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Question
The Current Ratio of a company is 2.5: 1.5. A state with reasons which of the following transactions will increase, decrease or not change the ratio
(1) Discounted a bill receivable of Rs 10,000 from the bank, Bank charged discount of Rs 200.
(2) A bill receivable Rs 8,000 discounted with the bank was dishonoured.
(3) Cash deposited into bank Rs 7,000.
(4) Paid cash Rs 5,000 to the creditors
Solution
| S.No | Items | Effect | Explanation |
| 1 | Discounted a bills receivable of Rs 10,000 from the bank. Bank charged discount of Rs 200. |
Decrease | Discounting a B/R from bank reduces asset by Rs 10,000 (B/R) and increases asset by Rs 9,800 (bank balance) |
| 2 | A bill receivable Rs 8,000 discounted with the bank was dishonoured |
No Change | Dishonour of discounted B/R. results in an increase in asset (debtors) and the decrease in asset (Bank) with the same amount |
| 3 | Cash deposited into bank Rs 7,000 | No Change | Increase in one asset (bank) with a simultaneous decrease in other current assets (cash) leaves current ratio unaffected. |
| 4 | Paid cash Rs 5,000 to the creditors | Increase | Payment of current liabilities (creditors) will improve the current ratio from 1.67 (2.5: 1.5) to 2 (2: 1). |
RELATED QUESTIONS
Virad, Vishad and Roma were partners sharing profits in the ratio of 5 : 3: 2 respectively. On March 31, 2013, their Balance Sheet as under.
| Liabilities | Amount(Rs.) | Assets | Amount(Rs.) |
|
Capital: Virad 3,00,000 Vishad 2,50,000 Roma 1,50,000 Reserve Fund Creditors
|
7,00,000 60,000 1,10,000
|
Building Machinery Patents Stock Debtors Cash
|
2,00,000 3,00,000 1,10,000 1,00,000 80,000 80,000
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| 8,70,000 | 8,70,000 |
Virad died on October 1, 2013. It was agreed between his executors and the remaining partner's that:
a. Goodwill of the firm is valued at 2 ½ years purchase of average profits for the last three years. The average profits were Rs.1,50,000.
b. Interest on capital is provided at 10% p.a.
c. Profit for the year 2013-14 is taken as having accrued at the same rate as that of the previous year which was Rs.1,50,000.
Prepare Virad's Capital Account to be presented to his Executors as on October 1, 2013.
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Anant, Gulab and Khushbu were partners in a firm sharing profits in the ratio of 5: 3: 2. From 1.4.2014, they decided to share the profits equally. For this purpose, the goodwill of the firm was valued at Rs 2,40,000.
Pass necessary journal entry for the treatment of goodwill on the change in the profit sharing ratio of Anant, Gulab and Khushbu.
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The Current Ratio of a company is 2.1: 1.2. A state with reasons which of the following transactions will increase, decrease or not change the ratio:
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(4) Accepted bills of exchange drawn by the creditors Rs 7,000.
A and B are partners in a firm sharing profits in the ratio of 3:2. On 31.3.2014, the Balance Sheet of the firm was as follows :
| Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
Capitals A 60,000 B 20,000 |
80,000 |
Sundry Assets
|
80,000
|
| 80,000 | 80,000 |
The Profit of Rs 80,000 for the year ended 31.3.2014 was divided between the partners without allowing interest on capital @ 12% per annum and a salary to A at Rs 1,000 per month. During the year A withdrew Rs 10,000 and B Rs 20,000.
Pass a single journal entry to rectify the error
K and L were partners in a firm sharing profits in the ratio of 3: 2. On 1.4.2014, their Balance Sheet was as follows :
| Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
Capitals K 80,000 L 1,00,000 |
1,80,000 |
Sundry Assets
|
1,80,000
|
| 1,80,000 | 1,80,000 |
The Profit of for the year ended 31.3.2014, Rs 90,000 was divided between the partners without allowing interest on capital @ 6% per annum and a salary to K at Rs 4,000 per quarter. During the year K withdrew Rs 20,000 and L withdrew Rs 27,000.
Pass a single journal entry to rectify the error.
