) Offer through prospectus Under this method, company issues a prospectus to inform and attract general public. In prospectus, company provides details about the purpose for which funds are being raised, past financial performance of the company, background and future prospects of company. (ii)Offer for sale Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses on stock brokers at a fixed price. (iii)Private placement Under this method, company sells the securities to some selected institutional investors (like UTI, LIC, etc) and some individuals. (iv) e-IPOs It is the new method of issuing securities through on line system of stock exchange. In this, company has to appoint registered brokers for the purpose of accepting applications and placing orders. (v)Right issue This is a right (or privilege) to existing shareholders to subscribe to a new issue of shares in proportion to the number of shares held by them.
In This Post we are providing Chapter- 5 ORGANIZINGNCERT 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 QUESTIONSON 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:
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.
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.
Flexibility: Such type of organization is flexible as it can be easily implemented without bringing many changes in the existing organizational structure.
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:
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.
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.
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.
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.
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:
In This Post we are providing Chapter- 4 PLANNINGNCERT 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 QUESTIONSON 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.
In This Post we are providing Chapter- 3 BUSINESS ENVIRONMENTNCERT 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 QUESTIONSON 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 MANAGEMENTNCERT 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 QUESTIONSON PRINCIPLES OF MANAGEMENT
1. ‘Principles of Management are different from those used in pure science’. Write any one difference. Ans.Theprinciple 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 QUESTIONSON NATURE AND SIGNIFICANCE OF MANAGEMENT
Question 1
Coordination is the essence of management. Do you agree? Give reasons.
Ans- Coordination is no doubt the essenceof 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 –
Goal-oriented process,
all-pervasive,
multidimensional,
Continuous process,
group activity
dynamic function,
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.
Means to accomplishing goals: Management is important because it helps in achieving group goals, increases efficiency, and creates a dynamic organization.
Unified direction: Management motivates and directs the workforce by unifying goals with the group goals.
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.
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 –
Maximization of profits at minimum cost.
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.
It does long-term planning and formulating suitable policies, organizing (determination of organization structure), and controlling.
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 –
It translates the intermediate plan of middle-level management into day to day operating plan.
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 PARTNERNCERT 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 QUESTIONSON 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 goodwillalready 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 GuptaRevaluation 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
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 MithyaBalance 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 SathyaJournal
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)
In This Post we are providing Chapter- 3 RECONSTITUTION OF PARTNERSHIP FIRM :ADMISSION OF A PARTNERNCERT 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 QUESTIONSON 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 CONCEPTNCERT 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 QUESTIONSON 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 31st 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.
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)
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
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
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
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 =
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
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)
×Sales from the beginning of the current year up to the date of death × Share of deceased partner
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.
= Rs. 1,60,000
=Rs. 96,000
= Rs. 50,000
= Rs. 30,000
= 8,000
= 4,000
= 1200
= 600
= Rs. 1000
= Rs. 500
= Rs. 550
= Rs. 3,000
= Rs. 2,400
= Rs. 1,800