Mahadev, Sukesh, Menon and Thomas were partners in a firm sharing profits in the ratio of 5 : 2 : 2 : 1. On 31st March 2016 their Balance Sheet was as follows:
|
Balance Sheet of Mahadev, Sukesh, Menon and Thomas as at 31.3.2016 |
||||
|
Liabilities |
Amount (Rs) |
Assets |
Amount (Rs) |
|
|
Capitals: |
|
Fixed Assets |
18,00,000 |
|
|
Mahadev |
7,00,000 |
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Current Assets |
6,75,000 |
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Sukesh |
6,00,000 |
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|
|
|
Menon |
5,00,000 |
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|
|
|
Thomas |
4,50,000 |
22,50,000 |
|
|
|
|
|
|
|
|
|
Sundry Creditors |
1,50,000 |
|
|
|
|
Workmen Compensation Reserve |
75,000 |
|
|
|
|
|
24,75,000 |
|
24,75,000 |
|
|
|
|
|||
From the above data the partners decided to share the future profits in the ratio of 4 : 3 : 2 : 1. For this purpose the goodwill of the firm was valued at Rs 1,20,000. The partners also agreed for the following:
(i) Claims against Workmen Compensation Reserve was estimated at Rs 1,00,000 and Rs 75,000 depreciation on fixed assets was to be provided.
(ii) Capitals of the partners will be adjusted according to the new profit sharing ratio by bringing in or paying off cash as the case may be.
Prepare Revaluation Account, Partners Capital Accounts and the Balance Sheet of the reconstituted firm.
X,Y and Z are partners sharing profits in the ratio of `1/2, 3/10 and 1/5` Calculate the gaining ratio of remaining partners when Y retires from the firm.
‘B’ and ‘C’ were partners sharing profits in the ratio of 3 : 2. Their Balance Sheet as on 31-3-2011 was as follows:
|
Balance Sheet of B and C as on 31-3-2011 |
|
||||
|
Liabilities |
Amount Rs |
Assets |
Amount Rs |
||
|
Capital: |
|
|
Land and Building |
80,000 |
|
|
‘B’ |
60,000 |
|
Machinery |
20,000 |
|
|
‘C’ |
40,000 |
1,00,000 |
Furniture |
10,000 |
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|
|
|
|
Debtors |
25,000 |
|
|
Provision for bad debts |
1,000 |
Cash |
16,000 |
||
|
Creditors |
|
60,000 |
Profit and Loss Account |
10,000 |
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|
|
|
|
|
|
|
|
|
1,61,000 |
|
1,61,000 |
||
|
|
|
|
|
||
D’ was admitted to the partnership for 1/5th share in the profits on the following terms:
(i) The new profit sharing ratio was decided as 2:2:1.
(ii) D will bring Rs 30,000 as his capital and Rs 15,000 for his share of goodwill.
(iii) Half of goodwill amount was withdrawn by the partner who sacrificed his share of profit in favour of ‘D’.
(iv) A provision of 5% for bad and doubtful debts was to be maintained.
(v) An item of Rs 500 included in Sundry Creditors was not likely to be paid.
(vi) An provision of Rs 800 was to be made for claims for damages against the firm.
After making the above adjustments the Capital Accounts of ‘B’ and ‘C’ were to be adjusted on the basis of D’s Capital. Actual cash wash to be brought in or to be paid off as the case may be.
Prepare Revaluation Account, Partner’s Capital Accounts and Balance Sheet of the new firm.
Sanjay and Sameer were partners in a firm sharing profits in the ration of 2 : 3. On 31.3.2011 their Balance Sheet was as follows:
|
Balance Sheet of Sanjay and Sameer as on 31.3.2011 |
||||
|
Liabilities |
Amount Rs |
Assets |
Amount Rs |
|
|
Capitals |
|
Land and Building |
3,00,000 |
|
|
Sanjay: |
2,00,000 |
|
Stock |
1,00,000 |
|
Sameer: |
3,00,000 |
5,00,000 |
Debtors |
1,50,000 |
|
Creditors |
1,05,000 |
Bank |
1,55,000 |
|
|
Workmen compensation Fund |
1,00,000 |
|
|
|
|
|
7,05,000 |
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||
The firm was dissolved on 1.4.2011 and the Assets and Liabilities were settled as follows:
(i) Sanjay agreed to take over land and Building at Rs 3,50,000 by paying cash;
(ii) Stock was sold for Rs 90,000.
(iii) Creditors accepted Debtors in full settlement of their claim.
Pass necessary Journal entries for dissolution of the firm.
Why are ‘Reserve and Surplus’ distributed at the time of reconstitution of the firm?
How does the factor ‘Efficiency of Management’ affect the goodwill of a firm?
Anubhav, Shagun and Pulkit are partners in a firm sharing profits and losses in the ratio of 2:2:1. On 1st April 2021, they decided to change their profit-sharing ratio to 5:3:2. On that date, debit balance of Profit & Loss A/c ₹30,000 appeared in the balance sheet and partners decided to pass an adjusting entry for it.
Which of the undermentioned options reflect correct treatment for the above treatment?
